Comparing Energy Consumption: Bitcoin vs. Financial Systems

When discussing the energy consumption of modern financial systems versus the Bitcoin blockchain, it's crucial to understand the magnitude of electricity used by each. A conservative estimate suggests that current financial systems consume approximately four times the energy required to operate the Bitcoin network, but this figure is misleading as it does not account for the significant energy use associated with commuting, heating offices, and other aspects of the financial sector's infrastructure.

It's important to consider the energy needs of the hundreds of thousands of people who work in the financial sector today. These individuals and the infrastructure required to secure their centralized ledgers significantly contribute to energy consumption. This usage is likely far higher than the energy consumption attributed to Bitcoin mining alone.

Bitcoin vs. Financial Systems: A Comprehensive Comparison

The comparison between Bitcoin and traditional financial systems is often apples to oranges. Bitcoin is primarily a trade settlement system, whereas the financial system performs a myriad of additional functions such as lending, equity trading, credit provision, mortgage issuance, and retail banking services.

Bitcoin's capabilities are limited in terms of transaction throughput. The blockchain can only process a maximum of seven transactions per second, which equates to approximately 604,800 transactions per day. In practice, this number is typically much lower, often around three to four transactions per second, with some transactions getting lost.

Videos, for instance, the Visa payment network settles an average of 1,667 transactions per second and is capable of settling over 56,000 transactions per second. Therefore, it's essential to compare the energy efficiency of Bitcoin with that of a decentralized payment system set to process the same number of transactions.

Electricity Consumption of Bitcoin

The significant electricity consumption of Bitcoin is a point of concern. According to the Attack of the 50 Foot Blockchain: Bitcoin Blockchain, Ethereum, Smart Contracts book, Bitcoin's energy consumption is equivalent to that of the entire country of Ireland, with a population of around 4.8 million people. The cost to confirm one transaction and add it to the blockchain ranges from $10 to $20 per transaction.

On the other hand, a centralized database performing similar functions could be run on a 2007 smartphone, powered by USB, highlighting the vast inefficiency of Bitcoin's system. To put this into perspective, imagine if your bank charged $10 to $20 every time you wrote a check or used a credit card. This is the cost of Bitcoin transactions, and many people believe it to be the future of finance.

Wasteful Use of Resources

The energy consumption of Bitcoin is described as one of the most wasteful uses of natural resources. It's a solution in search of a problem, with the only issue it addresses being the need to conduct financial transactions anonymously. However, alternatives exist that are significantly more energy-efficient and function effectively.

The question of whether the energy consumption of financial systems and Bitcoin networks is justified should be reconsidered. With the environment becoming an increasingly important factor in business decisions, the energy efficiency of financial systems becomes a critical consideration.