Have you noticed how much chatter there has recently been regarding cryptocurrencies? Words like “Bitcoin” and “Blockchain” are all over the place, and it can become difficult to understand what the hassle is all about. But have you ever considered where Bitcoin comes from? And why does it have such a grip on our society today?
Believe it or not, Bitcoin was first introduced in 2009, as an easier and uncentralized way of sending money over the Internet. A mystery surrounding Bitcoin is that nobody knows where it came from - we just know that the group or individual uses the pseudonym of “Satoshi Nakamoto”. But that’s beside the point - what matters is that his or their brainchild has made waves around the world this past decade. And it doesn’t show any signs of stopping anytime soon!
And that’s not all! Yes, this Satoshi person or group came with “Bitcoin”, but they also developed the home of the currency - which is the blockchain. Those of you who are not familiar with the blockchain will need to remember, for the sake of this article, that it's a shared digital ledger that facilitates the tracking of assets and transactions in the digital world.
Bitcoin innovated the idea of blockchain. And nothing was ever the same! Now, people can get rid of third parties when dealing with financial activities. No more banks! This peer-to-peer solution has piqued the interest of people all around the world, with many believing that the blockchain may be the future of banking, while Bitcoin will be the future of money.
Whether you like it or not, the potential that comes with blockchain technology and Bitcoin is one-of-a-kind! It has the power to alter our perception of what finance is. But let’s not get ahead of ourselves - as Bitcoin poses some considerable threats to our planet.
And the feature that has garnered the most traction and controversy is the “mining” part. It’s no surprise, given the fact that his procedure is crucial to how Bitcoin works
So what is mining, and where does it fit in all of this? Essentially, mining is the process by which Bitcoin transactions are validated on the network and added to the blockchain. This is the way a new coin enters into circulation. Miners use powerful computers to solve mathematical equations that will result in the birth of a coin. The miner that solves the equation faster, will receive Bitcoin tokens as a reward for their work.
You might ask why mining is important to the process - or why it needs to be done in the first place. Well, the answer lies in Bitcoin’s decentralized nature. As there is no central authority overseeing the transactions, mining becomes the only method of validating them and ensuring there are no frauds. The network guarantees that only genuine transactions are uploaded to the blockchain by asking miners to solve complicated equations.
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Blocks have a maximum number of transactions that they can register
And a new block needs to be created after that happens! Also, every block needs validation that happens through a process called proof-of-work. This is one of the innovations blockchain introduced, namely that a computer needs to solve an equation that would then be cryptographed to the block. In this way, every block in the blockchain has something called a hash key or, shortly, a hash. A hash is formed by a combination of 64 characters, letters, and numbers, and a miner needs to get the exact combination of it for the block to be validated. When a hash is found, the founder that first solved the equation is awarded a certain number of Bitcoins.
Now, the total number of Bitcoins that will ever be mined has been set by Nakamoto at 21 million tokens. Even though at first the equations were simple, as more people started entering the rush to mine the tokens, the problems got exponentially harder to solve.
As Bitcoin’s value started surging, more miners wanted to get in, so a competition started for who got the most processing power to solve a key
And here we are today. More people are investing in power to compete in the market of mining Bitcoins, and the software increases the difficulty of the equations in consequence. It does not matter how much processing power a miner has. Whether it is hundreds of thousands of computers, the time would still be 10 minutes to get a hash because it was set to be this way by its creator/s.
Cryptocurrency mining stations, which comprise huge amounts of computers working at the same time to obtain a hash key, consume a LOT OF ELECTRICITY and have an immense carbon footprint.
Between 2021 and 2022, Bitcoin mining alone consumed around 200 TWh of electricity
For comparison, Sweden, Argentina, and many other countries use around 60-70% of that total to power up their whole country for a year. Smaller countries like Israel can use up to 60 TWh a year. So you can imagine the impact that Bitcoin mining has on the overall climate crisis that we are facing.
We saw research pointing out that Bitcoin mining alone is responsible for up to half a percentage of the world’s total carbon emissions. Miners are trying to set their stations in countries where the energy is the cheapest and regulations are more permissive. Until 2021 around 60% of the world’s Bitcoin mining stations were set in China. This fact forced the Chinese government to stop the mining of cryptocurrency inside their country, and miners started looking for other options, with the US being the first destination that received attention.
By 2022 cryptocurrency mining in the United States was consuming as much electricity as all the houses in the country
If we add up all the greenhouse gas emissions that miners on the US territory were responsible for in 2022, we get up to 0.4% of the world’s total. And trust me, that is huge, taking into consideration that it only comprises cryptocurrency mining in one country.
This will only worsen since the equations are getting harder to solve, and people need more computational power to make a profit. Miners will look for the cheapest way to power up their stations, and that can be hugely problematic since only a small percentage of the energy used is created sustainably minding the climate change situation. We have seen the energy consumption of Bitcoin mining increase more than 60 times between 2015 and 2021, and it continues to rise at this moment.
As cryptocurrency mining consumes more and more electricity, countries face difficulties in keeping up with the 2015 Paris Agreement that tackled the need to reduce carbon emissions to 0 in the following decades. We will see if more regulations are going to be put in place.
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