Crypto Beans #22 How big is Bitcoin's energy consumption, does it matter

Hey there everyone! 👋 This is Shivam. I bring to you the 22nd weekly edition of Crypto Beans. This is an effort through which I try to share my thoughts on the crypto space and help you stay updated. Your 0 to 1 guide in crypto.

Read time - 4 mins

In this edition, the article I explore is titled "How big is Bitcoin's energy consumption, does it matter?" Hope you enjoy it.

Spill the beans (Explain to me like a 5 year old) 

Is it enough to be a problem or Bitcoin energy issues are over blown?

1} The digital gold rush has come with a catch:

Massive electricity consumption. In order to analyze this let's look at the numbers first, as per current CCAF estimates, Bitcoin has an annualized electricity consumption at 134.67 TWh

In the last post I talked about how in order to secure the Bitcoin network miners generate 360 ExaHash/s of digital power right now. So basically they take raw energy in the form of electricity, and then they modulate it through custom semiconductor chips to carry computation.

2} What drives the energy consumption?

Decentralized nature of Bitcoin. Let's look at how this works:

To verify transactions, Bitcoin requires computers to solve ever more complex math problems. The miner who completes the mathematical equation the fastest not only certifies the transaction, but also gets a small reward for their trouble in the form of a Bitcoin payment. Next part is where things get tricky,

The process of producing a valid block is largely based on trial and error. Miners are making numerous attempts every second trying to find the right value for a block component which consumes lots of energy. For this reason, mining is sometimes compared to a lottery

The way code is setup, the Bitcoin puzzles is set to become much harder to solve with time. With adoption and as more people compete to solve the puzzle, they would need more power to outcompete others, leading to acceleration in energy consumption

3} But the question is, How big is the energy use?

Well, currently Bitcoin uses less than 0.1% of global electricity production. To put in context- the world uses over 176,000 TWh of energy per year. Let me draw an analogy here:

If Bitcoin was a country it would rank higher than some countries on energy consumption However, if you look the value of the network, Bitcoin has a market cap of more than $500b. This is more than the GDP of many countries like Nigeria, Denmark, South Africa....

4} Which brings us to the final question - Is it really that bad or Overblown?

Whether you feel Bitcoin has a valid claim on society’s resources boils down to how much value you think Bitcoin creates for society. Here are two arguments on why this may be overblown

1) Bitcoin Can Use Energy That Other Industries Can’t

In the areas where production capacity massively outpaces local demand and technology is far from advanced to store and transport energy. Bitcoin mining can be used to make use of the otherwise wasted energy. Bitcoin miners have the unique capability to go to remote locations. Also, they can deal with inconsistent power that other consumers can’t make use of, as long as it’s cheap

2) Miners are unlikely to continue expanding their mining operations at the current rates indefinitely.

Today, miners receive fees from - Transactions that they verify while mining (around 10% of miner revenue) and Profit margins when they sell the bitcoins they have mined. The protocol is built to halve the issuance. This would reduce the miner revenue every four years. Eventually share of miner revenue will decay to zero, dis incentivizing them to run more operations

Bitcoin's energy use is high but at the same time it seems to be a fraction of what the world uses. Given its impact and value to the society which may be evident in future years to come, this seems like a tradeoff someone could take any day.

State of Crypto affairs - A quick look at the market 

The global cryptocurrency market cap today: $1.17 Trillion

Weekly change: -0.50% | Yearly change: -11.04% 

Bitcoin (BTC) is the largest cryptocurrency with a market cap of $521 Billion.

Weekly change: 0.25% | YTD change: 61.78%

Another important metric is Bitcoin dominance which can be used as a rough indicator of the relative strength of Bitcoin versus other cryptocurrencies. A high Bitcoin dominance means that Bitcoin has a large market share and is potentially more influential in the overall cryptocurrency market and vice-versa.

Bitcoin dominance: Current Year: 46.30% | Last year (May 2022): 45.85%

Greed and fear index 

The market sentiment has been a bit neutral now post Bitcoin dumping in the last week. The beginning of a crab market it seems. However, with an agreement on Debt ceiling can send the Bitcoin soaring to new heights in the short term

Note: The data used is based on metrics like Volatility, Surveys, Bitcoin Dominance, Social and Google Trends. Source: Coinstats

Is ETH ultrasound money? 

Let's have a look at Ethereum supply changes post its merge to a PoS blockchain from PoW, as there is a shift in the narrative for Ethereum to become a store of value due to the expected reduction in ETH emissions.

Supply change since merge POS -250,105 ETH

The graph highlights POS vs POW issuance since the merge. Impressive numbers, look super bullish for ETH long term given the supply of ETH is not growing as before

What's brewing today? Bringing fresh beans to you: 

Laser-Eyed Maxis vs JPEG Enjoyers: What You Need to Know About the Great Bitcoin Debate: This isn't the first time the Bitcoin community has been at odds over mempool space and it probably won't be the last.

Pudgy Penguins Smash Amazon Debut, Sells Over 20,000 Toys: The “Phygital” toy collection brings in half a million dollars in sales in two days.

Bitcoin Payments App Strike Expands to More Than 65 Countries From Three: Strike, led by Jack Mallers, currently operates in the U.S. and El Salvador. Now it's pushing into new markets in Africa, Latin America, Eastern Europe, Asia and the Caribbean

Whats meme-ing? Better make sure this is fun

And now the funny part,

What did you think of today's edition?  

Reach out to me on Twitter or Linkedin for any feedback :)

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.