Bitcoin’s enormous energy use.. Could it be the cause of ‘rice cake’?

Bitcoin’s enormous energy use.. Could it be the cause of ‘rice cake’?

Everyone has heard of at least one story about people who became rich with Bitcoin.

Musk’s electric car company Tesla recorded a valuation gain of more than $900 million (about 1 trillion won) after purchasing $1.5 billion (about 1.7 trillion won) of bitcoin in early February.

Investing news from celebrities like Musk helped push the price of a single bitcoin to over $58,000.

Bitcoin didn’t just peak in price. Energy use also peaked.

This has been a headwind for Musk as Bitcoin’s environmental impact has become more pronounced.

Many celebrities have also joined the procession of Bitcoin criticism. Most recently, Treasury Secretary Janet Yellen criticized Bitcoin.

“The amount of energy consumed to process bitcoin transactions is enormous,” Yellen said.

It is not clear exactly how much energy Bitcoin consumes. Cryptocurrencies were designed from the outset to be difficult to trace. However, the consensus of the industry is that Bitcoin mining is a very energy-consuming business.

Bitcoin’s annual energy consumption is estimated to exceed that of the Netherlands as a whole

Recently, the Center for Alternative Finance (CCAF) at the University of Cambridge conducted a study on the rapidly growing cryptocurrency business.

The center estimated Bitcoin’s total energy consumption at around 40-445 terawatt-hours (TWh) per year, with a median estimate of about 130 TWh.

The UK consumes around 300 TWh of electricity per year, while Argentina’s electricity consumption is comparable to the Bitcoin electricity consumption estimated by the center.

There are far more polluting power sources in the energy used by Bitcoin mining.

According to a survey of people running Bitcoin networks around the world, the Center found that about two-thirds of the energy consumed by Bitcoin comes from fossil fuels.

Blockchain technology, a characteristic of cryptocurrency, requires enormous computational power (and thus energy consumption).

It also relies on vast, decentralized networks.

Bitcoin’s energy consumption is more than half of that of data centers worldwide

The network also includes so-called Bitcoin miners, who also record and verify transactions using Bitcoin.

The bitcoins they mine are also a reward for accurately managing these transaction records.

Data processing centers around the world collect and submit Bitcoin transaction records to the system.

You also need to match a random number.

The first person to submit a transaction record and correct number is paid in Bitcoin, which becomes the next block in the blockchain.

Currently, if the submission is successful, 6.25 bitcoins will be issued, and the current bitcoin is worth $50,000 (about 56 million won).

When this is done, a new number is randomly generated and the whole process starts over.

Therefore, the higher the price of Bitcoin, the more miners want to participate. This leads to an increase in the energy consumption of Bitcoin.

 

There is another factor contributing to Bitcoin’s increase in energy consumption.

Bitcoin software always takes 10 minutes to solve one puzzle. Therefore, as the number of miners increases, the puzzle becomes more difficult and requires more computational power.

Bitcoin is actually designed to encourage the input of more computational effort.

This stems from the idea that the more computers compete to maintain the blockchain, the more secure it becomes. Because in order for someone to shake Bitcoin, they have to have more computing power than all other miners combined.

In other words, as the value of Bitcoin increases, the computational power required to create and maintain it increases. As a result, energy consumption is bound to increase as well.

It is also possible to track how much effort it takes miners to create Bitcoin.

It is currently estimated that about 16,000 calculations are performed every second. When expressed as a number, it is 160,000,000,000,000,000,000 times.

This massive computational power requirement is Bitcoin’s Achilles heel, says Bitcoin expert Alex Debris.

Most of the energy used to operate Bitcoin comes from fossil fuels.

Hundreds of millions and trillions of operations are performed to maintain the system, but these operations do not actually do anything useful.

“Operation used in Bitcoin is an operation that has no other purpose,” Debris said. “The results of the operation are immediately discarded. We currently use a lot of energy to make these operations, and most of them come from fossil fuels.”

This inherently makes it difficult to expand the usage of Bitcoin.

“If Bitcoin were to be used as a global reserve currency, the price of Bitcoin would be millions of dollars, and miners would have to spend more on electricity than the US government budgets,” Debris said.

“Then we just have to double the world’s energy production just for Bitcoin,” he added with a laugh.

Bitcoin also limits the number of transactions the system can handle to five per second, which he argues is not very useful as a currency.

 

Many experts in the financial sector and economics are of the same opinion.

Ken Rogoff, a professor at Harvard University and former chief economist at the International Monetary Fund (IMF), says two key characteristics of a successful currency are the efficiency of transactions and the presence of a stable store of value.

But Bitcoin is neither, he said.

“Actually, even today (Bitcoin) is not being used very much in a legal economy. Of course, one rich person sells to another, and so on, but that is not an end-use. Without an end-use, a currency has no long-term future. “

In other words, Bitcoin exists almost exclusively as a speculative tool.

So, is Bitcoin a bubble and will the bubble burst soon?

Professor Rogoff paused for a moment after saying, “I think so.”

“But I don’t know when that will be.”

TTBR

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