The influence of Bitcoin’s presence in the energy consumption chain has been discussed for years. However, the biggest part of this issue has been blurred behind all the talk about drastic consumption levels and positive economic impacts. Before drawing any conclusions or entering into deeply threaded conversations, we’ll dive into this issue in detail and address it with the utmost attention.

The Allocation of Energy

Let’s study the key points. When it comes to discussing the consequences of Bitcoin’s ever-growing energy needs, many refer to the intimidating volumes of energy that the Bitcoin industry consumes, thereby cutting off much-needed electricity from many people and whole regions. At the same time, in many countries where Bitcoin mining is done, the price of energy does not depend on the digital currency simply because the energy is not used there. Is that even possible?

First, it is worth mentioning that energy is not a product transferred worldwide for further sales. Electricity has the most power within the area of its origin, and its transportation is costly. A little less than 10% of the world’s electricity gets lost during transportation. Even long-distance electricity lines don’t help; apart from being expensive, such transfers lead to electricity blackouts along the way despite high levels of voltage. That is why electricity is provided by a network in the first place. It can’t be transferred from a distant plant, so you have to produce electricity literally in every corner of a village—let alone big cities—to provide it with power.

There are a few fascinating things to learn about Bitcoin’s energy drain. A report from the Cambridge Center for Alternative Finance (CCAF) revealed something already known long ago: most Bitcoin mining takes place in China—in a few specific regions, to be precise. With the considerable help of mining pools, CCASF was able to determine the most miners’ IP addresses were located within a certain area, which provides us with a new vision of Bitcoin’s relationship with the energy industry.

The outcome is quite illustrative. The Chinese province of Sichuan—the second largest in providing computing power—has built an outstanding amount of hydropower plants in the last ten years, an amount much more than dictated by the region’s needs. Suffice it to say that the province’s electricity network is only able to carry half of the region’s electricity supply, resulting in huge power wastes. Hydropower plants can keep this amount of energy as water, but they can’t store it for long because the water must circulate. No one looks at this side of the coin, but by giving it close consideration, we can see that mining pools actually save the energy that would otherwise be wasted. If you produce too much energy and can’t transport it for further sale, having a global consumer saves the day.

Of course, this conclusion is based on some experimental grounds.

There was a time when Bitcoin didn’t exist, and people tried to find ways to sell energy to remote regions. Aluminum was one exporting tool because its final cost included the electricity necessary for bauxite ore fusing. For example, Iceland has rich supplies of energy, including energy produced from hydropower plants. Therefore, bauxite ore fusing was a predictable step. Transported from the east, the ore underwent fusing in Iceland and was carried back to eastern countries, including China, for further use.

Iceland transported energy through aluminum, everyone said. Today, Iceland can keep its position in the energy export field by changing one element: instead of aluminum, Iceland can export power through blockchain technologies. The members of a once very profitable supply chain—ore processing productions—didn’t miss the chance to keep up with the world’s shifting tendencies. For example, Alcoa, once famous for aluminum, has now turned to Bitcoin mining. These historical analogies are self-explanatory.

“Everyone decides for themselves whether playing this game of visually non-existent, completely uncontrolled but still so powerful commodity is worth the candle.”

The reason for Bitcoin’s extensive energy consumption partially lies in the dropped prices for energy in China. The country was able to lower its prices by building a colossal amount of hydropower plants and saturating the market. If it weren’t for Bitcoin, this excessive amount of energy would have been lost or, at best, still fueling the aluminum market.

Here’s the way I prefer to think about it. Without Bitcoin, the global energy industry would have represented a world map of peaks and hollows with the corresponding price for energy in every corner. Bitcoin serves as a smoothing tool, flattening rough areas and regulating price and supply fluctuations. Bitcoin consumes energy worldwide at a fixed price, which is why many plants that sell energy below the fixed average are happy to sell to Bitcoin miners. It’s also why crude miners have started to collaborate with Bitcoin miners, selling them the excessive energy derived from methane, which is a positive trend from the environmental protection point of view. Bitcoin develops from surpluses and prevents many wastes along the way.

Different Types of Energy

Another popular concern regarding Bitcoin’s positive role in energy consumption is the tendency to compare this process and its consequences to harmful CO2 waste. To clearly see the bias of this idea, it’s important to understand that there are different types of energy sources for electricity generation, each having a different effect on the environment. Some studies show that every country or region produces electricity from a relatively constant mixture of energy sources. Critics publish catchy headlines and distribute their ideas through the press without studying the issue thoroughly, and they tend to jump to conclusions based on their examinations of CO2 emissions.

Yes, China is a hash rate champion, but that’s no excuse to draw parallels between its CO2 emissions and the popularity of mining all over the country. As mentioned, Bitcoin is looking for surplus resources that otherwise would be wasted, and miners mostly consume excess hydropower energy, which is considered to be more environmental-friendly than other types of energy generation. This strong point should not be ignored.

Bright Prospects

The thought of Bitcoin’s amending character brings even more light to that tunnel. More than 80% of all existing bitcoins have already been mined. Because of the way that its price has worked in times of extensive mining, the total mining reward is estimated to constitute a little more than 17 billion US dollars (considering that miners generally sell their bitcoins after mining), while the current value of these coins is approximately 160 billion US dollars. That’s because the price of these coins was much lower at the time of mining.

If Bitcoin’s price experiences an extraordinary rise at any point in the future—like a rise by two or three times the current price—then miners will have to pay a much smaller price to mine it. Expenses for energy consumption will fall significantly because the necessary hash rate will decrease due to the difference between future prices and the prices at the time of mining. Therefore, the operational costs, including energy, will look quite insignificant in the final financial reports. Bitcoin just needs to be mined, and it’s better to do that while it’s cheap and the volume of energy consumed for the process is correspondingly small.

It is widely known among Bitcoin fans that the mining process as the main source of miners’ income will diminish over time. The third Bitcoin halving just took place, cutting the mining reward in half. It’s pretty clear that all the subsequent halving will lead to a lowered interest in Bitcoin mining or, at least, in side expenses, such as security costs. Transaction fees can’t grow over a specific level because users have to pay them for each transaction they make. If the fees become too costly, the market players will look for other ways to save their hard-earned assets.

Therefore, no one is interested in the security spending growth that would inevitably lead to negative impacts all over the crypto field. Bitcoin’s electricity demand is a part of its security maintenance, and like any other resource, electricity is dependent on demand and its necessity in the production process.

The Game and the Candles

There’s no need to argue that despite all the pros mentioned above, the Bitcoin mining process still demands a considerable amount of energy and adds to the generation of harmful emissions. The question is whether the Bitcoin has a right to ask for any of the planet’s resources. This issue relates to the continuous argument over which industries have a universal right to use the resources that, as we all know, are finite. Of course, it’s possible to say that a non-visible and highly controversial industry such as cryptocurrency management is not critical, and humankind could have happily existed without it, so it is reckless to waste scarce resources on it. However, the same logic could be applied to many things in our everyday lives: street lights, the entertainment industry, and tremendously large exhibition centers and theme parks. All of these things consume tons of energy, but no one points it out all over the press like they do with the crypto industry. Why? Because it’s simple to assess Bitcoin’s consumption rates, especially for those who treat it with little sympathy.

At the end of the day, everyone decides for themselves whether playing this game of a visually non-existent, completely uncontrolled but still powerful commodity is worth the candle. What we know for sure is that it does generate revenue that is used to pay the energy sector. Electricity is not wasted when it’s being bought for real money. It doesn’t matter whether the buyer gained this money from producing a good or service or from the “shady” process of Bitcoin mining. It is more about people’s attitudes toward the crypto industry, rather than energy concerns. Humankind has already passed through this issue. Millions of people scolded the unfounded costs of relating currencies’ values to gold, an event known as the gold standard. It’s still difficult for many people to start valuing the digital world and countless achievements of the internet just because virtual money can’t be touched or stored under your pillow. Once people come to identify Bitcoin as a stable and reliable asset, its impact on the energy sector won’t be looked at so desperately negatively.

Of course, people still care about t Bitcoin’s track in the energy sector. However, there is a way out. The disputes will disappear once Bitcoin supporters find a way to use an alternative—in other words, when they can create a trustworthy, high-protection, and stable system that would not require Proof-of-Work mechanisms. It may be the wonderwork the whole world is craving.