It has long been said that cryptocurrencies that require proof of work are in fact quite the energy-consuming little devils. By one estimate, the amount of energy that goes down in mining Bitcoin, for example, across the globe easily equals the amount of power Denmark needs to feed its electricity needs for an entire year.
Understandably people have been concerned about the prospect in mining Bitcoin and losing money over it. Back in 2010, when the craze around Bitcoin began, many people just shrugged off the utility bill mark.
In fact, many of us even purchased their first rigs (the computer configurations used in mining) without asking ourselves if we will be able to sustain the electricity bills. As it has turned out, it’s quite possible that we would not quite be able to.
Proof of Work – Explained
The Proof of Work is a pretty old concept that predates Bitcoin, but if you have become aware of it in Bitcoin, that’s because people have found it somewhat inefficient and have debated it openly.
To put it in simple terms, Proof of Work is an economic measurement which determines whether actual work has been down on the computer network, and thus preventing threats such as spam messages. Basically, the computer needs to tell the network that it has processed a particular bit of information.
With Bitcoin, the processing time is understandably far greater than anything we have been accustomed to. The amount of electricity that needs to go behind processing Blockchain today is capable of melting your computer’s hardware easily if you are so foolhardy as to try mining on your own without a proper precaution. Meanwhile, there have been quite a few whimsical ideas about how to make mining a bit easier.
For example, in Russia, two nuclear scientists were caught trying to hook up a crypto-mining machine to an actual nuclear reactor.
Of course, other people have been far more reasonable when we think of it. The latest trend in the crypto world is not, in fact, to try and tackle Blockchain mining by introducing nuclear power to the segment.
Instead, people have found it far more useful to just pool their resources and work it out from there. As a result, today there are pools which see different people participate with their own computers and mine blockchain simultaneously.
Here’s a Crazy Idea – FIAT is More Expensive than Bitcoin
The big U-turn here comes with the revelation that FIAT currency may, in fact, be responsible for energy consumption that far surpasses that of Blockchain. By one estimate, creating Ethereum and Blockchain, while energy consuming, it would cost less than what it costs to maintain FIAT money.
Exploring this idea, detractors argued that once a FIAT cryptocurrency is created, no further energy consumption is required. This, however, is not entirely true.
The current majority of crypto enthusiasts are thinking that Bitcoin’s huge demand for electricity far surpasses what central banks use in terms of raw electricity to produce and maintain their FIAT money. But think again and consider several key metrics, which you may have acknowledged, but never so much as put in context:
- Maintaining FIAT currency necessitates thousands upon thousands of people catering to them;
- Electricity & Energy is required on daily basis and in huge amounts, both to distribute, but also transfer the money
Of course, you may have thought to yourself that this is all and there is nothing else that you will need to address here, but unfortunately, there is. We have just pointed out to the network that is necessary to maintain the entire grid.
Now, think about the network itself. Think about the central banks and commercial banks which toil on daily basis to establish workable solutions for their pressing issues. Think of how these banks try to connect and build international and strongly dependent networks that can somehow carry your money back to your bank account. Do account for all the little-unexpected events that may upset you along the way.
Now, all participants in this network demand ATMs, armoured cars for the physical transportation of money.
Moving money around requires a massive effort which is not easy to come by. IN the United States alone, there are 6,000 banks that work on daily basis to process cash transfers. These banks employ hundreds, and often thousands of employees, who are working on cash transactions.
On top of that, these banks are dependent on third-parties, such as JPMorgan, Visa, and MasterCard to forge ahead with the payments and establish the groundwork for everyone involved. The number of resources that goes into this, as we have pointed out, would require hundreds of thousands of employees to be diligently slogging through the financial quagmire, which, admittedly – may not be such a bad thing.
Where Does Crypto Currency Stand Out?
Bitcoin comes as the ultimate solution to all these pressing problem, because it’s a peer-to-peer financial network which offers decentralized distributing of all the money in the network. This in turns dramatically reduces transfer costs and eliminates the need for so many banks.
People can said almost instanteously across the globe without having to worry about a thing in the slightest. With this in mind, you will notice that the costs that accompany cryptocurrencies are not as great and they may come as a great substite of those electricity-hungry FIAT money.
However, our point here is that while blockchain mining based on the PoW concept requires massive amounts of energy, the use of the actual money thereafter doesn’t. Hence the claim that FIAT currency are less power-hungry is completely debunked. They are greatly more energy dependent than we might have suspected, but never really thought about.
Why Do People Love the Banking System
If there is one reason why we prefer to stick with the bank system, that is because it is secure and it allows us to navigate through a rathe complicated grid of prerequisites. If something goes badly with our money, we can always drop a quick phone call and see what this is all about. Blockchain and crypto money, on the other hand, need to have a risk-free environment, where third-parties cannot steal, in order for the whole thing to work together.
However, this has not yet been achieved, with Japanese crypto exchanges getting hacked. With this in mind, it’s quite understandable why people are still very much reluctant to embrace cryptocurrency over FIAT, for example. Of course, the fluctuating prices are another thing, too.
According to Ethereum blokchain development studio ConsenSys team member John Lilic the cost per transaction in FIAT currency are greatly higher than what blockchain needs. Banks manage to handle trillions of dollars, which is quite the significant sum and one that must not be ignored. But Mr Lilic estimates that in the future, blockchain will find ways to process information even quicker and even cheaper. The main obstacle remains the procurement of the crypto assets and, of course, their actual prices.
“The per unit cost of each tx is significantly higher with crypto. Data centres banks use are much more efficient than mining operations & legacy systems process orders of magnitude more tx’s per day than crypto. We need specificity around the energy issue, not conjecture. The real question is whether the gross energy inefficiency costs in crypto is worth the benefits like custody over assets. My contention is Yes! It is worth it but only if our industry prioritizes & continues to work towards energy efficiency gains like Proof of Stake.”
Cryptocurrencies and blockchain technology will continue to develop, and solutions will eventually surface so that the financial system is additionally bolstered. Best case scenario, people will see an unprecendented growth in the expansion of the cryptocurrency.