You might be wondering how any investment gains nearly 8 billion percent in a little over 11 years. The answer boils down to a couple of factors.
Arguably the biggest catalyst for Bitcoin is the perception of its scarcity. Whereas most cryptocurrencies have large maximum coin supplies (e.g., Shiba Inu started out with a max coin supply of 1 quadrillion), Bitcoin caps at a 21 million token supply. Since Bitcoin is mined and the block rewards associated with transaction validation halve every four years, the full 21 million tokens won’t be in circulation until sometime around the year 2140.
To build on this point, Bitcoin is often viewed as an inflationary hedge to what’s been a free-wheeling Federal Reserve. Since Great Recession, the U.S. central bank’s balance sheet has grown immensely, as has the U.S. money supply. The thinking here is that as inflation ticks higher and the true value of U.S. dollars declines, people will flock to Bitcoin, which has an aforementioned fixed supply of 21 million tokens.
There’s also clear excitement about Bitcoin’s growing real-world utility. For example, El Salvador became the first country to legalize Bitcoin as tender, as of Sept. 7, 2021. Bitcoin is also the most-accepted digital currency among businesses worldwide.
Not surprisingly, the largest cryptocurrency in the world by market cap has the biggest community, by a mile. Over 76 million people around the world, including 46 million in the U.S., have a unique wallet that contains Bitcoin, as of August 2021. Keep in mind these figures are prior to El Salvador making Bitcoin legal tender.
Lastly, there’s continued excitement about future upgrades that’ll improve the network and, hopefully, increase adoption. For instance, the long-awaited Taproot upgrade occurred this past weekend. Taproot will boost Bitcoin’s privacy, allow for complex (i.e. smart-contract-based) transactions at a cheaper cost, and combine multi-signatures transactions into one, which’ll reduce data stored on the blockchain and help scale the network.
Image source: Getty Images.
How Much Energy Does the Bitcoin Network Consume?
So exactly how much power does it take to create a bitcoin? According to Digiconomist, as of July 15, 2021, a single Bitcoin block requires 1,721.96 kWh, or nearly $26,000. When you put it all together, that’s a projection of 135.12 TWh in the year, or about as much power as is used annually by the country of Sweden.
A different estimate from the University of Cambridge pegs Bitcoin’s annual energy usage at around 70 TWh as of July 15, 2021, which is about 0.32% of the total power usage on earth and a little more than the annual power consumed by Austria.
Here’s a look at Bitcoin’s energy consumption (even at the lower end of 70 TWh) compared to the 2019 electricity consumption of some countries based on data from the U.S. Energy Information Administration (U.S. EIA):
Clearly, this is a ton of electricity, which has many people concerned, including Elon Musk. In May 2021, the Tesla chairman tweeted his concerns about Bitcoin’s dependence on fossil fuels and suspended the sale of Tesla cars in exchange for Bitcoin. Just a month later, Musk tweeted that Tesla would resume Bitcoin transactions when there’s “confirmation of reasonable (~50%) clean energy usage by miners.”
Energy used by the network may ebb and flow based on the number of connected miners, transaction volume, and what kinds of computers are doing the mining. For example, as reported by the South China Morning Post, recent government action in China led many of the world’s biggest Bitcoin mining operations to shut down. That is likely to shift Bitcoin mining and electricity consumption to computers outside of China that may require different amounts of energy and rely on different sources for that energy.
If you’re a big cryptocurrency enthusiast, you may find this energy use to be worthwhile. However, the environmental impact is an important consideration when deciding whether or not to participate in the Bitcoin network or a more energy-efficient alternative.
How long does it take to mine one bitcoin?
The time it takes to mine a bitcoin depends on the computer being used to mine it. A mining company with an arsenal of top-of-the-line hardware may mine multiple bitcoins within an hour. A more reasonably priced mining rig might take a month or more to mine a single bitcoin.
Is Bitcoin Worth the Environmental Cost?
Elon Musk isn’t the only critic of Bitcoin’s power use. Many, including those who otherwise like cryptocurrency, may find the environmental cost of Bitcoin to be far too large, particularly in an age where people struggle with the real-life results of climate change. But proponents argue that Bitcoin and cryptocurrencies are well worth it, as they could usher in a new age of energy use patterns.
With upgrades to the cryptocurrency landscape, including the addition of more efficient currencies and upgrades to existing networks, like Ethereum 2.0, it may be possible to find the best of both worlds at some point in the future, with energy-efficient cryptocurrencies powered by renewable electricity.
For today, however, mining bitcoin has a high environmental cost. If you think that electricity usage is too much, you can factor that into your cryptocurrency investing decisions, much like Elon Musk.