The media often pushes the narrative that Bitcoin mining is a waste of electricity:
- Virtual Bitcoin Mining Is a Real-World Environmental Disaster – Bloomberg
- Bitcoins are a waste of energy – literally – ABC AU
- Bitcoin Could Consume as Much Energy as Denmark by 2020 – Breitbart
On the surface, it’s easy to understand why Bitcoin mining seems like a waste of energy:
- The Bitcoin network uses the electricity equivalent to about 280,000 American households
- To most, mining seems like it provides no value
Bitcoin, however, has the potential to create an entire new financial system. And Bitcoin cannot work without miners. A deeper look at today’s financial system shows that mining isn’t as big of a waste as it may seem.
Today’s Banking System Also Uses Electricity
It’s easy to say that Bitcoin mining waste electricity without comparing it to today’s banking system. It costs between $375,000 and $700,000 to build the average bank branch. Banks also have electricity costs from computers, air conditioning, and lighting. One redditor estimated that U.S. banks use 2,167 GWh of electricity per year. That does not include ATMs, electricity used by ATMs, and gas consumed by bank employees and anyone driving to the bank.
Fiat Currency Also Has Creation and Distribution Costs
No currency can be created or distributed without costs. Cash also requires vast amounts of resources. Bills need to be printed, and don’t last long. According to infoplease, the average U.S. dollar bill costs $0.057 to print, and lasts just 22 months. Bitcoins, on the other hand, last for as long as someone holds and does not lose private keys.
Since Bitcoin’s supply is predetermined, policy makers, politicians, and regulators–and their salaries–are not needed.
In reality, Bitcoin mining makes the creation and distribution of new currency simple and public. Each time a new block is mined, new coins are created. Anyone can check and verify this. There are no closed door meetings, and no secrets.
Bitcoin creates a transparent and trustless financial system. The electricity that powers Bitcoin mining enables this.
Bitcoin Offers Economic Freedom
What would a world without central banks look like? How much economic progress would the world see?
Bitcoin has the potential to disrupt and create a new financial system. Unbanked people in third world countries can suddenly be connected to the rest of the world. Helpless people in countries like Argentina, Venezuela, and Ukraine can use Bitcoin to avoid inflation.
Bitcoin makes life easier and better for many people. The economic growth that could be created by Bitcoin cannot be measured in electricity. If people are willing buy bitcoins and to pay to use Bitcoin, there will always be miners.
Miners Provide Security
Miners’ hash power secures Bitcoin and processes transactions. It is what gives people confidence to use and trust Bitcoin with their money. The security provided by miners is what powers the financial system that can be created on top of Bitcoin. This is best explained by Andreas Antonopoulos:
You will hear people say that Bitcoin wastes electricity. Bitcoin does not waste electricity. Bitcoin uses electricity to underpin the security function because it creates an economic system whereby in order to participate you have to incur cost. And by incurring cost – the only reason you would incur cost is for the possibility of reward, and the possibility of reward is determined by whether your block meets the consensus rules.
A miner that gains more than 51% could essentially control the Bitcoin network and alter the consensus rules mentioned by Antonopoulos. A large hash rate, powered by massive amounts of electricity, makes 51% attacks hard to achieve. It increases the costs required to purchase enough mining hardware that would achieve 51% of the network.
Miners are paid for their security services, creation of new bitcoins, and processing of transactions. Miners provide a service, just like any business. As long as there is a market for bitcoins, there will always be someone willing to pay electricity costs to mine bitcoins. Whether or not mining is a waste of electricity is just a matter of perspective. For those who understand the benefits of Bitcoin, it is quite clear why the energy used to mine bitcoins is well worth it.