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Conversations about Bitcoin often center around Bitcoin energy consumption. Some stats suggest that Bitcoin electricity consumption rivals that of entire nations. However, much of that energy usage leverages renewable energy or energy that would otherwise go unused.
Bitcoin’s proof-of-work consensus mechanism secures transactions on the blockchain and, unlike other consensus methods, separates consensus from Bitcoin ownership, removing undue influence by large holders. A robust global network of Bitcoin miners creates a constant demand for energy.
In this guide, we’ll explore Bitcoin energy consumption, why it’s needed, and how the mining community is working to make Bitcoin eco-friendly without sacrificing network security.
How Does Bitcoin Use Up Energy?
The Bitcoin network uses a proof-of-work consensus method to validate transactions and mine a new block to hold these transactions. Proof-of-work consists of solving an algorithmic puzzle built around hashing. To mine a new block, miners must find a qualifying hash value using trillions of hashes collectively. These blocks hold transactions on the blockchain and are connected using hashes to form a chain.
Hashes are simply encrypted hexadecimal values of data. A given input always creates the same hash value, but any minute change results in a different hash value. The example below uses SHA-256 encryption, the same algorithm used by the Bitcoin network.
- Input: Alice sent Bob 1 bitcoin.
- Hash: 96f9ee71f141565b9e015db74759cd1a59b486c2df91e213b71dd911b5d70d0f
Creating the hash requires computational resources, and these hashes are used throughout the Bitcoin mining process, including all the transactions as well as the previous block’s header. Ultimately, miners must find a qualifying hash for all the transactions within the block they are mining, but the process also uses a changing number called a nonce (a number used only once).
These trillions of hashes generated by the network require massive amounts of electricity to power specialized hardware optimized for the task. However, while competition amongst Bitcoin miners drives hash rates higher, this isn’t always accompanied by a corresponding increase in power consumption. Newer hardware brings better efficiency.
How Much Energy Does Bitcoin Consume?
Bitcoin’s energy consumption varies based on the network hash rate and mining efficiency but has risen since its early days. According to estimates from Cambridge University, the global Bitcoin mining network uses an estimated 163 TWh annually, on par with Poland’s annual power consumption.
Other estimates put Bitcoin energy consumption slightly higher, as shown in the one-year chart below.
However, Bitcoin energy usage seems to have hit a short-term plateau through the second half of 2024, despite a steady increase in the hash rate globally, as shown in the following one-year chart. The network is becoming more efficient as obsolete mining equipment goes offline, replaced with newer hardware that hashes faster and with lower power requirements per hash.
Total Bitcoin Network Energy Consumption
163 TWh of energy consumption annually is a daunting number, nearly a third of the electricity consumed by Texas, a state with booming industries and 30 million people, which uses 470 TWh of electricity.
However, Bitcoin’s global energy usage doesn’t tell the full story. According to some estimates, more than half of Bitcoin’s energy consumption comes from renewable sources, such as wind, solar, geothermal, or hydroelectric sources. This shift away from fossil fuels toward renewable energy reduces Bitcoin’s carbon footprint dramatically.
Other estimates put Bitcoin’s renewable energy usage above 70%. Estimates at the low end of the range (50%+) make Bitcoin greener than many large countries, like the United States, which uses 23% renewable energy.
Energy Consumption Per BTC Transaction
In simple terms, Bitcoin’s proof-of-work mining secures the network by making it cost-prohibitive to tamper with previous transactions. The primary cost is electricity, the computing power needed to generate new hashes as part of the mining process.
Statista estimates that each Bitcoin transaction uses 700 KWh of electricity. Although the numbers change over time due to changes in hash rate, efficiency, and electricity costs, it’s possible to calculate an approximate cost per transaction in terms of electricity consumption by using an average number of transactions per block.
Is Bitcoin’s Energy-Intensity Justified?
Bitcoin’s power usage is a product of its own economy. Bitcoin mining at scale is generally profitable based on current power costs, and the industry itself is evolving to find more efficient mining hardware. Each block pays a mining subsidy of 3.125 bitcoins. Miners also earn network fees for transactions in the blocks they mine. As Bitcoin’s value increases, it creates an incentive for miners to deploy mining rigs.
However, if mining becomes unprofitable due to high energy costs, the network hash rate falls as mining rigs go offline. Bitcoin’s protocol adjusts for this, changing the mining difficulty approximately every two weeks. While critics point to more efficient payment methods, each comes with tradeoffs, such as privacy concerns or censorship, both of which arise from using an intermediary. By contrast, Bitcoin allows permissionless and pseudonymous access, using your Bitcoin wallet address as your identity on the blockchain.
A proof-of-work consensus mechanism is energy-intensive by definition. In Bitcoin’s early days, miners produced blocks using CPU power on low-powered computers, according to today’s standards. As difficulty increased, the industry moved to graphics cards and now specialized hardware called application-specific integrated circuit (ASIC) miners.
There are times when the network produces simultaneous blocks, causing a fork in the chain. The network automatically chooses the fork with the most work. The cost involved with mining a block makes it cost-prohibitive to attempt to change a prior block. This cost creates a disincentive to fraud and allows the network to run without a middleman to approve or decline transactions. By comparison, transactions using traditional payment systems like credit cards or bank payments can be reversed.
Bitcoin Energy Consumption vs. Other Payment Systems
Putting Bitcoin’s immutability aside, it is much costlier in energy usage per transaction compared to Visa or similar payment platforms. Statista estimates the energy consumption of a Bitcoin transaction to be just over 700 KWh. By comparison, less than 150 KWh are needed to power 100,000 Visa transactions.
However, this relatively simple comparison does not account for the key infrastructure needed to power those Visa transactions, including a global banking network, armies of regulators worldwide, data centers, and other related services. By comparison, Bitcoin operates as a self-sustaining ecosystem without external infrastructure outside of internet connectivity and electricity.
Bitcoin and Renewable Energy
The shift to renewable energy to power Bitcoin mining is already underway. While estimates put Bitcoin energy consumption at about 160 THh annually, this pales in comparison to the worldwide energy consumption of more than 183,000 TWh each year.
Worldwide, about a third of all energy consumption comes from renewable energy sources, putting the Bitcoin mining industry well ahead of most industries in regard to responsible energy consumption. Estimates show Bitcoin mining uses more than 50% renewable energy sources.
Miners have also turned to trapped or stranded energy sources, meaning power that would otherwise go largely unused due to difficulty in transportation or storage. Miners in Iceland, El Salvador, and other locations are harnessing geothermal energy from volcanoes to power mining rigs. In other cases, miners are using heat created by computers at massive data centers to power Bitcoin miners.
The crypto industry is well aware of its carbon footprint and is working proactively to reduce the environmental impact of digital currencies from several angles.
Carbon Credits & Carbon Offsets When Mining Bitcoin
Some Bitcoin mining companies also purchase carbon credits or carbon offsets. Carbon credits cap emissions, whereas carbon offsets invest in green projects, such as reforestation efforts. The goal of offsets is to reach carbon neutrality despite the measurable energy usage.
Bitcoin’s proof-of-work consensus mechanism is energy-intensive by definition, and as Bitcoin grows in popularity, hash rates are expected to continue their steady climb. However, the shift to renewable energy, improved mining efficiency, and tools like carbon offsets make Bitcoin mining more eco-friendly than the headlines suggest.
Proof-of-Work vs. Proof-of-Stake: Energy Consumption vs. Security
In 2022, the Ethereum protocol moved from proof of work to proof of stake. The move dropped energy consumption for the Ethereum network from 21 TWh to 0.0026 TWh annually.
Ethereum Proof of stake (PoS) uses staking to secure transactions with a network of validators checking transactions. Users who want to help secure the network deposit Ethereum (ETH) into a smart contract, with the deposited ETH acting as collateral to ensure the validator acts in accordance with the protocol. Attempts to double-spend or other types of improper transactions can result in slashing (losing the deposited ETH).
This financial risk helps keep validators honest. However, several types of attacks against the Ethereum network become possible if an entity or several working together control more than 34% of the ETH staked on the network.
By contrast, Bitcoin’s proof-of-work uses the electrical cost to deter fraudulent transactions. A miner or group of miners would need to control 51% of the network hash power to create a longer chain that the rest of the network would accept as the real chain. The Bitcoin network’s scale makes this extremely unlikely. Additionally, Bitcoin separates ownership from consensus (mining), removing undue influence by whales or even groups of whales.
Many in the crypto community see PoW as more secure than PoS due to the possibility of consolidated ownership with proof of stake. ETH has a relatively stable supply, potentially allowing a group of bad actors to acquire a considerable supply over time. However, this scenario, while possible, is unlikely to occur due to the cost relative to any potential gain from fraudulent transactions. According to Coinbase, $100 billion worth of ETH is currently staked. Reaching a risk threshold would mean one entity or group would need to control $34 billion worth of ETH or 10% of the entire supply.
The Future of Bitcoin Mining
Although Bitcoin mining is often portrayed in a negative light in regard to its energy usage, the industry has already made impressive progress in reducing its carbon footprint, putting it well ahead of many other industries. On paper, Bitcoin is more green than general energy usage around the world.
What does the future hold for Bitcoin energy consumption? Some point to changes in Bitcoin’s code to improve efficiency. For example, the network adjusts mining difficulty about every two weeks to maintain an average 10-minute block time. Upward adjustments to difficulty lead to higher hash rates and more demand for power. Offsetting this trend, ASICs continue to improve efficiency, generating more hashes with less power consumption.
Code changes in Bitcoin move sluggishly by design. The protocol centers on software called Bitcoin Core, which is deployed by miners and node operators worldwide. In a nutshell, the software defines how the Bitcoin network operates. Changing how the network operates would require node operators to adopt a new software version that supports new features or changes to the consensus mechanism. Some may adopt a new version, whereas many may not. The result would be a fork in the chain in which two Bitcoin chains exist, one of which will likely prosper while the other struggles to find traction with a smaller community.
Bitcoin mining in the future likely resembles Bitcoin mining of today, although with continued improvements in mining efficiency and continuing efforts to make mining green through renewable energy, stranded energy, and carbon offsets from large players in the space.
Conclusion
Bitcoin mining refers to the process of validating transactions and including transactions in blocks. The process attaches a financial investment in energy to create a disincentive to fraudulent activity and requires miners to generate trillions of hashes to mine a new block for the Bitcoin blockchain. While considered among the most secure consensus mechanisms, Bitcoin’s proof of work consensus puts it in the spotlight for its conspicuous energy usage. However, the industry has already shifted more than half of its energy usage to renewable and stranded energy sources, while mining itself has become more efficient.
FAQs
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References
- Bitcoin network power demand (ccaf.io)
- Electricity end use in the United States from 1975 to 2023 (statista.com)
- Bitcoin By Energy Source (batcoinz.com)
- Mapped: Renewable Energy as a Percentage of Power Generation, by Country (visualcapitalist.com)
- Bitcoin average energy consumption per transaction compared to that of VISA as of May 1, 2023 (statista.com)
- Energy Production and Consumption (ourworldindata.org)
- Renewable Energy (ourworldindata.org)
- How a Jack Dorsey-backed bitcoin miner uses a volcano in Kenya to turn on the lights in rural homes (CNBC.com)
- Go green or die? Bitcoin miners aim for carbon neutrality by mining near data centers (cointelegraph.com)
- Ethereum’s energy expenditure (ethereum.org)
- Ethereum proof-of-stake attack and defense (ethereum.org)
- Staking Ethereum (coinbase.com)
