Tuesday, June 28, 2022

How Much Energy Does Blockchain Use

Ci Galaxy Ethereum Etf

Bitcoin Energy Consumption & Climate Change: Does Bitcoin Use Too Much Energy? [2021]

Assets under management: C$858.34 million

CI Global Asset Management suggests that owning Ether is similar to owning a basket of early-stage, high-growth technology stocks. The CI Galaxy Ethereum ETF has blown the competition out of the water in terms of assets under management.

Some of that may be due to its ultra-low management fees, which were at zero for nearly the first two months following the funds April launch date. After June 15, the management fees increased to 0.4 percent, in line with the CI Galaxy Bitcoin ETF, but still well below those of its competitors.

A More Detailed Estimate

Later on, more granular information became available in the Global Cryptocurrency Benchmarking Study by Garrick Hileman and Michel Rauchs from 2017. In this study, they identified facilities representing roughly half of the entire Bitcoin hash rate, with a total consumption of 232 megawatts. Chinese mining facilities were responsible for about half of this, with a lower bound consumption of 111 megawatts. This information can be used to get a more accurate idea of the carbon emission factor in grams of carbon dioxide equivalent per kilowatt-hour that applies to the electricity used for mining.

The table below features a breakdown of the energy consumption of the mining facilities surveyed by Hileman and Rauchs. By applying the emission factors of the respective countrys grid, we find that the Bitcoin network had a weighted average carbon intensity of 475 gCO2eq per kWh consumed.

Location
475

Comparing Bitcoins Energy Consumption To Other Payment Systems

To put the energy consumed by the Bitcoin network into perspective we can compare it to another payment system like VISA for example. According to VISA, the company consumed a total amount of 740,000 Gigajoules of energy globally for all its operations. This means that VISA has an energy need equal to that of around 19,304 U.S. households. We also know VISA processed 138.3 billion transactions in 2019. With the help of these numbers, it is possible to compare both networks and show that Bitcoin is extremely more energy intensive per transaction than VISA. The difference in carbon intensity per transaction is even greater , as the energy used by VISA is relatively greener than the energy used by the Bitcoin mining network. The carbon footprint per VISA transaction is only 0.45 grams CO2eq.

Electrical Energy Comparison

1,201,748

VISA transactionssingle Bitcoin transactionCarbon Footprint Comparison

1,880,406

VISA transactionssingle Bitcoin transactionenergy mix

Of course, VISA isnt perfectly representative for the global financial system. But even a comparison with the average non-cash transaction in the regular financial system still reveals that an average Bitcoin transaction requires several thousands of times more energy.

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Bitcoin Can Use Energy That Other Industries Cant

Another key factor that makes Bitcoins energy consumption different from that of most other industries is that Bitcoin can be mined anywhere. Almost all of the energy used worldwide must be produced relatively close to its end users but Bitcoin has no such limitation, enabling miners to utilize power sources that are inaccessible for most other applications.

Hydro is the most well-known example of this. In the wet season in Sichuan and Yunnan, enormous quantities of renewable hydro energy are wasted every year. In these areas, production capacity massively outpaces local demand, and battery technology is far from advanced enough to make it worthwhile to store and transport energy from these rural regions into the urban centers that need it. These regions most likely represent the single largest stranded energy resource on the planet, and as such its no coincidence that these provinces are the heartlands of mining in China, responsible for almost 10% of global Bitcoin mining in the dry season and 50% in the wet season.

Differences Of Futures Etfs For Bitcoin Investors

Is Gold or Bitcoin a Bubble? (How Much Energy Do They ...

Nawan Butt, portfolio manager with Purpose Investments, said the framework by which the US approved bitcoin ETFs could leave a lot of investors exposed to less than optimal investment avenues in the exciting new market.

“What the futures based ETF is trying to do is provide the same but more likely a similar exposure to what crypto has to offer,” Butt said. “There’s a whole bunch of costs involved by saying, ‘Hey, I’ll buy something in the future, but save the price for me today.'”

Butt explained futures are a financial contract, they’re not a physical contract, to buy a certain security in the future for a predetermined price.

In a note to investors co-written by Michael Scott, investment analyst, and Josh Bubar, VP of product with Purpose Investments, it was emphasized investors should be prepared to do extra due diligence when evaluating flashy new bitcoin ETFs.

In the note, the financial experts outlined how a future ETF differs from the established ETF format:

In the case of bitcoin, purchasing future contracts gives instant exposure to a future purchase of bitcoin. These futures contracts are cash settled, meaning that the contract holder receives a cash settlement equal to what a bitcoin is worth as of the defined date.

The clash in investment ideas, according to Scott and Bubar, comes in the moment to cash in the future aspect of the currency:

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Energy Consumption Model And Key Assumptions

Even though the total network hashrate can easily be calculated, it is impossible to tell what this means in terms of energy consumption as there is no central register with all active machines . In the past, energy consumption estimates typically included an assumption on what machines were still active and how they were distributed, in order to arrive at a certain number of Watts consumed per Gigahash/sec . A detailed examination of a real-world Bitcoin mine shows why such an approach will certainly lead to underestimating the networks energy consumption, because it disregards relevant factors like machine-reliability, climate and cooling costs. This arbitrary approach has therefore led to a wide set of energy consumption estimates that strongly deviate from one another, sometimes with a disregard to the economic consequences of the chosen parameters. The Bitcoin Energy Consumption Index therefore proposes to turn the problem around, and approach energy consumption from an economic perspective.

Bitcoin miner earnings and expenses are currenly as follows:

39.77%

Taking Artistic License With Climate Solutions

NFT enthusiasts argue that the increasing popularity of blockchain technology, with its voracious appetite for energy, provides incentives for upgrading energy grids from fossil fuels to renewable sources. Similar arguments have been made by the airline industry: in order to fund the efficiency innovations that could make aviation greener, people should fly more, not less. For NFTs, evidence shows this approach is unlikely to work. Due to the competitive nature of proof-of-work mining, booming NFT markets are encouraging the construction of reliable coal-fired power stations, so that crypto miners dont have to suffer intermittent access to renewable generation.

Some NFT creators are trying to have their crypto-cake and eat it by using carbon offsets. Buying offsets funds conservation work, with each carbon credit purchased equivalent to one ton of carbon saved, which is either stored in a tree or theoretically prevented from escaping into the atmosphere through some sort of industrial innovation. The Offsetra company provides an emissions calculator and sells carbon credits to offset emissions caused by NFT transactions. The NFT marketplace Nifty Gateway recently auctioned eight carbon net-negative NFTs inspired by Earth and the climate crisis. The artworks received 60 carbon credits. Each offset was itself an NFT.

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Move Away From The Proof

Proof of work is a validation method that prizes computing power and resource usage. As cryptocurrency miners’ computer power goes up, so does their mining power. When people solve the mathematical challenges that allow them to validate blockchain transactions through proof of work, they get rewarded with more cryptocurrency.

However, some people in the cryptocurrency sector want to instead use proof of stake or authority to validate entries on the blockchain. Bitcoin researcher Alex de Vries is a supporter of the proof-of-stake method.

It involves giving a person validation or mining privileges that relate to how many cryptocurrency coins they have. People taking part in the proof-of-stake validation method have to surrender cryptocurrency to do so, similarly to holding them in an escrow account. If people fraudulently validate a transaction on the blockchain, they lose their staked coins as well as the ability to approve future blockchain entries.

Then, proof of authority only allows a selected number of people usually 25 or less to validate blockchain transactions. These individuals are people viewed as trustworthy, according to the consensus of everyone able to access the blockchain. This consensus method is most common on private blockchains, such as the sort that would be built to handle specific energy trading schemes or verification of sustainable business measures being taken across a supply chain.

Why Mining Requires Energy

Why bitcoin uses so much energy | CNBC Explains

These astronomical energy costs are due to the competitive nature of proof-of-work blockchains. Instead of storing account balances in a central database, cryptocurrency transactions are recorded by a distributed network of miners, incentivized by block rewards. These specialized computers are engaged in a computational race to record new blocks, which can only be created by solving cryptographic puzzles.

Cryptocurrency advocates believe that this system has numerous advantages over centralized currencies because it does not rely on any trusted intermediary or single point of failure. However, the puzzles for mining require many energy-intensive computations.

Bitcoin, the most widely-known cryptocurrency network, uses 121 Terawatt-hours of electricity every year, the BBC reported in 2021more than the entire country of Argentina. According to Digiconomist, a cryptocurrency analytics site, the Ethereum network uses as much power as the entire nation of Qatar.

One major concern among environmentalists is that mining tends to become less efficient as the price of cryptocurrency increases. In the case of bitcoin, the mathematical puzzles to create blocks get more difficult as the price goes up, but transaction throughput remains constant. This means that over time, the network will consume more computing power and energy to process the same number of transactions.

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Why Is This Energy Consumption A Problem

While the mining industrys steering toward cleaner energy, a large portion of the electricity consumed by the Bitcoin network is still generated from nonrenewable sources, like coal-burning power plants. Its well understood that burning fossil fuels like coal releases huge amounts of carbon dioxide into the atmosphere the main driver of climate change. That means that the more mining computers that join the network, the more demand there will be to create and consume energy.

Energy demands around bitcoin have long been a concern, especially now that we have seen the network quadruple since its last peak in 2017. And the network is still maturing. At its present level, Bitcoin consumes 81.51 terawatt hours annually. If it were a country, it would rank as number 39 for annual electricity consumption, ahead of Austria and Venezuela.

Antminer S19 Power Consumption Energy Usage Of Asic Bitcoin Miners

The Antminer S9 ASIC miner consumes 3,250 Watts for the 95 TH/s batch if operating at a temperature of 25 degrees Celsius . The efficiency of this unit is 34.5 Joules per Terahash at the same temperature. This equals a ratio of 34.21 Watts per TH of the S19s hashing capacity.

This is a massive efficiency improvement over previous units such as the Antminer S9, which consumes 98 Watts per TH. However, it should also be noted that increases in mining difficulty offset miner efficiency improvements to some extent.

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How Much Energy Does Bitcoin Mining Use

The bitcoin network now uses nearly as much energy as the Czech Republic while over 6 million US households could be powered by bitcoin on an annual basis.

Its hard to argue that the rise of blockchainsand bitcoinspopularity over the last couple of years is second to none. However, the mining process behind the technology uses a significant amount of energy, thereby impacting the environment.

According to Digiconomist, a website that was created to track bitcoins energy consumption, bitcoins current estimated annual electricity consumption is valued at 65.26 TWh as of May 7up from 36.79 as of January 1. Overall, that number represents a 77.38 percent increase since the start of the year, and could currently power more than 6 million US households.

In addition to that, the bitcoin network consumes more energy than a number of countries on an annual basis, including Kuwait, Colombia and Switzerland, but falls closely in line with the Czech Republic which uses 67.3 TWh in energy per year.

In short, while theres certainly a growing concern circling the amount of energy used to fuel bitcoin mining, that doesnt mean there arent solutions in the works. Here, the Investing News Network takes a brief look at how energy is used in blockchain and what is being done to reduce the amount being used.

Iq Coinshares Bitcoin Etf

How much energy does bitcoin use?  Quartz

Assets under management: C$1.22 billion

Launched on March 31 of this year, the objective of the 3iQ CoinShares Bitcoin ETF is to provide investors with the opportunity for long-term capital appreciation through exposure to bitcoin and its daily US dollar price movements. The funds management fee is at 1 percent.

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How Much Energy Does An Ethereum Nft Use

Ethereum is the most commonly used blockchain for NFTs, and uses a proof of work consensus algorithm. This Ethereum transaction uses roughly 48 kWh which can be equated to roughly the amount of energy used by a U.S. household for 1.5 days. It is the consensus algorithm that uses so much energy, not the NFT itself.

To understand exactly how much energy an NFT consumes, we must look at the process in detail to have a better understanding. For an NFT to be sold it must be listed on a marketplace. At present the most popular marketplaces often denominate purchases in Ethereum. For example, you list an item on OpenSea, the largest NFT marketplace. If you want to read our in depth article explaining exactly what OpenSea is and how to use it click here!

After the item is listed on OpenSea or another NFT marketplace, the minting process occurs which is what tokenizes the digital item or creates verifiable information pointing to the location of the item on the blockchain. This occurs when someone purchases an NFT in marketplaces that use lazy minting like OpenSea. Additionally, when an NFT is created on a seperate marketplace, it is automatically tokenized unless the marketplace also uses lazy minting.

Miners must solve an algorithm which can be described as numerous complex math problems that store the information providing ownership of the digital asset which essentially makes it possible for the user to own a digital receipt.

The Environmental Future Of The Blockchain

Environmental impact aside, right now electricity costs eat into estimated 28% of Bitcoin minings profitability each year according to Digiconomist.

For example, I believe that smart contracts will allow companies to automate much of their complex payment and business process systems by automatically checking to make sure that a purchase order, for example, complies with the terms and conditions of a contract, he says. This might allow a company to reduce the number of employees who need to commute into an office to process orders, resulting in fewer transportation-related carbon emissions.

Though we may not know the full potential green applications of blockchain technology for years to come, already theres talk of using it to combat big issues, like helping companies to better log carbon emissions or even, in a truly meta move, using blockchain-powered carbon credits to move to a carbon-neutral future.

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Energy Consumption Is Not Equivalent To Carbon Emissions

First, theres an important distinction between how much energy a system consumes and how much carbon it emits. While determining energy consumption is relatively straightforward, you cannot extrapolate the associated carbon emissions without knowing the precise energy mix that is, the makeup of different energy sources used by the computers mining Bitcoin. For example, one unit of hydro energy will have much less environmental impact than the same unit of coal-powered energy.

Bitcoins energy consumption is relatively easy to estimate: You can just look at its hashrate , and then make some educated guesses as to the energy requirements of the hardware that miners are using. But its carbon emissions are much harder to ascertain. Mining is an intensely competitive business, and miners tend not to be particularly forthcoming around the details of their operations. The best estimates of energy production geolocation come from the CCAF, which has worked with major mining pools to put together an anonymized dataset of miner locations.

How Much Energy Does Mining Take

Bitcoin Energy Problem | Why Does Bitcoin use so Much Energy?

The Digiconomist’s Bitcoin Energy Consumption Index estimated that one Bitcoin transaction takes 1,544 kWh to complete, or the equivalent of approximately 53 days of power for the average US household.

To put that into money terms, the average cost per kWh in the US is 13 cents. That means a Bitcoin transaction would generate more than $200 in energy bills.

Bitcoin mining used more energy than Argentina, according to an analysis from Cambridge University in February. At 121.36 terawatt-hours, crypto mining would be in the top 30 of countries based on energy consumption.

A wall of mining rigs in Quebec, Canada.

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