Sunday, April 21, 2024

Bitcoin Mining is Getting Greener- Here is How

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Ever since their inception, digital currencies have been both praised and criticized. On the one hand, supporters have always commended crypto’s potential as a new means of payment and store of value, citing decentralization, transparency, security and ease of transactions as its strongest suits. On the other hand, opponents have been vocal about the price volatility, lack of inherent value, insufficient and unclear regulations, security risks and scalability issues that characterize this new asset class. But one of the biggest crypto flaws which has been brought into discussion time and time again is the negative impact on the environment. Case in point: the high energy consumption of Bitcoin mining activities. 

When people buy Bitcoin, the environmental impact of this new type of asset is not necessarily the first thing that comes to mind. In the network’s early days, when anyone could mine Bitcoin on their home computer, this wasn’t much of an issue. However, as Bitcoin evolved, the mining process became increasingly more complex, requiring more advanced software and, as a direct consequence, higher energy consumption. This made individual mining a less profitable venture, which is why today mining operations are highly centralized in a few mining pools run by large firms. The massive amounts of energy that go into Bitcoin mining and the greenhouse gas emissions stemming from it did not escape critics’ attention, and so Bitcoin’s contribution to climate change has been a hot topic of debate in the past few years. 

Bitcoin Mining Basics 

In order to understand the correlation between Bitcoin mining and the ongoing environmental concerns, we have to start by explaining how the mining process works. From the very beginning, Bitcoin has relied on a proof-of-work (PoW) consensus mechanism to validate transactions and facilitate the release of new coins into circulation. This means miners (the computers on the network) compete to solve complicated cryptographic puzzles. The work done is viewed as proof that miners have put in the necessary effort to confirm the accuracy of new transactions, hence the name of the consensus protocol. 

The first to find the solution to the problem (the hash) gets to add a new block to the blockchain and receives a block reward. At the moment, the reward for each block discovered is 6.25 BTC. The reward is cut in half once every four years, or every 210,000 blocks, in an event known as halving, in order to ensure the asset’s scarcity and gradually reduce its supply until it reaches zero. 

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PoW has proved to be a very efficient system to ensure the security of transactions on the network. But what’s not so great about it is the fact that it’s also a very energy-intensive process. As more miners join the network and the hash rate increases making algorithms more challenging and difficult to solve, miners have to resort to more sophisticated software to help them validate transactions and earn rewards. In doing so, the computing power and electricity that goes into mining also grow exponentially, which is obviously not good news for the planet. In 2021, it was estimated that Bitcoin mining consumed a total of approximately 121 terawatt-hours (TWh) of electricity per year, an amount that exceeded the yearly energy consumption of many countries around the world. 

The Path to Sustainable Bitcoin Mining 

With crypto getting closer to mainstream adoption, the pressure to make mining operations more sustainable increased substantially. Unfortunately, changing the very structure of a blockchain is not something that’s easily achievable. Ethereum has managed to drastically reduce energy use and boost sustainability by switching from the energy-intensive PoW to an eco-friendlier proof-of-stake (PoS) system. However, that required years of preparation as the network’s creators have always intended to transition to PoS at some point.

In Bitcoin’s case, such a change is not possible given that the network lacks a coordinating team of developers to oversee its progress. Bitcoins is a much looser organization with no one at the helm to steer the project in a specific direction. Therefore, adopting a measure similar to Ethereum’s merge is not feasible for Bitcoin. 

That being said, it doesn’t mean that Bitcoin can’t evolve or solve its sustainability issues; it’s just going to take a different approach to make the mining process greener. Since Bitcoin has no plans to give up on its PoW mechanism, it appears that the network has turned its attention toward other measures to address energy-related issues. According to recent reports, Bitcoin mining has taken a turn for the better in terms of environmental impact as there has been a notable decline in its gas emissions.

There are two main reasons behind this improvement. First of all, a large number of miners have relocated to countries like the United States with cheaper and more sustainable energy sources. It is estimated that nearly 50% of Bitcoin mining operations taking place in the U.S. rely on renewable energy such as wind and solar power, which have been gaining a lot of ground in recent years. Recent figures show that the energy consumption associated with Bitcoin mining fell to 70 TWh per year, marking a major reduction from the previous years. 

Secondly, there have also been improvements in the equipment used by miners which has become much more energy-efficient lately. Miners that employ state-of-the-art hardware are now able to double their mining rates with the same amount of energy. Therefore, Bitcoin mining is a lot more sustainable today than it was a few years back. 

This is only the beginning of Bitcoin’s sustainability transformation and goes on to prove that innovation is still possible in the crypto space. As clean energy sources become more popular and affordable, more miners will be tempted to choose this route as a way to reduce their energy consumption and their carbon footprint. This will help Bitcoin improve its image which has long been associated with climate change and build a new reputation for itself as an eco-friendly cryptocurrency.

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