Energy Cost Of A Bitcoin Transaction

The Bitcoin Energy Consumption Alphabetize provides the latest guess of the total energy consumption of the Bitcoin network.

NEW Inquiry:
“Cryptocurrencies on the road to sustainability: Ethereum paving the way for Bitcoin” (December 2022); Bitcoin’s biggest competitor, Ethereum, has reduced its electrical energy requirement by at to the lowest degree 99.84% by changing its method of production.

Annualized Total Bitcoin Footprints

Single Bitcoin Transaction Footprints

*The assumptions underlying this energy consumption gauge can be found here. Criticism and potential validation of the estimate is discussed hither.
**The minimum is calculated from the full network hashrate, assuming the only machine used in the network is Bitmain’s Antminer S9 (drawing 1,500 watts each). On February 13, 2019, the minimum criterion was changed to Bitmain’due south Antminer S15 (with a rolling boilerplate of 180 days), followed past Bitmain’s Antminer S17e per November vii, 2019 and Bitmain’s Antminer S19 Pro per  Oct 31, 2020.
***Note that the Index contained the amass of Bitcoin and Bitcoin Cash (other forks of the Bitcoin network accept not been included). The latter has been removed per Oct 1, 2019.

Did you know Bitcoin runs on an free energy-intensive network?

E’er since its inception Bitcoin’s trust-minimizing consensus has been enabled by its proof-of-work algorithm. The machines performing the “work” are consuming huge amounts of energy while doing then. Moreover, the energy used is primarily sourced from fossil fuels. The Bitcoin Energy Consumption Index was created to provide insight into these amounts, and raise awareness on the unsustainability of the proof-of-piece of work algorithm.

A separate alphabetize was created for Ethereum, which can exist plant hither.

What kind of piece of work are miners performing?

New sets of transactions (blocks) are added to Bitcoin’s blockchain roughly every 10 minutes by so-called miners. While working on the blockchain these miners aren’t required to trust each other. The only matter miners have to trust is the code that runs Bitcoin. The code includes several rules to validate new transactions. For example, a transaction can but be valid if the sender actually owns the sent amount. Every miner individually confirms whether transactions attach to these rules, eliminating the need to trust other miners.

The play tricks is to get all miners to agree on the aforementioned history of transactions. Every miner in the network is constantly tasked with preparing the next batch of transactions for the blockchain. Only ane of these blocks will exist randomly selected to become the latest block on the chain. Random pick in a distributed network isn’t like shooting fish in a barrel, so this is where proof-of-work comes in. In proof-of-work, the next cake comes from the first miner that produces a valid i. This is easier said than done, every bit the Bitcoin protocol makes it very difficult for miners to practise then. In fact, the difficulty is regularly adapted by the protocol to ensure that all miners in the network volition only produce 1 valid cake every x minutes on boilerplate. Once one of the miners finally manages to produce a valid cake, it will inform the balance of the network. Other miners volition take this block once they confirm it adheres to all rules, and so discard whatever block they had been working on themselves. The lucky miner gets rewarded with a fixed amount of coins, along with the transaction fees belonging to the processed transactions in the new block. The cycle and then starts again.

The process of producing a valid block is largely based on trial and error, where miners are making numerous attempts every second trying to find the right value for a cake component called the “nonce“, and hoping the resulting completed block will lucifer the requirements (as at that place is no fashion to predict the outcome). For this reason, mining is sometimes compared to a lottery where you tin can pick your own numbers. The number of attempts (hashes) per second is given by your mining equipment’s hashrate. This will typically exist expressed in Gigahash per second (1 billion hashes per second).

Sustainability

The continuous block mining cycle incentivizes people all over the world to mine Bitcoin. Every bit mining tin provide a solid stream of revenue, people are very willing to run ability-hungry machines to become a piece of information technology. Over the years this has caused the total energy consumption of the Bitcoin network to grow to epic proportions, every bit the price of the currency reached new highs. The unabridged Bitcoin network at present consumes more energy than a number of countries. If Bitcoin was a state, it would rank as shown beneath.

Apart from the previous comparison, it also possible to compare Bitcoin’south energy consumption to some of the world’s biggest free energy consuming nations. The result is shown hereafter.

Carbon footprint

Bitcoin’s biggest problem is perhaps not even its massive energy consumption, but the fact most mining facilties in Bitcoin’southward network are powered past fossil fuels.

Thinking about how to reduce CO2 emissions from a widespread Bitcoin implementation

— halfin (@halfin) 27 januari 2009

Locating miners

Determining the exact carbon impact of the Bitcoin network has been a challenge for years. Not simply does one need to know the power requirement of the Bitcoin network, but i besides need to know where this power is coming from. The location of miners is a key ingredient to know how dirty or how clean the power is that they are using.

Since 2020 Cambridge provides detailed insights into the localization of Bitcoin miners over fourth dimension. The article “Revisiting Bitcoin’s carbon footprint” released in the scientific journal Joule on February 25, 2022, afterward explains how this data on miner locations tin can exist used to estimate the electricity mix and carbon footprint of the network.

The commodity specifically finds that that the share of renewables that ability the network decreased from 41.6% to 25.one% following the mining crackdown in China during the Spring of 2021. Miners previously had admission to a substantial amount of renewables (during a express office of the yr) when they were still in China (i.due east. hydropower during the moisture season in the summer months), but this was lost when they were forced to move to countries such as the U.S. and Kazakhstan. These locations now mainly supply Bitcoin miners with either coal- or gas-based electricity, which has also boosted the carbon intensity of the electricity used for Bitcoin mining. The article highlights that the average carbon intensity of electricity consumed by the Bitcoin network may have increased from 478.27 gCO2/kWh on boilerplate in 2020 to 557.76 gCO2/kWh in August 2021. The carbon footprint provided by the Bitcoin Energy Consumption Index is based on this carbon intensity.

Fundamental challenges for using renewables

It is important to realize that, while renewables are an intermittent source of free energy, Bitcoin miners take a constant energy requirement. A Bitcoin ASIC miner will, once turned on, non be switched off until information technology either breaks down or becomes unable to mine Bitcoin at a profit. Considering of this, Bitcoin miners increase the baseload demand on a grid. They don’t just swallow free energy when at that place is an backlog of renewables, but yet require power during production shortages. In the latter example Bitcoin miners have historically ended up using fossil fuel based power (which is generally a more steady source of energy).

Further substantiation on why Bitcoin and renewable energy make for the worst match can exist constitute in the peer-reviewed academic article “Renewable Free energy Will Not Solve Bitcoin’southward Sustainability Problem” featured on Joule. With climate alter pushing the volatility of hydropower product in places similar Sichuan, this is unlikely to get any better in the future.

Comparison Bitcoin’due south energy consumption to other payment systems

To put the free energy consumed by the Bitcoin network into perspective we tin compare it to another payment arrangement like VISA for instance. According to VISA, the visitor consumed a total amount of 740,000 Gigajoules of free energy (from diverse sources) globally for all its operations. This means that VISA has an free energy demand equal to that of around 19,304 U.S. households. Nosotros also know VISA processed 138.three billion transactions in 2019. With the help of these numbers, it is possible to compare both networks and testify that Bitcoin is extremely more energy intensive per transaction than VISA. The difference in carbon intensity per transaction is even greater (encounter footprints), as the energy used by VISA is relatively “greener” than the energy used by the Bitcoin mining network. The carbon footprint per VISA transaction is merely 0.45 grams CO2eq.

Of course, VISA isn’t perfectly representative for the global fiscal system. But even a comparing with the average non-cash transaction in the regular financial system nevertheless reveals that an average Bitcoin transaction requires several thousands of times more energy.

Limited scalability causes extreme transaction footprints

Ane key reason why the CO2 emissions per Bitcoin transaction can be so extreme is that the underlying blockchain isn’t just built on an energy-demanding algorithm, but it’southward too extremely express in terms of transaction processing chapters. A block for Bitcoin’s blockchain can contain 1 megabyte of data. As a new block volition exist generated only in one case every 10 minutes on average, this information limit prevents the network from handling more than than 7 transactions per second. In the near optimistic scenario Bitcoin could therefore theoretically handle around 220 million transactions annually. Meanwhile, the global financial arrangement is treatment more than 700 billion digital payments per year (and a payment provider similar VISA can handle over 65,000 per second if needed). Bitcoin’s maximum transaction capacity represents only 0.03% of this (speedily growing) number. This is less than the total number of electronic payments processed in a land like Republic of hungary (more 300 million per twelvemonth), not even considering that cash still makes up for two thirds of all payment transactions hither. With such an incredibly depression limit, Bitcoin is just incapable of achieving any form of mainstream adoption as a global currency and/or payment system. Unlike the network’s transaction limit, the free energy consumption of the network isn’t capped. The price of Bitcoin is the main driver of the network’s environmental impact, and there’due south no limit to how high this can become. Because of this, the Bitcoin network tin can eat several times every bit much electrical energy as the unabridged country of Hungary (which consumes 43 TWh annually).

Unfortunately for Bitcoin, there’southward no real solution for this scalability problem either. Proponents of the digital currency argue that so-called 2nd layer solutions like the Lightning Network will help scaling Bitcoin, while dismissing that it is practically incommunicable to brand such a solution piece of work on a substantial calibration. In social club to move any amount of funds into the Lightning Network in the starting time identify, a funding transaction on the main network is still required. Information technology would take the Bitcoin network 35 years to procedure a single funding transaction for all 7.7 billion people (2021) on this planet, ignoring any other possible use of the primary network and further population growth in the meanwhile. The only practical solution to Bitcoin’south scalability problem has, so far, been to make apply of trusted 3rd parties, as these tin can process transactions internally without the need to actually utilise the Bitcoin blockchain. The obvious problem with this is that information technology merely reinvents the organisation we already have in place.

Another perspective

Because of the aforementioned scalability problems, information technology’southward often argued that Bitcoin is more similar “digital gold” than a payment organization. Hence we tin too compare Bitcoin mining to gold mining instead. Every year, around 3,531 tonnes of gold are mined, with a total related emissions amounting to 81 one thousand thousand metric tonnes of CO2. When comparison this to the carbon intensity of mining Bitcoins, nosotros tin can detect that the latter exceeds that of mining real gold (run across below). Note that this includes mined fees, which has no comparing in mining for real gold (as we’d have to put previously mined gilded back into the basis). Too, the comparison is also flawed considering nosotros tin can stop mining for real aureate, whereas Bitcoin would simply terminate existing without active mining.

I could fence that this is simply the price of a transaction that doesn’t require a trusted third party, only this price doesn’t have to exist and so high equally will be discussed hereafter.

Alternatives

Proof-of-piece of work was the outset consensus algorithm that managed to prove itself, but it isn’t the only consensus algorithm. More energy efficient algorithms, like proof-of-pale, accept been in development over contempo years. In proof-of-pale coin owners create blocks rather than miners, thus not requiring ability hungry machines that produce as many hashes per 2d every bit possible. Considering of this, the free energy consumption of proof-of-stake is negligible compared to proof-of-piece of work. Bitcoin could potentially switch to such an consensus algorithm, which would significantly meliorate environmental sustainability. It is estimated that a switch to proof-of-stake could relieve 99.95% of the energy currently required to run a proof-of-work based organisation.

Energy consumption model and key assumptions

Fifty-fifty though the total network hashrate can hands be calculated, it is impossible to tell what this means in terms of free energy consumption as there is no primal annals with all active machines (and their verbal power consumption). In the past, energy consumption estimates typically included an assumption on what machines were still active and how they were distributed, in order to arrive at a certain number of Watts consumed per Gigahash/sec (GH/s). A detailed examination of a real-globe Bitcoin mine shows why such an approach will certainly lead to underestimating the network’s free energy consumption, because it disregards relevant factors similar machine-reliability, climate and cooling costs. This arbitrary approach has therefore led to a wide set of free energy consumption estimates that strongly deviate from one some other, sometimes with a disregard to the economic consequences of the chosen parameters. The Bitcoin Free energy Consumption Index therefore proposes to turn the trouble effectually, and approach energy consumption from an economical perspective.

The index is congenital on the premise that miner income and costs are related. Since electricity costs are a major component of the ongoing costs, information technology follows that the full electricity consumption of the Bitcoin network must be related to miner income every bit well. To put it but, the college mining revenues, the more energy-hungry machines can exist supported. How the Bitcoin Energy Consumption Index uses miner income to make it at an energy consumption judge is explained in detail here (also in peer-reviewed bookish literature here), and summarized in the following infographic:

Bitcoin miner earnings and (estimated) expenses are currenly equally follows:

Note that i may reach different conclusions on applying different assumptions (a calculator that allows for testing unlike assumptions has been made bachelor here). The chosen assumptions have been chosen in such a way that they can be considered to exist both intuitive and conservative, based on data of actual mining operations. In the end, the goal of the Index is not to produce a perfect gauge, but to produce an economically credible day-to-day estimate that is more accurate and robust than an guess based on the efficiency of a choice of mining machines.