“It’s estimated that the renewal rate of banknotes is -26.04% per year. This leads to 219.42 billion banknotes per year being printed to replace the worn notes taken out of circulation and to answer new demand.” — Michel Khazzaka (Valuechain)
Over the years, analysts and environmentalists have constantly called Bitcoin mining an energy-intensive venture. This has brought a continuous spotlight on Bitcoin mining’s energy consumption.
But it has also made everyone blind to traditional banking's colossal energy consumption. This financial sector consumes more energy than Bitcoin. However, this may be your first time hearing this.
The Misconceptions Peddled By Bitcoin Anarchists
Many individuals release fallacious “research papers” and articles about Bitcoin mining. They exaggerate the impact of Bitcoin mining on the climate, making it look hazardous. These reports have paid little to no attention to the benefits of mining the pioneer crypto.
Among the latest releases is a report by Benjamin Jones titled, “Economic estimation of Bitcoin mining’s climate damages demonstrates closer resemblance to digital crude than digital gold.”
He argued that Bitcoin mining’s energy consumption was comparable to oil exploration. According to him, this makes Bitcoin mining hazardous to the environment. This argument is untrue and an unfounded attack on Bitcoin mining.
His report was one-sided. It also failed to recognize the negative effects of oil exploration over the decades. Benjamin lacked knowledge about the actual energy consumption and usefulness of Bitcoin mining. The report does not contain real facts about Bitcoin mining.
Energy Consumption of Traditional Banking Systems
It is shocking how ignorant users are about traditional banks' energy consumption levels. Many activities happen in the traditional banking space. Examples include cash printing and running automated teller machines (ATMs) and PoS systems. These activities by traditional banks are gulping down tons of energy.
Michel Khazzaka threw more light on this in his Valuechain report. The report titled “Bitcoin: Cryptopayments Energy Efficiency” gave an estimate of banknote production.
According to his report,
“It’s estimated that the renewal rate of banknotes is -26.04% per year. This leads to 219.42 billion banknotes per year being printed to replace the worn notes taken out of circulation and to answer new demand.”
A considerable amount of energy consumption goes into printing paper notes. This is because of the long and cumbersome production processes. Banknote printing involves paper fabrication, cutting, collating, counting, testing, and binding. All these entail heavy industrial processes.
With this alone, banks consume about 17.6 TWh of energy yearly in renewing banknotes. Michel obtained these statistics using the information provided by Banque de France. Banks do not make these details open to the public.
Why are these details hidden? One could question if there is more energy consumed without public knowledge.
The Valuechain report also analyzed the energy used by ATMs. According to them, there are about 4.8 million ATMs worldwide. Michel confirmed this figure from the central bank sources in various countries.
The report estimated that these ATMs consume about 47TWh per year. This does not include server-side consumption, cash handling, and maintenance of the ATMs.
Let us also bring to light the increasing use of Point-of-Sales systems by businesses.
Michel’s Valuechain report stated,
“The share of cash transactions at an electronic PoS is more frequent than the cash distribution by banks and even more frequent than electronic vicinity payments at shops.”
As a result, tons of energy goes into seeing that the PoS operates at full function. In estimation, PoS consumes about 72.75 TWh a year.
The estimations stated above are for a few sectors of traditional banking. But these are not the only sectors the article highlighted. Other estimates go as follows:
- Energy for Cash In Transit = 166 TWh/yr
- Energy for Cash at EPoS = 72.8 TWh/yr
- Energy for Card Payment = 71.71 TWh/yr
- Energy for Banking Offices = 175.3 TWh/yr
- Energy for Banking Commute = 1,535.79 TWh/yr
- Energy for Banking I.T. = 37.2 TWh/yr
- Energy for Interbanking = 129.54 TWh/yr
The total estimated energy for traditional banking is 2,252.75 TWh per year.
This gives you an idea of how much the traditional banking sector is an energy glutton. So, why are these individuals, reports, and publications focused on Bitcoin mining?
What Is Bitcoin Mining’s Actual Energy Consumption?
Bitcoin operates on the Proof-of-Work (PoW) consensus mechanism. But it is not as energy-consuming as its antagonists try to portray.
In Michael Saylor’s “Bitcoin Mining And The Environment” report, he said,
“Bitcoin mining is neither the problem nor the solution to the challenge of reducing carbon emissions.”
Valuechain revealed the most effective way to determine Bitcoin’s energy consumption. According to them, users can achieve this by counting miners’ nodes and hardware units.
The calculation must factor in the computing power of the installed base of miner units. Using these parameters, one can estimate the KWh used by each mining unit.
The study further calculated the average lifespan of Bitcoin mining rigs. It factored in the surge from the use of wind, hydro and solar power by BTC miners. Another consideration was miners' use of energy-conserving mining technology.
It showed that the Bitcoin network consumed only about 88.95 TWh per year. This figure is far less than traditional banking, which consumes 2252.75 TWh yearly.
Bitcoin’s integration of Lightning Network at Layer-2 helps it scale transaction throughput. But this does not increase the energy input needed. This is among the conscious efforts the network made to increase energy efficiency.
Valuechain reported that Bitcoin consumes 56 times less energy than traditional banking. Even at a single transaction level, the PoW transaction is one to five times energy efficient.
Another way Bitcoin conserves energy is by the use of renewable energy sources.
According to Saylor,
“Bitcoin runs on stranded, excess energy, generated at the edge of the grid, in places where there is no other demand, at times when no one else needs the electricity.”
About 59.5% of its mining energy comes from sustainable sources. The constant improvements made in its semiconductors (SHA-256 ASICs) promote its energy efficiency.
Our Verdict
The statistics presented above show two clear results:
- Bitcoin mining is far more energy-efficient than traditional banking
- Bitcoin anarchists are fighting the wrong fight
It is high time they stopped fighting Bitcoin mining and focused on its many benefits.
