BITCOIN: A BANE FOR HUMANITY?
- CryptoX
- May 31, 2018
- 4 min read
Updated: Jul 26, 2018
Just after the financial crisis of 2008, we saw a small and concise whitepaper of mere nine pages, titled “Bitcoin: A Peer-to-Peer Electronic Cash System”, released by some unknown person (or perhaps a group of persons) called Satoshi Nakamoto. The white paper contained blueprints to the technology, which has helped people amass overnight fortunes and has definitely taken the tech world by a storm.
I’m sure you would have guessed what I am talking about, it’s our very own Bitcoin. To many people, Bitcoin seems to be the future of currencies and there is not a day which goes by without hearing some news or price prediction about this fascinating piece of digital currency.
However, when we take a step back, we do realize that this innovation comes at a huge environmental cost.
Past innovations, including the Internet, have had catastrophic effects on the environment. According to newscientist, “Internet used around 2% of the world’s energy in 2011”. We all know that in this era of Data Technology, this number has expanded exponentially. However, Bitcoin and other cryptocurrencies, which are ‘mined’ seem to be taking this to a whole new level. A recent study says that Bitcoin may use 0.5% of the world’s electricity by the end of 2018, which is enough to power whole of Austria. More surprisingly, Eric Holthaus, a renowned meteorologist mentions that by 2020, the Bitcoin network will use as much electricity as the entire world is consuming today!
The reason behind this insane amount of energy consumption lies in the protocol, which the Bitcoin Blockchain uses to achieve distributed consensus – Proof of Work
Proof of Work is a mining protocol which allows miners to validate the next block of transactions by giving a “proof of work” that they can perform. The work to be done by miners is to solve complex mathematical problems and whoever solves the problem first, gets to add the block to the Blockchain, in return of which the miner gets 12.5 BTC as a reward (as of now).
Which miner gets to solve the problem is dependent on the hashing rate of the computers used by the miners. The higher the hashing rate, the higher will be the chance of the miner to get the opportunity to solve a particular problem.
Thus, seeing how this is structured, competition between the miners is inevitable. As a result, miners invest heavily in the technologies that they use to mine bitcoin or other cryptocurrencies. As the Hashing rate increases, the electricity consumed by the machines also increases.
This can quickly turn into a cycle where miners are earning money and using it to improve their hardware’s hashing rate to mine the next block and earning more money from that.
This is the problem of energy consumption, which comes with Bitcoin.
Solutions
It is a logical fact that people are running mining operations because the cost of mining is significantly less in comparison to the reward. As long as miners earn by mining, this mad menace will continue to grow.
In the end, the only way energy consumption due to mining will slow down is if the price of Bitcoin falls down and the rewards are less than the cost.
As of now, we are sure that mining of Bitcoin will not be profitable anymore once all the Bitcoins are mined by 2140. Till then, the number of Bitcoins miners get for validating one block is reduced by 50% every four years so we can expect a shortfall in energy consumption and this fierce competition.
However, there is still a catch. The number of Bitcoins may fall over a period of time but if their price rises then there can be no end to these energy-hungry mines until 2140!
There is one more solution which is possible but may be difficult and that is, if Bitcoin changes its consensus algorithm from Proof of Work to Proof of Stake (or Delegated Proof of Stake or Proof of Burn), this mining-menace can stop and the energy consumption can be significantly reduced. This will definitely lead to a hard fork in bitcoin and the acceptability of the fork is also highly questionable.
In Proof of Stake, the validator (instead of a miner) deposits a currency which he/she wishes to mine. After validating a block correctly, the validator gets a cash reward which is equal to the sum of transaction fees for all the transactions in that particular block. If the validator validates a wrong transaction, he/she loses all the coins, which have been staked (deposited). In this system, the investment made by the validator is the currency itself rather than the energy-hungry mining rigs.
One of the more recent consensus protocols is the Proof of Burn in which validators send their currencies to an eater address - currencies once sent to this address are taken out of circulation and cannot be spent. Once it is verified that the miner has sent their currencies to this address, they can then be rewarded to validate transactions. Unlike proof of work, this system burns cryptocurrencies rather than electricity, thus, reducing the wastage of energy in the process.
What the future has in store for cryptocurrencies is debated all day by almost everyone in this space. Whether the energy consumption rises or falls is highly uncertain; but what we do know for sure, is the fact that, if bitcoin along with other cryptos, is the future, then we have to figure out a way to make it more environmentally friendly.
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About Me
I am a Blockchain and Cryptocurrency enthusiast and am highly interested in solving real-world problems through technology and Entrepreneurship. Apart from writing, coding and reading books, I am also passionate about fitness and sports. Reach out to me on LinkedIn!
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