It’s not a secret that Bitcoin consumes vast amounts of energy. A single Bitcoin transaction consumes about the same electricity as a household in 1.5 months. But there are two sides to that story. Let’s look at both.

The key energy drainer is Bitcoin mining, where mining computers validate new Bitcoin transactions through so-called Proof-of-Work algorithms. That means every time the network processes a transaction, computers must solve a mathematical puzzle, which consumes a lot of energy.

Bitcoin proponents argue that much of Bitcoin mining is done in remote locations such as deserts or mountain regions, where there is a surplus of renewable energy. It’s hard to verify if that’s true; different studies have produced significantly different results.

What is true, however, is that the underlying mechanism of the Bitcoin network incentivizes miners to look for the cheapest energy source. Miners make their money from the margin of the Bitcoin price and their mining costs – mainly energy costs. As the price of renewable energy is sinking, it makes more sense for miners to use renewable energy.

Lawmakers discussing Bitcoin

Governments aren’t buying the arguments of Bitcoin enthusiasts and have started asking if that energy consumption is justified. Last week, the US administration produced several reports outlining possible steps to force miners to lower their energy consumption. The most extreme would be a complete mining ban, which would be legally challenging.

In Liechtenstein and Switzerland, lawmakers are discussing the issue as well. The Greens have submitted a postulate in the Swiss city of Zug to prohibit the government from accepting “energy-guzzling cryptocurrencies” as a means of payment for taxes.

During the last parliamentary session in Liechtenstein in August, MP Manuela Haldner-Schierscher pointed out that the network’s energy consumption amounts to around 100 TWh annually. She also referred to the analyst website “Digiconomist.” According to this, a single Bitcoin transaction consumes as much electricity as 453,000 credit card transactions. And: Approximately 300,000 Bitcoin transactions take place every day.

No need to change legislation

Many find the sheer scale of the Bitcoin energy footprint disturbing enough. It doesn’t matter if Bitcoin is 10,000 or 20,000 times worse than Visa. The question is if it’s worth spending that much energy to power the network.

Thomas Dünser, head of the staff unit for financial center innovation and digitalization in Liechtenstein, offered his view in a Swiss newspaper: “Bitcoin as an investment asset or digital money is much more in the media spotlight than other goods, perhaps also because of its transparency. For other goods, this transparency is often not present,” Dünser says.

The other argument of Bitcoin proponents is that the fiat system, or gold mining, also consumes vast amounts of energy. Dünser comments, “For example, we don’t know the total global energy consumption of gold, cash or book money of the banking system, although it may be significant.” He recommends that regulating Bitcoin in isolation to reduce global energy consumption does not do justice to the complexity of the energy problem.

Can the ecosystem solve its problems?

Even if the Liechtenstein government was concerned about Bitcoin’s carbon footprint, the legislation doesn’t need to be changed. Dünser says although there isn’t much data on Bitcoin mining in Liechtenstein, he doesn’t believe there is much of it happening because of the high energy costs. Mining takes place mainly in countries where energy costs are low.

Also, the Ethereum blockchain has recently demonstrated that the blockchain ecosystem is aware of the problem and can innovate. With the software upgrade “The Merge,” Ethereum aimed to cut the energy consumption of the blockchain by 99 percent, according to the Ethereum foundation. If governments increasingly crack down on energy consumption, Ethereum could, in the future, have a competitive advantage against Bitcoin.

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