5 Misconceptions About Bitcoin's Energy Usage
You’ve probably seen headlines such as, “Bitcoin boils the oceans,” or other extreme comparisons like, “Bitcoin uses as much energy as Greece.”
Time to address these common misconceptions…
1. Bitcoin Doesn’t Do Anything Useful, Therefore Its Energy Use Is Not Worth It...
Most people critiquing Bitcoin for energy consumption assume Bitcoin doesn’t provide any value. For example, clothes dryers consume way more energy than Bitcoin but no one complains about it because we agree they add value.
There is a reason a decentralized protocol with no marketing budget went from zero to $1T market cap in 12 years. The roughly 100M Bitcoin users value it.
Now, the critics might say,
“Well, the only use case for Bitcoin is speculation, which is bad.”
In a recent video, Alex Gladstein explains how Bitcoin is protecting human rights, and Yan Pritzker lists a wide range of non-speculative uses for Bitcoin.
2. Each Bitcoin Transaction Is Responsible For CO2 Emissions...
This argument simply divides the total energy consumption of Bitcoin by the 300,000 final transactions per day settled by the network.
This approach results in a very high “energy cost per transaction.”
Let’s break this down …
Each final Bitcoin transaction can represent thousands, or even millions, of transactions in total.
Many transactions happen off the network, on exchanges, or in payment layers like the Lightning Network.
When users want to finalize transactions they do so on the Bitcoin network. The economic density per transaction is increasing all the time as the ecosystem supporting the network evolves.
Both Nic Carter and Lyn Alden explain this in detail.
4. Bitcoin Hogs Local Power Resources, Driving Prices Up!
This is simply not true. Bitcoin miners are only profitable when they find the lowest cost of energy on the planet. The cheapest energy is “nonrival energy,” meaning it doesn’t compete with consumers.
Instead, most Bitcoin miners consume stranded, curtailed, or otherwise wasted energy. For example, when natural gas wells generate power that is too expensive to move to cities, they have to flare the gas and waste it. Instead of wasting that energy, and polluting the atmosphere, they happily sell it to Bitcoin miners.
Interestingly, Bitcoin can run exclusively on nonrival energy since Bitcoin consumes less energy than the total nonrival energy produced today.
5. Bitcoin Consumes Dirty Energy...
Critics who make this claim fail to examine the energy mix that Bitcoin consumes. Let’s look at the data.
According to the International Energy Agency (IEW), nearly 28% of global energy production came from renewables in 2020.
On the other hand, Coinshares estimates that 73% of Bitcoin’s energy consumption comes from renewable sources. By comparison, Bitcoin is leading the charge in renewables.
Where Can I Buy Bitcoin?
3. Bitcoin’s Proof Of Work Is Inefficient...
Bitcoin’s Proof of Work function appears inefficient at first glance. However, there are no alternatives if we want a secure, decentralized, sound monetary system.
Critics will also attack Bitcoin’s energy consumption without comparing the relative energy costs of other known financial systems such as our current fiat monetary system, the petrodollar.
The short answer is that a monetary system built on Bitcoin consumes orders of magnitude fewer resources than our existing financial system. Dan Held explores this in his article, PoW is Efficient.
