There are certainly a number of positive aspects to bitcoin, but there are also qualities that are less favorable as well. For example, bitcoin has been an issue due to the sheer amount of power necessary to create new virtual coinage.
According to Alex de Vries, PwC’s bitcoin specialist, it takes about 2.55 gigawatts (GW), at a minimum, to run bitcoin’s global software. This figure amounts to energy consumption of 22 terawatts-hours (TWh) per year. To put this figure into perspective – it is almost the same amount of energy consumption as Ireland.
Further, in terms of bitcoin miners, they have been consuming power exponentially – about five times more than they did a few years ago and there are no signs that their energy use is going to slow down. A question that has been pressing many is why bitcoin requires so much energy.
The answer is the blockchain, which is founded on an immutable ledger. The blockchain facilitates the transfer of value from one party to another and miners seek out results on an algorithmic puzzle, which must adhere to a specific set of requirements.
The server finds an acceptable solution every ten minutes and miners are rewarded by the bitcoin system. The current reward rate is 12.5 bitcoins, which are worth about $85,000 – minus $1,000 in transaction fees. Once the new block is created, more blocks are created, which then all become a part of the ledger.
To prevent the coins from being mined too quickly, the computation power of the network grows and bitcoin makes it more difficult to find a putative solution so that blocks are created.
Over time, it will become harder and harder to mine coins. Additionally, in terms of energy consumption, it may be derailing the growth of bitcoin over the long term because miners need to factor in the cost of data centers, electricity, and server upgrades.
To try and overcome the issue, a new concept called “proof of stake” has been developed. This allows a cryptocurrency investor to hold a stake in the currency for a period of time. The stake allows for voting rights concerning the formation of a block and the return on investment. Investors are also required to contribute computing assets. The good news is that this process requires far lower computational power, thereby mitigating concern about bitcoin’s power usage.