In 1999, on the verge of the popping of the dot-com bubble, anyone involved in technology was awakening to the near-endless opportunities that the Internet and home computing could provide.
At the same time, we saw anyone who’s incentivised by creating panic talk about the terrible energy-intensive world we were creating by using computers. Statistics suggested that we would require a pound of coal to store 2MB of data, and that in 2025, 20% of all electricity would be used by the Internet.
We’ve since discovered that these figures are far off, so should we apply a little more consideration into saying that bitcoin’s energy consumption is excessive, unsustainable and bad for the environment?
These concerns aren’t new to bitcoiners. Even bitcoin’s inventor, Satoshi Nakamoto, had to address the energy consumption concerns, so let’s do a deep dive into why bitcoin uses energy, how it’s used and how bitcoin could become an even bigger user of renewable energy.
Bitcoin is not the first digital currency humans have built. David Chaum created DigiCash in 1989 but the business faced technological problems that forced it to centralise. In retrospect, perhaps the biggest problem with centralised private money is that if the business goes under, the digital money becomes worthless because all of the databases and ledgers are no longer available to the public or even online.
The second major problem we faced is that digital data can be easily copied with enough time or money (and sometimes with little effort).
So, in 2008, Nakamoto took the ideas behind DigiCash and a few other sources and put together what we now know as a blockchain.
Let’s take a look at what he used and how he did it.
How do we secure the network and how do all the participants in the network verify transactions and know that all participants are being honest and not creating false transactions?
The simplest proposal might be that you allow a bunch of computers to form a network, and if the majority of the computers agree that a transaction has taken place, or agree on the general network rules, then all is good.
There’s a small flaw with this approach, and that is that if every computer on the network had equal voting power, it would be relatively cheap and easy to buy enough computers to control the network by purchasing thousands of low-cost computers like Raspberry Pis.
Once the person or people that control the new majority are connected to the network, they could mint new coins, double spend, or do a number of other things that would damage the integrity of the network. This type of attack is called a Sybil attack.
Nakamoto realised that blockchains could be resistant to this type of Sybil attack if there was a cost to run a node on the network, so inspired by Adam Back’s proposed Hashcash proof-of-work algorithm he implemented proof-of-work on bitcoin.
By implementing proof-of-work, nodes on the network that mine transactions are made to try to solve a (computationally) difficult mathematical puzzle. The puzzle difficulty gets more and less difficult depending on the total computational power of the network, which is measured in hashes per second (h/s).
Nakamoto then chose to reward these nodes for their work, by offering them a block reward of 50 bitcoins for every puzzle they successfully solved before another mining node did so.
So, we have a cost to validate transactions on the network, as well as a reward for validating those transactions.
Lastly, we need to consider that the more computing power introduced to the network, the more transactions cost to mine, the more computing power is required, and yes, the more energy is consumed.