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Crypto critics often cite the environmental impact of Bitcoin mining as a major cause for concern, but why exactly is mining consuming so much energy? And what exactly is Bitcoin mining in the first place?
Simply put, Bitcoin mining is the process by which more Bitcoin is created. But it’s more than that: Bitcoin mining is an integral part of how Bitcoin works as a cryptocurrency.
How Bitcoin Transactions Are Recorded
Bitcoin is a decentralized currency, which means that it is not overseen by any traditional governing body. In order to prevent theft and fraud, every computer in the Bitcoin network has a comprehensive list of Bitcoin transactions called a blockchain.
Whenever an individual sends Bitcoin to another, the majority of computers on the network must verify the transaction. This prevents people from spending coins they don’t own or making copies of coins they do have and spending them multiple times.
Transactions are added to the blockchain in groups, or blocks, every ten minutes or so.
Blocks are added to the blockchain by any computer on the network that can find a unique key – the answer to a math problem – first. The first computer to verify the transaction and find the key is rewarded with a certain amount of Bitcoin (for example, the reward was 6.25 BTC in 2020).
This key is an algorithm-generated 64-digit hexadecimal (or hash) number that is less than or equal to the target hash, on which the most recent block that was added to the blockchain is built. This way, each new block validates each subsequent block, creating the blockchain.
The odds favor constant mining
Because the math problem can only be solved by trial and error (and because the odds of being right in a single try are one in billions), computers must be running constantly in order to have the best chance of success. find the key, checking the last transaction block and be rewarded with the last batch of Bitcoin.
This whole process of recording transactions and solving math problems is called mining.
Because this mining is done using powerful computers capable of generating thousands, millions, and even billions of hashes per second, it requires large amounts of electricity.
As the value of Bitcoin increases, more and more people are encouraged to become minors. And because the difficulty of solving each cryptographic problem increases with the network (among other factors), more and more energy is then used by the miners.
At this point, the Bitcoin network is consuming around 116 terawatt hours, or 116 trillion watts per year. This is about 0.5% of the total electricity in the world more electricity consumption than in many countries.
Crypto advocates say much of the energy bitcoin consumes is renewable. But according to the Cambridge Center for Alternative Finance, as of September 2020, only about 39% of crypto mining is powered by renewable energy sources.
How the Chinese crackdown is affecting mining
China recently started cracking down on Bitcoin mining and trading, citing Bitcoin’s environmental toll as a major reason. This marks what some are calling the great mining migration, according to CNBC.
The miners plan to relocate to places such as neighboring Kazakhstan, where renewables only made up 1.4% of the energy mix in 2018.
Texas is also a major potential relocation location for miners as the largest energy producing state in the United States.
Crypto advocates say the electricity use of mines is not that bad compared to the environmental record of global data centers and digital banking. Global data centers use a significant amount of energy, approximately 200 terawatt hours, or 0.8% of the total demand for electricity in the world.
Crypto critics, however, point to the small percentage of the world that uses Bitcoin, compared to the relatively widespread use of other online platforms.
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