Bitcoin’s energy consumption has increased by 41 per cent over the year. Why could this be a problem for the cryptocurrency?

October 20, 2022 by cryptobreak

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The Bitcoin Mining Council (BMC), which includes more than 50 of the world’s largest mining companies, has just released a report on Bitcoin’s energy consumption for the third quarter of 2022. Analysts note that the network’s consumption has increased by more than 41 per cent compared to the same quarter last year, despite all efforts to optimise it. This is a relatively bad trend for the industry as a whole: still, too high energy consumption figures could be grounds for sanctions from financial regulators. We tell you more about what’s happening.

We should note that the growth of Bitcoin network’s power consumption is quite predictable. Still, the blockchain’s hash rate – that is, the total volume of all computing devices on the network – set a record in October of this year, reaching 321 hash per second. Here’s a graph of that figure over the past year.

Bitcoin network hash rate graph for last year

Taking into account the growth in activity of miners, the complexity of mining BTC is also at its peak. The current difficulty index today is 35 610 794 164 371.

Bitcoin mining complexity graph

And while the increase in hash rate means increased security for the Bitcoin network, it can also provoke problems for the perception of the cryptocurrency. Especially on the part of government officials.

How much electricity does Bitcoin consume?

According to the contents of the report, BTC mining consumes 0.16 percent of the world’s energy, which is slightly less than that of the computer games industry. Analysts rate the cryptocurrency’s overall network energy consumption as “negligible”. In addition, mining emits 0.10 percent of the world’s carbon dioxide.

Bitcoin network hash rate

The increase in Bitcoin’s energy consumption comes as the network’s hashrate increases by 8.34 per cent in Q3 2022 and by 73 per cent year-on-year. All this is happening despite a reduction in the number of blocks being mined and a strong fall in the BTC price.

Recall that in early November last year, the price of Bitcoin reached its all-time high of around $69,000, while today BTC is trading at $19,000. Considering the slump of the rate, miners are earning less equivalent dollars, but due to the growth of hash rate and difficulty of mining the earnings in BTC are falling as well.

Bitcoin exchange rate over the last year

Earlier, the Glassnode platform published its analysis of the mining situation. Its experts noted that the discrepancy in Bitcoin network’s hash rate and power consumption growth was due to increased mining efficiency. However, new cryptocurrency mining devices are constantly appearing on the market, which can produce a higher hash rate while consuming the same amount as in the past generations.

Return on miners per hash rate exascale

However, the fact of efficiency gains is of little concern to eco-activists. The day before, environmental organization Greenpeace launched a campaign whose main mission is to move Bitcoin to the less-costly Proof-of-Stake (PoS) consensus algorithm.

The complexity of Bitcoin mining

Still, in mid-September, Etherium switched to PoS, which reduced the power consumption of its network by more than 99 per cent. This is also a precedent for global financial regulators, who may start putting pressure on the crypto industry for the same purpose.

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The issue of energy consumption is particularly acute in the European Union – due to energy supply problems, the European Parliament is about to introduce blockchain labelling based on its cost, Decrypt reports.

This is generally part of a broader plan to control the energy consumption of the IT industry. Similar labelling could appear on data centres or even on individual devices operating within the EU. European Commission member Kadri Simson commented on the decision. Here is the relevant quote.

The aim is to make our energy system more efficient and ready for an increased share of renewable energy. This requires more innovative digital solutions and a smarter and more interactive energy system than today.

So far, the European Union has been rather lenient towards cryptocurrency mining. At least no European country has introduced strict measures regarding the mining of digital assets. But they have long been implemented in China, where mining is officially banned at the state level. However, even this ban is only nominal, as there are still active miners in the country.

In March 2022, the European Parliament’s Economic and Monetary Affairs Committee rejected attempts to ban Proof-of-Work (PoW) mining of cryptocurrencies by removing the clause from the Crypto Asset Markets Act (MiCA) before the vote. Now, the approach to mining could become stricter, or Europe’s main regulator will advocate a massive transition of blockchains to PoS.

Obviously, waiting for the Bitcoin network to move to Proof-of-Stake will not work. Firstly, the cryptocurrency community actively supports the ideas of anonymous developer Satoshi Nakamoto, so abandoning PoW could be seen as a betrayal. Second, the BTC blockchain is quite outdated, and its possible conversion to PoS would require a huge amount of resources and testing time. So counting on such a thing is probably not worth it.

Cryptocurrency miner

We believe that Etherium's move to PoS will indeed cause a new wave of criticism of Bitcoin. However, at the same time, one should hardly hope for a major upgrade of the BTC network due to the views of its community. Therefore, the situation remains stable for now, although there will probably be more people willing to speak out against the blockchain's work.

More about crypto and mining can be found in our Millionaire Crypto Chat. There we talk about other topics related to blockchain and decentralization.