Why Bitcoin Must Overcome Its Energy Crisis
When Bitcoin became the biggest headline in business news in late 2017 and prices skyrocketed, the Bitcoin mining industry wasn’t far behind. As prices climbed and sailed past $10,000, Bitcoin miners multiplied across the globe and they’re still going strong today.
Bitcoin mining uses an incredible amount of energy. At the rate of the most recent estimate, Bitcoin mining was using 54.2 TWh annually, though the rate of energy consumption continues to rise. That’s $150,000 worth of energy consumption every day.
Bitcoin is mined through the use of supercomputers to verify Bitcoin transactions – compiling them into blocks and then solving a difficult computational puzzle. As more and more computers engage in Bitcoin mining, the energy consumption becomes astronomical. Even if Bitcoin’s prices today are no longer grabbing headlines, they’re significantly higher than they were a year ago, and that’s keeping energy consumption high.
Bitcoin’s ups and downs will be familiar to those who invest in precious metals like gold and silver, as will the desire to use a currency not backed by fiat. Bitcoin has established itself as a digital alternative to gold, whereas investors today buy gold to hedge against inflation (rather than use gold for transactions). That’s where the real power of Bitcoin and blockchain technology lies. Gold and silver may be more reliable stores of value, but the future of business transactions lives in blockchain technology.
There may also be a lesson in gold and silver mining for blockchain technology. As the cost of silver mining has steadily increased despite relatively low, stable prices, a supply shortage has been slowly brewing. Whether or not Bitcoin can handle its energy crisis is a big question. Bitcoin miners are a global, varied group of individuals and companies with varying levels of assets. They have to make the switch to clean energy on their own. If Bitcoin values drop significantly as energy costs remain high, it could mean trouble for the original cryptocurrency.
The repercussions of the energy crisis going unsolved could be serious for blockchain technology, but there is hope. The technology behind Bitcoin is even more exciting than the cryptocurrency itself, it’s a distributed ledger technology. In addition to Bitcoin, blockchain will be the source of many innovations that will change how businesses conduct transactions. As a decentralized information storage space, it can be used to store transfers for all kinds of assets, including money, goods like precious metals, and property. Verified by the peer-to-peer community, blockchain could enable paying taxes and even voting. It may be the first decentralized source of trust behind business transactions and it’s the backbone of smart contracts to automatically release payments. Blockchain technology will store 10% of global GDP by 2027.
Blockchain need not follow Bitcoin down the path of out-of-control energy consumption. One of the reasons Bitcoin mining is so energy intensive is the “proof of work” system. Proof of work is a system in which Bitcoin miners determine a signature to verify transactions based on three things. These are the signature of the previous block, the new transactions ledger, and a random number. Finding the random number uses a huge amount of resources and essentially Bitcoin rewards whoever uses the most computational resources.
An alternative called proof of stake could rescue the rest of blockchain technology. Proof of stake selects validators based on deposit size. This is based on the size of the assets in business transactions. With cryptocurrencies like Ethereum switching to proof of stake, it will soon be thoroughly tested.
If your business is ready to change the way it manages transactions, check out blockchain solutions like SAP’s cloud-based BaaS (blockchain-as-a-service) technology. Everything from contracts to investments to buying and selling gold and silver will be conducted using blockchain networks. Blockchain goes well beyond energy-heavy Bitcoin mining. In a matter of years, no business will be able to avoid blockchain transactions at any level.
As for Bitcoin’s energy crisis (and its repercussions on blockchain-as-a-service), clean energy investments could also intervene. Remember when Google announced it used enough fossil fuel-based energy to power 200,000 homes? By 2017, Google had invested in enough clean energy to completely offset its carbon footprint. As Bitcoin matures and the cryptocurrency mining industry comes into the mainstream, clean energy alternatives will intervene to help make blockchain more cost-effective.
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