Energy Consumption – Bitcoin’s Achilles Heel
10 Pages Posted: 21 Nov 2018 Last revised: 29 Nov 2018
Date Written: November 24, 2017
Bitcoin as a cryptocurrency has received wide public interest. As a decentralized transaction system, Bitcoin relies on the mining process, which is a necessary process to validate transactions. The mining process involves solving complex crypto-puzzles which requires significantly high computing power. This resource-hungry process has a significant impact on the energy consumption of the system. Our study looks at the mining process and the resources required to process large volumes of transactions. Using data from September 2014 to November 2018, we investigate how the mining protocol impacts the computing capacity needs of miners. We demonstrate that the complexity of the crypto-puzzle and the transaction volume significantly increase computing resource needs which in turn raises the energy consumption. We estimate that the energy demand from mining activities will drain 17.96 Gigawatt if the system processes 100 million transactions per week. Our findings suggest that the mining protocol drains significant resource requirements both from a computing hardware and energy consumption needs that the future growth of the Bitcoin network and the use of Bitcoin as a currency could be questionable.
Keywords: Bitcoin, Blockchain, Cryptocurrency, Mining, Energy
JEL Classification: M10, M15, M48
Suggested Citation: Suggested Citation