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.
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.