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Bitcoin Cash BCH: The Environmentally Friendly PoW Cryptocurrency
Understandably, most of the talk concerns Bitcoin BTC, the most popular cryptocurrency, but BTC long ago decided to be a different sort of cryptocurrency with a different sort of energy demand. How do you explain to people that Bitcoin Cash BCH (arguably the one described in the Bitcoin whitepaper) is a far more energy efficient cryptocurrency than Bitcoin BTC?
It may seem like a difficult task because most people who know even a little bit about bitcoin mining know that the amount of energy used to mine a Proof-of-Work (PoW) blockchain is directly proportional to the price/value/market-capitalization of the token. There are other factors that affect this such as funds being siphoned off for governance (DASH, BCHABC, etc.) and the balance between fees earned in each block and the block reward, but they are relatively minor. As such, if the value of the BCH token rose to match that of BTC, then the energy use of the BCH blockchain would be statistically equal to that of BTC.
This is bad, because mining is sooooo bad for the environment, right? Why value one PoW blockchain over any other if they're all going to use the same amount of energy for mining? No matter which blockchain we use, it's going to be a disaster! Even Elon Musk, mere weeks after announcing Tesla would accept Bitcoin for payments, rethought his decision when he realized how much energy bitcoin mining actually uses.
So are we stumped? Whether we use BTC or BCH, one or the other doesn't seem to matter; they'll use the same amount of energy because it all depends on price of the coin (actually market cap, but BTC and BCH will have the same number of total coins, so price per coin works as well). Isn't that the end of the story?
Well, no. There are two key points, reasonably simple to explain, that will make even the most stubborn anti-crypto-mining advocates acknowledge that BCH is far more energy efficient, and therefore more environmentally friendly, than BTC. They may still believe crypto mining is a useless and wasteful endeavour, but they'll no longer be able to deny that BCH is orders of magnitude more efficient than BTC as a system for commerce and payments.
Most crypto-journalists seem smarter these days, but there was a time when those with a very poor grasp of economics looked at the seemingly parabolic graph of Bitcoin mining energy use and predicted that at some time in the future the act of mining PoW cryptocurrencies would use 100% of the energy output of the entire world.
These headlines were unimaginable! Catastrophic! Greedy miners in their ASIC-filled bunkers would starve the entire world of precious electricity to keep Bitcoin alive. How utterly dystopian and apocalyptic.
The truth, however, is much simpler and based on sound economics: It's practically impossible for the globally accepted value of any particular resource to become infinite. In other words, the price of a PoW token can't rise forever. At some point it will gain the maximum value people are willing to trade for it and thereafter stabilize. At the time of writing, one Bitcoin BTC token was worth about $50,000 USD. How much further could this value realistically rise?
Leaving aside the desire of the BTC crowd to replace gold rather than spendable fiat currencies, we'll consider the scenario where a cryptocurrency replaces all other currencies in terms of value. According to this article, the "broad money" definition places the value of all global currencies and related liquid assets at around $90 trillion USD, about 95x the current BTC market capitalization. (For comparison, the total value of all the world's gold is about $9.5 trillion USD).
So if the perfect storm happened, and Bitcoin BTC replaced all the "broad money" on earth, that would result in it having a value of around 95x higher than its current $50,000 USD value - or about $4.8 million USD per coin. All other aspects of the global economy aside, this is the maximum value to which BTC could rise. At that point, there wouldn't be any other significant source of liquid value people could (or would want to) convert into BTC to raise its price further. This would become the stable price of Bitcoin that the world's citizens would learn to price other goods in.
By the same token, since hash-power follows price, we can infer that the total energy use for profitably mining such a PoW blockchain would be 95x higher than the current energy use of the BTC blockchain. According to Digiconomist, the current maximum estimated energy consumption of the BTC blockchain (at the time of writing) is 115.85TWh/year. Multiply by 95 and we get about 11,000TWh/year. Next, according to Enerdata, the global output of electricity in 2019 was about 27,000TWh/year, and rising by about 500TWh/year.
11,000TWh/year is roughly 40% of the entire world's electricity output in 2019. It's certainly a huge chunk, but obviously not a value that will overwhelm the Earth and consume 100% of its energy output. Remember also, that the 95x multiple represents the "perfect storm" where use of Bitcoin in commerce and investment replaces all liquid and semi-liquid assets. As well, the 115.85TWh/year value from Digiconomist is a maximum estimate, the lower estimate being just 53.99TWh/year; less than half. The reality will be a much lower multiple of the actual Bitcoin mining energy consumption. We are in absolutely no danger of bitcoin mining overwhelming our ability to generate electricity.
The energy used by bitcoin mining will not, and indeed cannot, increase unbounded forever. It will hit some maximum % of global electricity output based on price and from then on vary with the value of the global economy as a whole. And remember when we talked about global electricity output increasing by 500TWh/year? It's very likely our ability to produce power will continue to increase and easily outstrip the amount consumed by bitcoin mining.
All the discussion up to now has been to show that the energy consumption of Bitcoin can't increase forever. It will increase to match the price of the coin, but the price of the coin itself will reach a maximum value and stabilize. This will happen regardless of what PoW blockchain you choose to replace the world's money economy.
So why does this make a difference between Bitcoin BTC and Bitcoin Cash BCH? They both have 21,000,000 coins. Regardless of which coin wins out, the one that wins will still rise in price to the maximum, therefore requiring the same bitcoin mining energy to support. Seems like a wash, right?
The key difference is transaction throughput. Bitcoin BTC has a maximum transaction throughput of about 7 transactions per second. This may be increased by Lightning Network transactions, or Liquid sidechain transactions, but both of those types of transactions require at least one on-chain transaction to initiate. It's fair to say that any side-chain or layer 2 solution that doesn't touch the blockchain to perform on-chain transactions is no longer Bitcoin anyway.
Taking our maximum estimate of Bitcoin energy use of 11,000TWh/year, we can estimate the maximum energy used per transaction on the BTC blockchain. 7 transactions per second amounts to 221 million transactions per year. Dividing energy use by transaction count, we get: 0.0000498TWh/transaction, or 49,800kWh/transaction. Checking in with the US Energy Information Administration, the average American household uses 10,649kWh... in an entire year!
Transacting on such a blockchain would be insanely costly. To confirm just one transaction would consume almost as much electricity as five typical American households consume in an entire year. If ever there was a useless and wasteful blockchain, BTC is definitely it.
Since we can't lower the total amount of energy the blockchain uses for mining (that's driven by the price), the only way to make using such a blockchain practical is to drastically reduce the energy used per transaction, and the only way to do that is to increase the transaction throughput. This is exactly what Bitcoin Cash BCH is aiming to do.
Very soon after the BTC/BCH split on August 1st, 2017, a group of developers led by Bitcoin Unlimited and Peter Rizun proposed a "Gigablock Testnet" to test the feasibility and identify bottlenecks of a global network mining gigabyte bitcoin blocks rather than BTC's megabyte blocks. We can use this as a starting point to examine how the energy per transaction varies based on how many transactions the network can process per second.
By definition, a gigabyte is 1024 megabytes, therefore a gigabyte block can process 1024x the number of transactions/second as a megabyte block. In other words, around a maximum of 7,000 transactions per second. If BTC, with its 7 transactions/second uses an estimated maximum of 49,800kWh/transaction, then a blockchain processing 1,024x that number of transactions would use 1,024x less energy per transaction or just 48.6kWh/transaction. This is not just less than 1% of Bitcoin BTC's energy/transaction, it's less than 0.1%!
Great! Now we're down to the amount of energy the typical American household uses in about a day and a half (remember it's a maximum). Still a lot, but since the gigabyte blockchain allows 1024x the amount of commerce as the BTC blockchain, we would need 1024 BTC blockchains to do the same amount of work as just one gigabyte blockchain. Now we finally get to the incredible mind-blowing conclusion of all of this.
As we've discussed, the energy use of a bitcoin PoW blockchain rises in direct proportion to its market capitalization, which is equivalent to price-per-coin in the case of BTC and BCH. However, it cannot rise indefinitely. Because things can't have infinite value, there are only so many liquid and semi-liquid assets that can be replaced by a bitcoin cryptocurrency. This puts an upper limit on the price, and therefore an upper limit on the mining energy that will be used to support it.
Over time, the maximum amount of energy a PoW bitcoin blockchain could ever possibly use follows an S-curve with the price, levelling off once there are no more liquid or semi-liquid assets left to trade for it. At the top of the graph, the maximum amount of energy used is just 40% of (remember our calculation from before?) the electricity output of the entire world in 2019. So it's impossible for bitcoin mining to overwhelm our ability to produce it. At the same time, if we take it as a economic given that cryptocurrency is going to succeed someday, then any PoW blockchain (either BTC or BCH or also any other) that becomes globally dominant will follow this path and there's very little we can do to change it.
However, the amount of work (transactions/second) a PoW bitcoin blockchain could perform is in direct proportion to the size of the blocks the mining nodes can process, and that's something we can change. The transactions per second the blockchain could process is essentially unbounded, only limited by the ability of our technology to process the blocks. And our technology is getting better at it every day.
So here it is, the mind-blowing reason why Bitcoin Cash BCH is many orders of magnitude more efficient and therefore more environmentally friendly than Bitcoin BTC: The energy required per Bitcoin Cash BCH transaction gets lower and lower as we allow the blockchain to do more and more work.
As a very simple concluding example, why stop at the gigabyte blocks we mentioned earlier? Surely in a decade or two even terabyte blocks will be within the realm of possibility. A terabyte block could process 1024x the transactions/second as a gigabyte block, and the resulting energy cost per transaction would be a maximum of 47.5W/h (that's watts per hour, not kilowatts), or about the same amount of energy the average compact fluorescent lightbulb uses in three hours. You would need 1 million Bitcoin BTC blockchains to perform this same amount of work. Now, just think about making the blocks even larger...
You can clearly see that while the total energy use of an entire PoW blockchain will reach an inevitable maximum, we can make that same blockchain do an amount of work approaching infinity, only limited by block size. Meanwhile, the world's ability to generate electricity will continue to increase in a linear fashion, leaving the mostly static amount of energy bitcoin consumes behind in the dust. The main reasons its energy consumption would continue to increase slowly would be the increasing size of the global economy, and the fact that more transactions in a block means more fees miners can use to pay for more electricity. This would be enough to provide the security the blockchain needs to survive indefinitely, and this is in fact the way Satoshi originally designed bitcoin to work.
Because the Bitcoin Cash community is dedicated to increasing the block size to as large as current technologies can support, it is Bitcoin Cash BCH that is pursuing a course to becoming the most energy efficient and therefore most environmentally friendly bitcoin blockchain. In truth, the more people who transact on-chain using Bitcoin Cash BCH, the less energy it uses per transaction.
So if you're worried about the impact of cryptocurrency mining on the environment, I suppose the best thing you could do would be to try to get everyone to stop using it. The second best thing would be to tell everyone you know to use Bitcoin Cash. You know the one; it's the greenest.
1. At least in the above "broad money" scenario. In reality though, you can pick any value for the liquid assets Bitcoin would replace and the conclusion is the same: Bitcoin's price will rise to a set value and level off.
2. It would actually be closer to ~4,500 transactions per second in practice since most transactions would be larger than the minimum size of 250 bytes or so.
3. Segwit on the Bitcoin BTC blockchain supposedly allows for up to an effective 4MB size (or weight) to a block, but we're just spitballing here.
All the Proof-of-Stake advocates are probably pulling their hair out that PoS never even got mentioned in this article. The simple reason for that being that I personally believe Proof-of-Work provides economic incentives which are far superiour to Proof-of-Stake. If you think I'm wrong about that, please write your own article.