“Bitcoin Mining on Track to Consume All of the World’s Energy by 2020,” said a 2017 news report by the premier US-based magazine ‘Newsweek’. The magazine published the claim of Digiconomist, a cryptocurrency-focussed digital platform.

Three years down the line, the world hasn’t gone dark yet; and both energy and energy-based Bitcoin are still there.

Bitcoin sceptic Digiconomist has used different methods to portray the humongous consumption of energy by Bitcoin. It represents the energy consumed by Bitcoin with respect to countries. For example, Bitcoin consumes energy equivalent to the consumption by UAE or Norway or Pakistan.

There were various such claims by different organisations about Bitcoin and its energy consumption. But, it’s important to focus on the big picture and see things in perspective before we build a concrete opinion about the subject.

Numero uno: Energy consumption debate

The energy consumption of the world today stands at about 176k terawatt-hours (TWh). According to experts, though the global energy consumption continues to grow, it seems to be slowing—averaging around 1% to 2% per year.

While we are talking about energy consumption, let’s focus on the energy production to consumption ratio. 

Lawrence Livermore National Laboratory (LLNL), a federal research facility funded by the Department of Energy and UC Berkeley, has been conducting research on energy production and consumption ratio for several years.

The research organisation—through Sankey diagrams—has demonstrated the fate of all energy that gets generated and consumed in the United States in respective years. 

In 2021, the total energy consumption in the United States was 97.3 Quads (equivalent to 28.5k Twh). Of the 97.3 Quads consumption, only 31.8 Quads (about 9,300 Twh) was put to use while the rest 65.5 Quads (19.2k Twh) was rejected. A whopping 19.2k Twh, 67.3% of the total energy consumed was wasted energy. 

Now, how much is Bitcoin’s energy expenditure to maintain the POW consensus? According to the Cambridge Bitcoin Electricity Consumption Index, it’s expected to be less than 100 TWh this year. It’s only 0.05% of the total energy consumption by the world and only 0.5% with respect to the “rejected energy” by the U.S.

 Bitcoin network power demand by Cambridge Bitcoin Electricity Consumption Index

Experts also claim that the energy consumption by Bitcoin is negligible compared to the energy wasted by the world. 

BMC presents its case

In May 2022, Bitcoin Mining Council (BMC), an open forum of Bitcoin miners, in response to the letter of a U.S congressman Jared Hufman, wrote a letter to Michael S. Regan, Administrator of the U.S. Environmental Protection Agency. 

The letter attempted to clarify the various misconceptions about Bitcoin’s energy consumption theory. It said that data centres which contain “miners” are no different than data centres owned and operated by Amazon, Apple, Google, Meta, and Microsoft. A “miner” is merely industry terminology for a specialised computer server operating inside a data centre. 

“All data centers utilize electricity generated externally. Emissions are created at the power generation source upstream from the data centers. Digital asset miners simply purchase electricity from the grid, the same as Microsoft and other datacenter operators. Besides, Bitcoin mining in the aggregate employs an estimated 58.4% sustainable energy,” the letter said. 

Bitcoin: A dream that Ford saw in 1921

About 100 years ago, American industrialist Henry Ford, founder of the Ford Motor company, proposed an idea of “Energy Currency” that would replace gold. He envisaged that energy-backed currency would stop wars because every country could issue currency backed by their “imperishable natural wealth” of energy resources, such as the US Muscle Shoals Dam. The whole idea was to end wars—which he argued was centred around the control of money (gold).

“The essential evil of gold in its relation to war is the fact that it can be controlled. Break the control and you stop war,” claimed Ford, as published in New-York Tribune, 1921.

Ford also did the calculation and came out with the value. According to him, under the energy currency system, the standard would be a certain amount of energy exerted for one hour that would be equal to $1. This idea of Ford sounds like Bitcoin—backed by energy input.

According to Charles Edwards—an expert on Bitcoin—for the last ten years, a 1-to-1 constant value against energy input has described 80% of Bitcoin’s price history. Price, like all markets, fluctuates around value. However, price and value are intrinsically related and mean-revert. Bitcoin has a set value over time based on the amount of mining energy expended and the 

rate of supply expansion.

Growth of civilisation is built on energy

Talking exclusively to Analytics India Magazine, Joe Burnett, Head Analyst, Blockware said, “Energy is a critical input of all products and services we use today. It’s how we have the high quality of life and technology that we use today.”

He further added that Bitcoin is a technology that creates a location independent energy buyer of last resort. As long as Bitcoin exists, there will always be buyers of any amount of energy (although the bid price may be low). Bitcoin incentivises new efficient energy production and reduction of energy waste.

“If you have bitcoin ASICs, no energy is worthless. Energy now always has a buyer. More cheap energy is equal to a more prosperous society,” said Burnett.