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May 13, 2022, 03:50:49 AM |
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Bitcoin mining has evolved into an industry with billions of dollars in annual production value, now producing about 650,000 Bitcoins per year. Mining has also evolved from initial mining with personal computers and graphics cards to clustering, specialization, and large-scale mining. According to the website BitChina, the entire mining industry currently has more than 1 billion U.S. dollars in mining machines and equipment alone.
However, the huge energy consumption and emissions brought by the mining trend have also attracted people's doubts and concerns about environmental protection. Elon Musk has publicly stated on social media that the consumption of fossil fuels, especially coal, caused by Bitcoin mining and Bitcoin exchanges has increased rapidly, and he has stopped using Bitcoin to buy cars.
How much energy does mining consume?
According to the University of Cambridge's Bitcoin Power Consumption Index, bitcoin mining is estimated to consume 150.38 terawatt-hours of electricity annually (1 terawatt-hour is equal to 1 billion kWh of electricity), surpassing gold mining (131 terawatt-hours per year).
The energy consumption of Bitcoin mining is so much higher than the energy consumption of countries like Sweden and Poland. The entire Bitcoin industry requires electricity, surpassing more than 100 countries and regions such as the United Arab Emirates, the Netherlands, the Philippines, Belgium, Australia, and Israel.
Energy consumption is accompanied by high growth at the same time. At the beginning of 2017, the annual energy consumption of bitcoin mining was 6.6 terawatt hours; in 2018, it increased 7-fold to 48.37 terawatt hours; in October 2020, the energy consumption increased to 67 terawatt hours. Insiders also said that the annual energy consumption for mining will continue to increase over time.
Why does Bitcoin mining consume so much energy?
Bitcoin mining not only consumes more electricity to keep the mining machine running, but is truly a "black hole of power consumption." What is the reason for this?
Quite simply, the power consumption of mining is closely related to the basic mechanism of operation.
The reason why Bitcoin mining requires incredible computing power is because the "registry" - that is, the blockchain technology used to record Bitcoin transaction history - is supported by a consensus model called Proof of Work (PoW).In the early days, it was easy to mine Bitcoin, and the power consumption for mining at that time. In recent years, Bitcoin's computing power has steadily increased, the complexity of mining has also increased, and the power consumption will become very high.
Thus, we see that in 2020, countries around the world began to struggle with bitcoin mining, and the first country to bear the brunt was mainland China, which once accounted for 78% of computing power. The Cambridge University Alternative Finance Center in the United Kingdom shows that China's share of computing power for bitcoin mining has returned to zero since August 2021.
But political interference aside, Bitcoin computing power in China has also slowly declined in recent years. After reaching a peak of more than 75% of the total network in 2017, China's share of computing power slowly began to decline. According to the Cambridge University Alternative Finance Center, bitcoin's computing power in China fell from 75% to 65.08% from September 2019 to April 2020, while the U.S., Kazakhstan, Malaysia and other countries saw an increase. During the same period, mining computing power in the United States increased from 4.06% to 7.24%, and computing power in Kazakhstan increased from 1.42% to 6.17%. In addition, Bitcoin's computational power in Russia, Malaysia, and Iran also continues to grow.
As mentioned earlier, the power consumption of mining is closely related to its basic operating mechanism, and Ethereum's switch from POW to POS "Proof of Stake" is the most striking point in the development of blockchain technology this year.
What are the benefits of Ethereum‘s switch from POW to POS?
According to the "Green Environmental Protection Initiative" published in official Ethereum sources , POS will reduce the power consumption of each transaction by 99.95%, and the power consumption of Ethereum 2.0 will be reduced to about 0.001-0.002 Giga Watts (GW), while the current power of Ethereum is 5 GW. The updated Ethereum will also be more modular. This modularity separates the compute- intensive execution from the consensus layer, allowing the network's operation to consume less energy and achieve greater efficiency.
Comparison of current and future power consumption of Bitcoin and Ethereum
Vitalik Buterin has also published a news about the comparison of POS and POW. He believes that the security of POW, which people initially trusted, is overestimated and POS has more advantages in blockchain security.There are three main factors：
1.POS can provide higher security at the same cost
2.POS is easier to recover from attacks
3.POS is more decentralized than ASICS
When a public network project is released, all tokens are usually in the hands of the development team and early investors, which risks monopolizing the profits generated in the chain and even the consensus of the entire chain by a several individuals. However, since Ethereum has been using PoW consensus for many years, the tokens have long been distributed in the hands of a large number of users, so there is initially no problem that several individuals being able to control a large number of tokens through PoS consensus.
Since Vitalik Buterin first proposed a plan to switch to POS consensus in 2015, the POS protocol developed for the Ethereum upgrade has been repeatedly discussed and repeated in several versions, and at first it was planned to adopt a hybrid PoW/PoS Casper FFG consensus, and then move to a pure PoS Casper CBC upgrade route.
The current Staking pledge situation of Ethereum
Unlike POW, which requires the use of expensive energy to expand the blockchain, POS allows users to pledge ETH to verify block production nodes. Since the launch of the Beacon chain in early December 2020, ETH2.0's pledge has grown steadily. According to the real-time data of the Beaconcha website, the total amount of ETH is currently 11.81 million, and the number of verification nodes has also reached nearly 370,000, and their number continues to grow gradually. This stable accumulation shows that most miners have confidence in the ETH 2.0 mining mechanism, and it also shows that the demand for ETH through mining is gradually increasing.
Data scientist Osho Jha believes that the Pledge is the key to making ETH a store of value. Essentially, the pledge will motivate nodes to hold as much ETH as possible and use it to participate in the nodes' verification behavior. For investors, the motivation to pledge consists of systematic incentives similar to receiving pledge income.
The minimum threshold for participation in the pledge is 32 ETH. After validators agree to pledge their tokens, the pledged tokens are blocked, which attracts some miners to mine by blocking ETH. Since 2016, the number of addresses with 32 or more Ethereum has been in line with the general trend of changes in market prices. An increase in this value indicates that there will be more and more POS mining participants in the ETH ecosystem in the future, as users must have 32 ETH as a requirement to become ETH 2.0 validators. Therefore, a significant increase in the number of addresses with more than 32 ETH means that the number of validators will gradually increase, which will boost the demand for ETH in the market.
Looking at the whole mining industry environment, the transformation of the Ethereum consensus mechanism is not only an expression of a general trend where POS is becoming more popular nowadays. At the same time, it is the first mainstream public chain project to switch from POW to POS and promotes the development of POS consensus. The performance improvement and rate reduction achieved by upgrading the main network will enable it to host more blockchain projects and commercial application scenarios as infrastructure in the future.
As the leading digital currency, Bitcoin has drawn public attention to blockchain technology and digital currency, and there is no need to talk about its status and importance.The effect of halving the cycle every four years also gives Bitcoin the attribute of currency deflation.Regardless of the current market return, accumulated value and commercial value gradually recognized by the public, or the belief in the "decentralization" that Bitcoin represents, people will mine, whether through POW or POS.
The "mining" of the future is not only completely different from bitcoin mining in the past, but we can not even imagine it today. Remember, when we say that "the old era is over," we forget the other meaning of that phrase, which is the beginning of a completely new era.
About AEX Academy
The AEX Academy of Digital Financial Research (abbreviated as "AEX Research Academy") was established in early 2022. It is the main source of information in AEX Global's strategic ecosystem and aims to provide people in the blockchain industry with a solid theoretical foundation and assessment of trends. Research areas include blockchain and digital finance and technology research, market analysis, applied innovation, financial product models, and new model exploration. Researchers are spread across more than 50 countries and regions, including the United States, Singapore, France, and South Korea.
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