Bitcoin Mining: A Global Economic Perspective

Dive into the technical details of Bitcoin mining, including proof-of-work, network efficiency, and energy use.

Let’s take a closer look at this exciting and potentially lucrative world.

0 %
Of the World's Energy Production is used for Bitcoin Mining

Understanding bitcoin mining

Frequently denigrated as "wasteful," Bitcoin requires energy to provide both trust and security to its network. The energy, and associated costs, required to secure the network are precisely how Bitcoin generates its security. If there were no costs, then there would be no security. However, we can't get a global understanding of the network's efficiency or its utility by narrowly focusing on mining. Instead, in our latest report, we broaden our lens to measure the impact and societal merit of currency.

Key Takeaways

A Miner's Work

  • Group bitcoin transactions into blocks (since the block size is ~1 MB, each block can only fit so many transactions; should the mempool contain more transactions than can be fit into one block, the transaction overflow will be added to the next block)
  • Perform computations to solve a cryptographic puzzle (performing the “proof of work”)
  • Bitcoin miners pool ‘valid’ transactions into blocks; anyone can run a Bitcoin full-node and act as a ‘validator’ for proposed blocks; these people are typically miners since they have the incentive to invest in the network’s security
  • Send the blocks out over the network to be cross-checked and verified, and they will validate other  proposed blocks 
  • Propagate approved blocks across the network and move on to the next block of transactions

BITCOIN'S ENERGY USE

Inarguably, Bitcoin mining utilizes electricity to power its PoW mechanism. Whether it is a lot or a little depends on your frame of reference. But remember, PoW is essential to a decentralized consensus, network security, and the issuance of new BTC (i.e., Bitcoin’s predictable monetary policy). Bitcoin is not Bitcoin without PoW.

In absolute terms, Bitcoin mining used an estimated 82 TWh of electricity in 2021, a 9% increase from 2020, according to CoinShares’ 2022 report on the Bitcoin mining network. As of December 2021, the current annualized draw is 89 TWh. To put this in perspective, the Bitcoin network consumed 0.05% of the total global electricity consumed in 2019, essentially a rounding error when it comes to global energy consumption. For comparison, NYDIG reported in Q3 2021 that domestic tumble dryers and data centers used 108 TWh (0.07%) and 204 TWh (0.13%), respectively, in 2020. 

Bitcoin's Utility

The  Bitcoin network provides a globally-inclusive, censorship-resistant, incorruptible, self-sovereign monetary network for the entire world. Within that context, the amount of energy used (again, 0.05% of the global energy) is absolutely worth the cost. Especially considering,

  • Nearly everyone on the globe is currently living under double-digit inflation
  • Two billion+ people live under authoritarian regimes where their rights are suppressed and are subjected to capital controls
  • 3 billion+ are underbanked or have no access to bank accounts

Bitcoin gives BILLIONS of people an alternative currency/savings technology where there otherwise are no alternatives. To claim Bitcoin has no utility or value is to deny the lived experience of millions of less fortunate individuals cut off from the Western world’s living standards and freedoms.

Network Efficiency

Bitcoin's energy consumption is increasing (on a long-term trajectory), but it is also growing more efficient. Despite a decline in electricity consumption in 2022, the network hash rate, which represents the combined computational effort of all network miners, remains near an all-time high in Q4 2022. This combination of decreased electricity use and increased hash rate has resulted in a more efficient network. One factor contributing to the efficiency gains miners have found it cost-effective to replace old, inefficient mining AISICs with new, more efficient ones. In other words, the economic value produced by a miner eight years ago is vastly different from that of today.

Download the PDF to read the full Report