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As the world’s first cryptocurrency, Bitcoin was designed to enable instantaneous, borderless transactions without the high fees or foreign exchange barriers that denote today’s financial system. Since Bitcoin’s inception in 2009, a multitude of other cryptocurrencies have sprung up, and the crypto ecosystem has expanded dramatically. However, as the original cryptocurrency, Bitcoin still remains in the spotlight – and not always favourably.
Recently, a heated debate has unfolded over Bitcoin’s energy consumption, drawing a lot of attention from the media and investors alike.
So, how much energy does Bitcoin really consume?
According to a Forbes article, Bitcoin would rank in the top 30 for energy use worldwide if it were a country. The University of Cambridge’s Bitcoin Electricity Consumption Index estimates the Bitcoin network’s global consumption at approximately 80 terawatt-hours of electricity annually. Put into perspective, that’s roughly what Finland consumes in a year.
The main reasons underlying this energy consumption is Bitcoin’s “proof-of-work” concept, whereby computing power is needed to solve ever more complex math problems in order to verify transactions on the blockchain. As Bitcoin becomes more popular and its value increases, more people are competing to mine it in order to get a reward and the math problems to solve become increasingly difficult – thus raising the energy consumption.
While it is important to be aware of this, the energy-intense nature of Bitcoin does not necessitate a return to traditional financial systems; renewable energy sources and more efficient blockchains can pave the way forward to a greener cryptocurrency and decentralized finance ecosystem. There has already been great effort made by the crypto space to neutralize its impact on the environment, such as the Bitcoin mining industry shifting to greener production methods. More on these efforts will be covered in tomorrow’s post, so keep a look out for that.
At DeFi Consulting Group, we specialize in helping institutions understand and gain access to Cryptocurrencies and Decentralized Finance. Reach out to our team for guidance on how to effectively approach this space.
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