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Bitcoin Mining Environmental Impact Narrative Falling Apart as Banking Does More Damage

Last Updated April 24, 2024 2:14 PM
Giuseppe Ciccomascolo
Last Updated April 24, 2024 2:14 PM

Key Takeaways

  • A study revealed that Bitcoin mining uses less energy than the global banking sector.
  • The high energy consumption of traditional finance highlights the need for sustainable practices across industries.
  • More energy-efficient consensus mechanisms like proof-of-stake exist and could significantly reduce Bitcoin’s energy footprint.

A new study  challenges the perception of Bitcoin as an energy guzzler, revealing the blockchain consumes significantly less energy compared to the traditional banking sector globally.

This counterintuitive finding sparks a deeper investigation into the energy consumption of financial systems. It also prompts a reevaluation of Bitcoin’s environmental impact.

Bitcoin Mining’s Greener Than Banking

Payless Power  conducted an analysis comparing the electricity consumption of the Bitcoin network with that of the traditional banking sector. Utilizing data from the Bitcoin Energy Consumption Index, they estimated the Bitcoin network’s annual energy usage to be 167.14 TWh. In contrast, the global banking sector was estimated to consume 258.85 TWh annually. This analysis revealed that the Bitcoin network consumes approximately 35.4% less energy globally than the traditional banking system.

The study considered various factors, including data centers, bank branches, ATMs, and credit card networks, to break down the energy consumption within the banking sector. Data centers accounted for 225.45 TWh, physical bank branches for 22.68 TWh, independent ATMs for 2.91 TWh, and card networks like VISA for 7.81 TWh.

The energy appetite of US finance
The energy appetite of US finance. l Source: Economics from the Top Down

A slight difference was observed when comparing these findings to a previous study  by Galaxy Digital. This report calculated Bitcoin’s energy consumption at 113.89 TWh annually, compared to the banking industry’s 263.72 TWh. Additionally, Galaxy Digital examined energy consumption in the gold industry, which consumes approximately 240.61 TWh annually.

These comparisons shed light on the energy efficiency of the Bitcoin network relative to traditional banking and other industries. Furthermore, the studies highlighted the substantial waste in global energy production, emphasizing the need for sustainable energy practices.

Energy Appetite In The US Finance Sector

US financial corporations command a significant portion of America’s earnings, accounting for approximately 6% of the total. Translating this financial prowess into energy expenditure, it suggests that the US financial sector consumes about 6% of the nation’s energy budget, totaling around seven million Terajoules annually. Notably, this surpasses the energy consumption of the Bitcoin network by a considerable margin.

While Bitcoin has drawn criticism for its energy consumption, it’s essential to recognize that mainstream US finance operates on a much grander scale. As of late 2023, US finance was estimated to consume roughly 10 times more energy than the Bitcoin network.

Bitcoin energy consumption
Bitcoin energy consumption. l Source: Digiconomist

We must consider their respective scales to ensure a fair comparison  between Bitcoin and mainstream finance. Given their distinct monetary systems, the most logical approach involves summing their monetary values. For Bitcoin, with approximately 19.6 million bitcoins valued at around $68,000 each, the network’s market value stands at roughly $1.3 trillion.

In contrast, assessing the value of US finance is more intricate due to the multitude of financial instruments. One perspective is to liken Bitcoin to ‘just another asset’ and compare its value to the expansive sea of US corporate assets. Focusing solely on US public corporations, this financial landscape boasts an approximate value of $50 trillion.

What Are The Possible Alternatives?

But a solution exists. Proof-of-work emerged as the pioneering consensus algorithm, demonstrating its effectiveness, yet it’s not the sole option available. Over recent years, more energy-efficient algorithms, such as proof-of-stake, have been under development. In proof-of-stake, coin owners rather than miners facilitate the block creation, eliminating the need for power-intensive machines focused on generating numerous hashes per second.

Consequently, proof-of-stake’s energy footprint is significantly lower compared to proof-of-work. A potential transition  of Bitcoin to such a consensus algorithm holds promise for substantial enhancements in environmental sustainability. Estimates suggest that such a shift could reduce energy consumption by at least 99.85%.

However, it’s crucial to recognize that significant alterations to the software can impact a network beyond environmental considerations. Mechanisms like proof-of-work and proof-of-stake play pivotal roles in maintaining network security, each with its unique approach. Thus, modifying these mechanisms alters a network’s risk profile.

The comparison between Bitcoin‘s energy consumption and global banking systems yields intriguing insights into the efficiency of digital currencies.

The report said: “This analysis underscores the potential of digital currencies to provide more sustainable solutions within the financial sector. As we transition towards increasingly digital transactions, these findings prompt us to reevaluate our assumptions regarding the true energy implications of our financial decisions.”

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