Bitcoin: Cryptopayments Energy Efficiency

28 Pages Posted: 16 Jun 2022 Last revised: 28 Sep 2022

Date Written: April 20, 2022

Abstract

Bitcoin introduced a cryptographic peer-to-peer version of money that allows online payments to be sent directly from one party to another without going through a financial institution. Many recent studies evaluated and criticised Bitcoin’s energy consumption through its Proof of Work (PoW) consensus mechanism without evaluating its efficiency compared to classical electronic payment system.

Based on physics, information science and economics, we compute and compare the energy consumption and define what is the energy efficiency of both the current monetary payment system and Bitcoin cryptopayment system. We demonstrate that Bitcoin consumes at least 28 times less energy and can run today with 60 times less energy than the classical system. At a single transaction level and with total volumes accounted for, Bitcoin produces equivalent energy efficiency rates or better. When Bitcoin Lightning is compared to Instant Payment scheme, Bitcoin gains exponentially in scalability and efficiency, proving to be millions of times more energy efficient per transaction than Instant Payments.

Keywords: Bitcoin, Payments, Money, PoW, cryptocurrency, banking, CIT, energy, energy efficiency, Instant, Lightning, Blockchain

JEL Classification: C82, C0, C01, C02, E00, L00, O11, O30, O44

Suggested Citation

Khazzaka, Michel, Bitcoin: Cryptopayments Energy Efficiency (April 20, 2022). Available at SSRN: https://ssrn.com/abstract=4125499 or http://dx.doi.org/10.2139/ssrn.4125499

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