[INSIGHT] Bitcoin Mining consumes more Electricity than the Philippines

By Ladylyn Salvanera & Cezar John Estrada   -   

One of the most disrupting technologies nowadays is the rise of cryptocurrency, like Bitcoin. Cryptocurrency may be a complex term when you first hear it but this currency is just like a typical fiat currency which works like a typical money.

So technically speaking, what is a cryptocurrency?

Based on Investopedia, a cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.

The major difference between a fiat and a cryptocurrency is that fiat is a centralized currency issued by a government where its supply is controlled by the government. On the other hand, cryptocurrency is not issued by any government and that its supply is controlled by computer program algorithms.

What is Bitcoin?

Bitcoin is the first and most widely recognized cryptocurrency. It enables peer-to-peer exchange of value in the digital realm through the use of a decentralized protocol, cryptography, and a mechanism to achieve global consensus on the state of a public transaction ledger (blockchain).

Practically speaking, Bitcoin is a form of digital money that (1) exists independently of any government, state, or financial institution, (2) can be transferred globally without the need for a centralized intermediary, and (3) has a known monetary policy that cannot be altered.

The word "Bitcoin" can refer to the Bitcoin software protocol, as well as to the monetary unit which goes by the ticker symbol BTC.

Launched anonymously in January 2009 to a niche group of technologists, Bitcoin is now a globally traded financial asset with daily settled volume measured in the tens of billions of dollars. Although its regulatory status varies by region and continues to evolve, Bitcoin is most commonly thought of as either a currency or a commodity, and is legal to use (with varying levels of restrictions) in all major economies.

How are Bitcoins Created?

Bitcoin has a finite supply and in order to create new coins, it must go through a process called mining. Just like a literal gold mining where you have to dig the earth and extract gold, a bitcoin mining is somehow similar. But instead of digging soil, a bitcoin miner uses technology and special software to solve complex cryptographic puzzles.

How does Bitcoin mining works?

The current Bitcoin price today which ranges from $40,000 - $65,000 (Bitcoin to Php : ₱1.9-3Million), makes bitcoin mining as one of the most stimulating activity for those who wants to acquire its value. So how long does it takes to mine a bitcoin? The bitcoin network allows a block to be mined every 10 minutes. To maintain this 10 minutes pace, the algorithm is designed such that its difficulty level will increase with the number of miners. Thus, with the increasing numbers of miners and difficulty of the cryptographic puzzles to be solve, computers with strong computing capabilities are needed. 

Bitcoin mining's Energy Consumption

With the rise of  Bitcoin mining, energy consumption of this industry and its carbon footprint has been the constant debacle. On 25 April 2021, the Cambridge Bitcoin Electricity Consumption Index estimates that the crypto’s annualized energy consumption to be around 114.66 TWh. This is higher compared with Philippines' energy consumption in 2019 which is about 106.04 TWh.

(Check the data here from Cambridge Centre for Alternative Finance)

To further put Bitcoin's energy consumption into perspective, we compared it with other tech companies' consumption. It consumes 2,149% more electricity than Facebook, 803% more electricity than Google, and about 156% more electricity than Samsung. 

Based on a 2020 survey report from the University of Cambridge, it was found that 76% of crypto-miners rely on some degree of renewable energy to power their operations. However, the share of renewables in crypto mining's total energy consumption remains at 39%. Also, based on their survey, miners in the Asia-Pacific are equally relying on Hydroelectric and Coal at about 65%. 

Reasonableness of Bitcoin’s Energy Consumption

We all know that electricity provides many uses but also comes at a cost, such as carbon emissions. But is the Bitcoin energy consumption reasonable, given that it consumes energy more than a country like the Philippines?

If your answer is no, then no argument will convince you that Bitcoin is of any value rather than a complete waste which consumes energy. However, if you are right and Bitcoin serves no purpose and is a bubble that will pop itself, then it will surely die in no time, taking its consumption with it.

If on the other hand your answer is yes, and you believe on the value and benefit it delivers compared with fiat currency, then its consumption may be justifiable.

Proving the justifiability of Bitcoin’s energy consumption is relative. But in comparing the energy consumption of a decentralized currency, then its benefits must be compared with the consumption and use of the centralized financial system’s - such as modern banking and gold mining.

Electricity comes at a cost, and we therefore need to make sure we understand what Bitcoin gives in return for this expense. Who are the people actually paying for this electricity? Is the monetary returns the only reason for their willingness to do so? Is sustainability part of their plans? These are some of the important questions that still needs to be answered, and we hope to find this out very soon.

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References: 

• Department of Energy. (2020). 2019 Power Situation. https://www.energyliteracyph.com/energy-plans-and-statistics/energy-development-plans-and-situation-reports
• Investopedia. (2021). Cryptocurrency. https://www.investopedia.com/terms/c/cryptocurrency.asp 
• University of Cambridge. (2020). 3rd Cryptoasset Benchmarking Study. https://www.jbs.cam.ac.uk/wp-content/uploads/2021/01/2021-ccaf-3rd-global-cryptoasset-benchmarking-study.pdf 

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Ladylyn is a Registered Electrical Engineer by profession who acquired her degree from University of the Philippines - Los Baños. She has a background on system analysis of distribution Utilities, and expertise on energy policy and regulation. She is currently focused on financial and economic modelling of the energy industry. 

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Cezar, is a Registered Electrical Engineer by profession who acquired his degree from the University of the Philippines - Los Baños. He is also an Energy Transformation Expert with a background on renewables, transmission and distribution planning. He is currently focusing on energy policy research and development.

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