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Delassing myths: Is Bitcoin so terrible for ecology?
Debats still do not subside in the world regarding the energy intensity of Bitcoin mining and its influence on the ecology.
In December 2021, US Senator Elizabeth Warren expressed the opinion that the consumption of electricity when extracting digital gold is “comparable to Denmark, Chile, Argentina and Washington”. At the beginning of 2022, she requested six mining companies on the impact on the ecology.
In June, the Bank of Sweden called for banning bitcoin and other cryptocurrencies mined using Proof-off-Work (POW), due to environmental impact. According to the financial statement, the energy consumption of this mining method is equal to the indicator of 200,000 households.
It is possible that after the activation of The Merge on the Ethereum network, environmental discussions will flare up with renewed vigor-Bitcoin, which remained the largest POW critical, will be even more criticized.
How great the energy consumption of digital gold on a global scale? What will it be in a few decades if the price of the first cryptocurrency will increase to $ 2 million?
Armed with the analytical materials of the Arcane Research and the Cambridge Center for Alternative Finance (CCAF), Forklog found out the share of bitcoin in the global structure of energy consumption and the prospects for its growth in the long run.
- Discussions regarding the influence of mining on ecology do not subside in the world.
- The energy efficiency of cryptocurrency mining increases over time, the share of green energy in the mining industry increases and increases.
- Contrary to the opinion of the critics of mining, the energy consumption of bitcoin on a global scale is not at all great. However, after several decades, the situation may change significantly.
Between Kazakhstan and Pakistan
The CCAF website contains entertaining comparisons designed to give an idea of the “gluttony” of the Bitcoin network.
For example, the power consumption of the network of the first cryptocurrency is compared with a similar indicator of gold mining.
The site allows you to compare the energy consumption of bitcoin with various industries and segments – for example, with all refrigerators and televisions in the USA or with global cement production.
In terms of energy consumption, the bitcoin network is comparable to countries such as the Philippines, Kazakhstan, Pakistan and the Netherlands.
An indicator of almost 100 TVT managers may seem impressive. However, on a global scale, it is not so large – less than 1% of the volume of world consumption.
Another example: the energy developed during the burning of torch gas would be enough to ensure the work of seven networks comparable to bitcoin.
According to Bitcoin Mining Council (BMC), mining energy efficiency increases, and the share of green energy in the digital gold production industry increases. However, there are many critics of BMC who doubt the objectivity of such studies.
How much a bitcoin network will consume in the future?
In the long run, the price of bitcoin strives for growth. This is due to a rigidly limited proposal, growing the adoption of cryptocurrencies in the world and a systematic decrease in the rate of emission due to halvings of awards for the block.
It can be assumed that with an increase in the price of the first cryptocurrency, the mining industry will also develop, increasing the power. This means an increase in network power consumption, even despite more efficient and green technologies.
Arcane Research researcher Jaran Mellerud simulated the energy consumption indicators of bitcoin until 2040 at various asset prices. He listed the most significant components of his model:
- Bitcoin price;
- transaction commissions;
- percentage of income, which is directed to cover the cost of electricity;
- The average electricity price.
Mellerud derived the following formula:
Annual consumption of a bitcoin network = Bitcoin price * (remuneration for the obtained block + average transaction commission per block) * The number of obtained blocks for the year * percent of the income spent on electricity / The average price of electricity in the mining industry
According to him, the market value of cryptocurrency is the most important factor that determines the consumption of its network in the future.
“The price of bitcoin, multiplied by a reward for the block, determines the general -dimensional income of miners. He covers costs and provides profit. The increase in cryptocurrency prices increases miner income throughout the industry and their profit in the short term, ”the researcher noted.
He emphasized that Bitcoin’s production is a “hyper -core” industry with low input barriers. Therefore, potentially high profitability can in the future attract many players in the segment, increasing energy consumption.
According to Mellirud, most miners almost do not pay attention to receipts from transaction commissions – their share in general revenues is still extremely low.
“Therefore, you may surprise you that the level of income from commissions is crucial for future energy consumption,” the expert added.
Bitcoin major mines 52,560 blocks per year. At the same time, according to Coin Metrics, historically the average volume of transactional fees per block is 0.4 BTC.
“The commissions may seem a slight component of the award, but their significance in the future will gradually grow due to halvings. The latter occur every four years, reducing twice the reward for the block, ”Mellerud stated.
Its model involves preserving the indicator at 0.4 BTC until 2040. According to the researcher, the share of commissions in miners will reach 67% by this time. Halving will reduce the reward for a block to 0.195 BTC.
“Bitcoin major will spend a certain percentage of their income on electricity. And the higher this percentage, the more significant the energy consumption in the industry will be, ”the researcher noted.
Mellirud recalled that the costs in any industry can be divided into two main components:
- CAPEX https://gagarin.news/ua/news/more-nf-ts-from-dubai-police-are-up-for-grabs/ (capital costs);
- OPEX (operating costs).
CapEX bitcoin miners include investments in equipment and electrical infrastructure. OPEX is mainly electricity costs.
Having taken into account the total energy consumption of the network of the first cryptocurrency and the average price of $ 50 per MW · h, the researcher came to the conclusion that bitcoin major spend about 50% of their income on electricity.
“I am sure that the share of the cost of miners on electricity will grow compared to the current level as the segment grows up,” Mellerud shared the forecast. – competitive forces will most likely reduce profits in the long run. The exception will be miners with access to very cheap electricity “.
The researcher suggested that the CAPEX component will gradually decrease as the introduction of innovations in the production of ASIC devices slow down.
Given the above trends, the annual increase in the share of the cost of miners on electricity will be 2%. By 2040, the indicator will reach 71%.
“I estimate the average cost of electricity in the mining industry of $ 50 per MW · h. I believe that the indicator will remain at this level in the foreseeable future. High inflation is already observed all over the world, which will probably be preserved. However, the ultra -competitive nature of mining over time motivates the market participants in search of cheap energy sources, ”the researcher shared his opinion.
Mellirud is sure that miners will accommodate in the most diverse corners of the planet. Some market participants monetize the thermal power of their devices, which also “compensates for the influence of inflation”.
“Paying attention to any news headlines about bitcoin maining, you could believe that the industry is a large consumer of a global energy,” the researcher noted.
However, the share of the network of the first cryptocurrency in the global structure of energy consumption is negligible – about 0.05%. The figure, according to Mellerud, is “on the verge of the error of rounding”.
On the other hand, historically with the price, energy consumption has always increased. Consequently, the bitcoin rally for the next couple of decades can really make the network a “global consumer”.
The researcher simulated three scenarios:
- Bully: the price of cryptocurrency is growing linearly to $ 2 million by 2040;
- Neutral: Bitcoin reaches $ 500,000 by 2040;
- Bear: $ 100,000 by 2040.
The schedule below shows that the future energy consumption of the bitcoin network largely depends on the price of cryptocurrency.
According to the explorer, when reaching $ 2 million by 2040, the Bitcoin network will consume 894 TVT 894 twice – about 10 times more compared to the current level.
“This is 0.36% of the alleged global energy consumption in 2040, which implies a significant increase in comparison with the current indicator of 0.05%,” Mellerud said.
The neutral scenario involves annual energy consumption at the level of 223 of TWTHT, which is slightly more than twice the current level.
The researcher also proposed analysis of scenarios, taking into account not only the price, but also transaction commissions.
“In the table above, we see that at the price of bitcoin $ 2 million in 2040, transaction commissions have a huge impact on energy consumption. For each additional 0.1 BTC commissions per block, the power supply of the network is growing by 150 TVTHF – a value almost twice the current indicator, ”the expert explained.
Another interesting conclusion is that with a historically average amount of transaction commissions per block (0.4 BTC) and reaching $ 200,000 by 2040, energy consumption will remain approximately at the current level. This, according to the researcher, is the result of halvings who cut off low -performance players from the market.
The next table is similar to the previous. However, instead of the values in the TBT MART in the cells, the share in the global energy consumption is indicated. An annual increase in the indicator is assumed by 2% until 2040.
As already mentioned, when the price of bitcoin reaches $ 2 million by 2040, its share in global energy consumption will be 0.36%. According to Mellirud, the indicator, although high in comparison with the current, is still much lower than “apocalyptic estimates” made by some critics of digital gold.
“With this consumption, mining bitcoin will be considered a rather energy -intensive industry. However, he will nevertheless significantly concede sectors like the production of cement, which consumed 2% of world energy, ”the researcher noted.
He is also convinced that regular halvings will limit the growth in power consumption of the network, even despite the gradual increase in the market value of cryptocurrency.
“The reward is being full every four years. To compensate for this effect, the price of cryptocurrency must double for each of these periods. Therefore, in order for the power consumption of the network to exceed the current level, the market value of bitcoin should be in the region of $ 650,000 by 2040, ”Mellerud explained.
The energy consumption of the bitcoin network depends on various factors, it is quite difficult to predict it for the future. However, we can conclude that digital gold will become a truly significant consumer of energy if its price reaches several million dollars.
The increase in the market value of bitcoin stimulates mining and, accordingly, increases energy consumption. But regular halvings give the opposite effect: in order to increase the total cost of electricity in the long run, the price of cryptocurrency should grow extremely rapidly.
An increase in the share of transaction commissions can slightly soften the consequences of halvings for digital gold miners. But this is possible only with the active use of bitcoin as a payment means.
The price of the first cryptocurrency mainly depends on market demand for it as a means of maintaining value. In turn, the size of the commission is determined by the use of bitcoin as a means of exchange.
The general energy consumption of the network will grow only if the first cryptocurrency in the coming decades continues to successfully perform the above main functions of money.
An indicator of 0.36% at a price of $ 2 million in 2040 is not so high, given the usefulness and potential of bitcoin by millions of market participants around the world.
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