$1 billion burnt by Bitcoin network every year for proof-of-work!

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“Bitcoin is an environmental disaster”

“Bitcoin is killing the planet”

“Bitcoin will soon bring the internet to a halt”

These are just some of the anti-Bitcoin headlines that have done the rounds of the Internet and news media over the past few years. And while many cryptocurrency proponents would just love to critique each of these, there is a kernel of truth to each of these dramatic headlines.

The fact of the matter is that despite the halving pushing many older, inefficient miners to bow out of the crypto-market, the mining industry continues to expend significant amounts of computational power, contributing to huge upticks in its energy consumption scales. In fact, some reports would suggest that as of press time, Bitcoin’s energy consumption is equal to that of Israel.

However, contrary to what people would expect, a ten-million-fold increase in energy consumption and a ten-billion-fold increase in hashing activity since 2010 hasn’t been joined by a corresponding increase in mining costs relative to the volume of transactions. At least, that’s what a recent paper titled “The cost of Bitcoin mining has never really increased” argued.

The paper in question “estimated the lower bound for the global energy cost for a period of ten years from 2010, taking into account changing oil costs, improvements in hashing technologies and hashing activity,” before coming to the conclusion that contrary to popular expectations, “the cost relative to the volume of transactions has not increased nor decreased since 2010.”

This is a crucial finding since, as the study highlights, proof of work is a very expensive process, a necessary evil that needs to amount to a significant fraction of the value that can be transferred on the blockchain to prevent against double-spending attacks. How expensive? Well, the paper stipulates that at least $1 billion is burnt by the Bitcoin network every year for proof of work. However, while that number is big, it should be much more. Or so the authors of the paper argue.

According to their research, the cost of proof of work is not at all high, and not even remotely close to how high it should be to guard against double-spend attacks. However, as pessimistic as that sounds, it also highlighted the fact that over and above proof of work, there are other infrastructure-associated barriers to such attacks, namely mining hardware and facilities costs.

Even if let’s assume those are overcome, think of it rationally. As soon as such an attack is detected, it is likely that Bitcoin’s value will collapse. Why would an attacker risk not recovering his investments in mining hardware?

Proof of work, thus, isn’t the only barrier to such attacks. There are others. Alas, this shouldn’t discount the fact that PoW is costing just 0.5% of the transaction volume over the Bitcoin network, a very low fraction.

Coming back to the energy consumption aspect of Bitcoin mining, it should be noted that most of the coverage online regarding the cryptocurrency is sourced from Digiconomist, an independent portal. However, there remain grounds for skepticism with regard to the validity of the portal’s data.

For example, Digiconomist has been accused of making up sources. Just check out its comparison of Bitcoin’s energy consumption to independent nation-states around the world. While the source of the graph says BitcoinEnergyConsumption.com, when clicking on it, it instead re-routes to Digiconomist’s website again.

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