Bitcoin arouses passion, curiosity and has received more than and more than media attention, specially subsequently having climbed the ranks of the best financial asset of the decade. Withal, whenever its toll goes upward, many doubts and questions arise, mainly around its origin and the energy expenditure by miners.

The Bitcoin protocol has created a unique digital nugget

To empathise how Bitcoin (BTC) is created and what mining is, the key is the double-spending trouble.

Before Bitcoin, there was neither a digital value to exist transferred nor a digital nugget to be divided into several parts. That is, if yous scanned a $100 bill and wanted to transfer this beak to someone, you could just transport a copy of this neb.

We are all used to smartphones and computers already. Nosotros send emails, photos, but nosotros don't realize that procedure in reality: We transport a copy of the email (and not the original email), a copy of our photos (and not the original). When nosotros click the send push on a smartphone or computer, a copy of the original will ever remain on our device.

Likewise, regarding financial transactions, when we click on the send button in our cyberspace banking accounts or at an ATM, there is always an intermediary that transfers the money from one account to another. And that'southward the trouble Bitcoin aims to solve — the double-spending problem.

When you click the send Bitcoin push button on your prison cell phone, for case, you are not sending a copy, you are actually sending a digital object. One time a transaction is made in Bitcoin, information technology becomes irreversible and cannot exist tampered with.

For that reason, information technology is impossible to cancel or reverse a Bitcoin transfer after it has been validated by the blockchain network because the Bitcoin protocol has solved the problem of double-spending. It fabricated a single nugget, Bitcoin, digitally unique, enabling value transactions on the internet without intermediaries (independent of a central entity).

Who issues Bitcoins?

While traditional money is issued (created) through (central) banks, Bitcoin is issued by algorithms, whose rules are pre-established in its protocol — the Bitcoin blockchain.

In turn, the Bitcoin blockchain is a transaction registration system, maintained in an open (distributed) network of "suspicious" participants, who do non know or trust ane some other.

And so, when Satoshi Nakamoto wrote the source code for the Bitcoin protocol software and published information technology on the cyberspace, he proposed the following: If you provide security for this network and assist this financial network to operate, yous will be rewarded.

The logic of the pre-established rules in the Bitcoin protocol was very transparent and was written in a programming language. The breakthrough brought by the get-go blockchain, after years of research on digital currencies, is not merely about computer scientific discipline solutions.

The secret is in incentives

To create the Bitcoin blockchain architecture, Satoshi Nakamoto looked at existing research — chip-gold, b-money, hashcash, fourth dimension-stamped cryptography — and added game theory.

Using game theory, Satoshi implemented an incentive machinery (consensus machinery) chosen proof-of-work that enabled a new field of economic coordination, now called "cryptoeconomics" (the fields of economics and computer science to study the decentralized marketplaces and applications that can be built past combining cryptography with economic incentives).

It is this economic incentive organization that ensures that Bitcoin network participants comport in favor of the security and the perfect functioning of the system. This is the master reason why the Bitcoin blockchain has yet to be hacked.

The importance of mining

Every bit more and more people realized the potential incentives in Bitcoin and started to "plug in" their computers to provide security to the network, the Bitcoin blockchain became more and more viable and secure. Now, there is enormous computational ability guaranteeing transactions: Bitcoin is computational forcefulness.

A Bitcoin is "extracted" from the blockchain protocol by miners (validators) who need to solve mathematical algorithms to earn the correct to include Bitcoin transactions in the blockchain network and be rewarded for it.

Each Bitcoin transaction, before existence added to the blockchain, is sent to the "mempool," a retention area for pending transactions, where it awaits its inclusion in a block. The miners so accept the pending transactions, which are waiting to be recorded, and combine them to create a "block" of transactions.

Realize that the miners compete with i another then that their computers are called to record the virtually recent transactions in the adjacent block that will be included in the network. And the best fashion to win this competition is past solving the algorithms as many times as possible (before someone else reaches the correct result, chosen a "nonce").

As information technology takes trillions of attempts to guess the correct nonce, only those who have more computational strength to win this competition will be awarded Bitcoin equally a advantage for their efforts.

We tin can draw ii principal consequences from what nosotros accept said and so far.

The first event is that PoW prevents miners from circumventing the system and creating Bitcoin from scratch. Miners must burn existent computing energy with each endeavor and find the nonce to have a chance to win Bitcoin. Equally electricity to supply miners is not gratis, proof-of-work, therefore, generates a fiscal cost for Bitcoin mining.

The second consequence refers to the fact that Prisoner of war makes Bitcoin'south transaction history immutable. If an attacker tries to modify a transaction, that attacker will have to redo all the work that has been washed since then to recover and found the longest network. This is theoretically impossible and that is why miners are said to "protect" the Bitcoin network.

As mining has become a legitimate manufacture over the years, information technology is supported by dedicated professionals with specialized hardware, which requires big information centers and a lot of electricity.

Information technology is worth mentioning that although there are other consensus mechanisms, Pow is the most used in blockchains because information technology is the well-nigh effective in terms of cybersecurity.

How much electricity does Bitcoin mining use?

Cambridge University has been operating a live Bitcoin network free energy estimator since 2015. In fact, Bitcoin'south transparency allows anyone to see the amount of hash power applied to the network, which is usually measured in the number of hashes per 2nd that the network is performing as part of the mining process.

You tin estimate how much power the network is using to perform these hashes based on the energy efficiency for hashing the mining hardware in use.

According to Digiconomist'southward Bitcoin energy consumption tracker, mining currently consumes 77.78 terawatt-hours per year. That is comparable to the total free energy consumption of countries such equally kingdom of the netherlands and the Czechia.

Based on the higher up estimates, many argue against Bitcoin and the employ of proof-of-piece of work.

However, can we take these "estimates" equally an accented truth? Do these estimates accept into account that miners do not always operate with the same efficiency? Is information technology being considered that the electricity used may be coming from clean sources?

Let's look at these arguments one past one.

Anti-Prisoner of war arguments

The arguments against proof-of-work and the incentive machinery created by Satoshi Nakamoto are:

  • A1 — Bitcoin mining consumes a lot of free energy.
  • A2 — The vast bulk of Bitcoin miners are located in China.
  • A3 — Bitcoin miners in China are mainly using dirty coal-based energy.
  • A4 — Bitcoin mining has a comparatively extreme carbon footprint.
  • A5 — Bitcoin is bad.

Argument A1 is true, equally nosotros demonstrated in the previous topic. It is ane of the fundamental reasons why the Bitcoin network is so incredibly secure.

Argument A2 used to be true, only the situation is changing, as more regions globally are entering the BTC mining industry. As this does non thing for energy consumption by the Bitcoin network, we volition consider information technology to be true.

Regions with bully relevance are highlighted in teal, the Sichuan province in China is in yellow, and regions with lesser relevance are in red.

Finally, the statement A3 is faux, as nosotros will run across in the adjacent topic, which debunks arguments A4 and A5.

Bitcoin is an energy hog, but... renewable

A contempo research published by CoinShares Enquiry constitute that virtually of the electricity consumed to mine Bitcoin, in fact, comes from clean sources, such as wind, solar and hydroelectric.

To be more specific, 60% of global mining takes identify in Red china, where Sichuan alone produces 50% of the global hash charge per unit, with the remaining ten% divided more or less evenly among the Yunnan, Xinjiang provinces and Mongolia.

It is important to notation that the authorisation of Sichuan both in China and in the globe has a direct relationship with the hydroelectric-rich provinces of Yunnan, Guizhou and Sichuan in southwest Cathay. During the rainy flavour, its electricity prices are amidst the lowest in the world, making Sichuan one of the most attractive global mining regions available.

On the other paw, of the remaining 40% of mining companies, 35% of the global hash rate production is equally divided amongst Washington, New York, British Columbia, Alberta, Quebec, Newfoundland and Labrador, Iceland, Norway, Sweden, Georgia and Iran.

However, the study points to a broader problem of how renewable free energy is currently deployed worldwide: Many renewable energy generators are poorly located and underutilized, and thus, Bitcoin mining has become the only viable use for this electricity.

In this context, the research concludes that the Bitcoin network obtains 74% of its electricity from renewable sources, making information technology more focused on make clean energy sources than almost all other large-scale industries in the world.

Takeaway

Everything requires energy, and the additional use of energy has always improved our standard of living. Are the benefits provided by Bitcoin worth the boosted use of energy? Are miners no longer looking for ways to reuse wasted energy, for example, the CO2 released during oil drilling?

Since the concrete location of mining centers does non impact the Bitcoin network, are miners no longer migrating to areas that generate surplus electricity at lower marginal costs? And in this instance, this could not solve the problem of renewable free energy that has a anticipated capacity and would otherwise be wasted, such every bit hydroelectric and marsh gas burning.

Everything is energy — the waste product is in not using it intelligently to improve economic and social living standards.

The views, thoughts and opinions expressed here are the author's alone and exercise non necessarily reverberate or represent the views and opinions of Cointelegraph.

Tatiana Revoredo is a founding fellow member of the Oxford Blockchain Foundation and is a strategist in blockchain at Saïd Concern School at the University of Oxford. Additionally, she is an expert in blockchain concern applications at the Massachusetts Institute of Technology and is the chief strategy officer of The Global Strategy. Tatiana has been invited by the European Parliament to the Intercontinental Blockchain Conference and was invited by the Brazilian parliament to the public hearing on Bill 2303/2015. She is the writer of two books: Blockchain: Tudo O Que Você Precisa Saber and Cryptocurrencies in the International Scenario: What Is the Position of Cardinal Banks, Governments and Authorities Virtually Cryptocurrencies?