Bitcoin Prices and Electricity Consumption

Introduced in 2009, Bitcoin is a digital currency that operates on a decentralised network called a blockchain. It’s the most famous cryptocurrency and it’s used as an alternative to traditional fiat currencies like the British pound. It’s estimated that Bitcoin accounts for around 47% of all cryptocurrency ownership in the United Kingdom.

The biggest downside of Bitcoin is the amount of electricity it takes to produce or “mine”. This is largely because of the proof of work (PoW) consensus mechanism which is used to validate and confirm transactions.

During the process, miners compete with each other to solve complicated mathematical puzzles which require a high volume of computational effort. As a result, a lot of electricity is required.

In this guide, we’ll cover how rising Bitcoin prices lead to increased energy consumption, how mining for Bitcoin can be more sustainable, and much more.

How Rising Bitcoin Prices Contribute to Energy Consumption

Let’s take a look at how rising prices contribute to Bitcoin’s energy consumption.

Rising prices fuel mining competition

The reward system of Bitcoin mining creates a direct link between higher Bitcoin cryptocurrency prices and increased profitability for miners. As Bitcoin prices rise, the value of the transaction fees and block rewards also increase. Therefore, mining becomes more profitable.

This leads to an increase in Bitcoin miners joining the network which creates more competition and, ultimately, the need for more computing power to mine new blocks.

A mechanism called Bitcoin mining difficulty adjustment also increases the energy consumption of the Bitcoin network. It’s primarily designed to maintain a consistent rate of block production by making it harder to add blocks to the blockchain. This means more computational power is required which increases Bitcoin mining energy consumption.

Environmental impact of Bitcoin

The Bitcoin Energy Consumption Index estimates that the total global energy consumption of the Bitcoin network is 137.68 TWh. In the UK, it’s estimated that the energy used in Bitcoin mining could power around 24.8% of the households in the country.

The Bitcoin carbon footprint of mining is further increased by the fact that miners primarily source the energy they use from fossil fuels.

This has led to plenty of criticism of the potential long-term environmental impacts of Bitcoin. Particularly, its reliance on non-renewable energy sources has been criticised for hindering a transition towards more sustainable energy practices.

Bitcoin Prices and Electricity Consumption

How Can Bitcoin Mining Be More Sustainable

Here are some of the ways the concerning relationship between Bitcoin and electricity consumption can be addressed.

Exploring alternatives: Beyond proof-of-work

Currently, consensus mechanisms that are less energy-intensive than PoW are being explored. This includes proof of authority (PoA), proof of stake (PoS), and proof of elapsed time (PoET).

So, how are these mechanisms offering solutions to the environmental concerns associated with PoW?

Well, for example, PoS allows network validators to validate transactions based on the tokens they hold. This massively reduces the need for high levels of computational power and reduces the amount of electricity consumed in the mining process.

At the moment, the transition from PoW to other mechanisms poses significant operational and technological challenges. Using PoW for network consensus is currently far more straightforward than building a PoS consensus network, which involves many technical complexities.

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