Bitcoin’s Energy Consumption Drop and Price Nosedive
Written By Hira Arshad on July 12, 2022 at 10:58 am
In the past few months, there has been a massive decline in energy consumption noticed. It has fallen from 15 GW to 11 GW according to the Cambridge Bitcoin Electricity Consumption Index (CBECI). This energy nosedive value was used to minimize greenhouse gas emissions and the huge energy emission produced due to Bitcoin and cryptocurrencies. This can also prove beneficial if the prices of a single Bitcoin stay low.
What is Bitcoin?This is a decentralized form of digital currency that can be transferred on other Bitcoin networks, mostly peer-to-peer.
How much energy is consumed in Bitcoin creation?This fact can never be denied that Bitcoin uses tons of energy to convert into profit-earning tokens. The exact amount of energy consumed by these cryptocurrencies is unknown, but it roughly uses 150 TWh annually. This is more than the energy utilized by the whole population of Argentina. During the summer of 2021, the prices fell from the highest value of $63,558 to the lowest value of $29,796. A power demand dropped in July 2021 after it showed a price hike in May 2021. The unimaginable drop of 56% was recorded in the data. Reports show that the decline in energy consumption was from 16 GW to 7 GW the lowest of all energy demands. We can see these big energy differences due to the shutdown of Bitcoin mining industries in China last year as a result of the strike. It has been estimated that when the Bitcoin price peaked at around $69,000, the total amount of energy consumed reached 200 TWh. You won’t believe that it is the same amount of electricity used by data centers all around the world each year.
Bitcoin Threshold PriceThe threshold price of Bitcoin is around $25.2K, which normally uses 180 TWh of energy annually. If there is a further reduction in the price of Bitcoin, there may chance for miners to shut down their operations. In the meantime, miners have purchased machines to turn the energy coins into profit-earning tokens. It is wise to mine fewer coins when prices go down. Otherwise, they will end up spending more on electricity consumed than to turn them into some profit-earning tokens. On the other hand, if the price of Bitcoin shows sustainability at $24K, it’s like a decrease in the energy used by Bitcoin. The decline in energy usage by Bitcoin occurs globally and it is reduced to 170 TWh on annual basis. However, if last year the prices of Bitcoin rose, it means that miners have some savings to curb the change. If the change persists and is unable to rewind, there are chances that miners make tough decisions ahead of the year. There is a general perspective that Bitcoin is energy inefficient. This may be due to the concerns of many people that the energy consumed by these cryptocurrencies result in greenhouse gas emission.
Why does Bitcoin consume so much energy?Bitcoin does not require any kind of energy, because all you have is to click on your smartphone to purchase or sell cryptocurrency. Then where does this energy go? There are trillions of transactions made that need to be verified and the work is done by computers using this amount of energy continuously. Those complex math problems are then solved by miners using electricity to win rewards. In this process, more people start buying Bitcoins and multiple minds of miners join together to solve the same problem. There are hundreds and thousands of computers running together in the race to win the Bitcoin honorarium. In this process, so much energy is utilized, and only a single accurate and transparent answer to the query. This results in tons of carbon emissions.
Bitcoin Impacts on the EnvironmentYou will see a trajectory as electricity consumption rises and the mining process becomes more competitive. With the increase in the value of bitcoin, you will see the price hike and its worst impacts on the environment. The reason behind this worse impact is that they started using fossil fuel-based to fulfill the rise in energy due to bitcoin. However, with the use of renewable energy sources in 2020 from the International Renewable Energy Agency, you will get cost-effective Bitcoins. These are good catches when compares to the pollution-creating resources. The Greenpeace-backed campaign was offered to miners and bitcoins to move from proof of work to proof of stake.
How to overcome Bitcoin Energy problems?To overcome Bitcoin energy consumption issues, a centralized system can be established to minus middlemen efforts like card networks. However, Bitcoin suggests some other ways to minimize this huge energy hike. Let’s have a look at some solutions:
- Use of Renewable Energy Sources There are several startups to produce more environmentally friendly Bitcoin energy to minimize hazardous energy wastage. When renewable energy was used to thrust Bitcoin into China after the last year’s crackdown, crypto mining shows a decline. It fell from 42% in 2020 to 25% in August 2021. There are more steps taken to minimize the temperature of mining rigs to make Bitcoin more environmentally friendly and less dangerous for the world.
- Switching to Proof of Stake Another important element that plays its part in reducing the high-energy demand by Bitcoin is switching it from Proof-of-Work to Proof-of-Stake. It saves energy and time by allowing computers to solve one problem at a time. Fewer resource usage means less energy consumption.
- Pre-mining system Pre-mining can be considered a great solution to end this energy wastage. It gives the right to some central authority to pre-mined bitcoins and then releases them later in the economy as per the condition of the world. However, it is a bit difficult to convince all the miners to adopt the new system and reduce the use of mining equipment at high speed.
- Carbon Credits or Fees If the government starts applying fees or carbon credits on the emission of carbon above certain limits, we can save our environment from pollution. When the government applies sanctions on the emission of carbon, miners are not allowed to produce extra energy. Crypto mining companies may purchase carbon credits from other entities to move toward greener energy to earn more profit.