Mo. Apr 15th, 2024

Digital asset bank, Sygnum, has published a 15-page research report entitled „Does crypto have an energy problem?“ that analyses Bitcoin’s energy usage, the emergence of a green blockchain standard and potential implications for the industry’s future. Key takeaways include:

Bitcoin „Miners“ compete to validate transactions and earn block rewards of newly minted Bitcoins by contributing their computing power to the network. This results in a significant amount of wasted energy, as only one miner will end up validating each transaction. Bitcoin proponents argue that the prohibitively high cost of mounting an attack on the network is a major source of its continued security. However, Bitcoin’s energy inefficiency, plus its exploding popularity, has escalated the network’s energy use at times to the level of small countries.

New green blockchain standard

The new generation of Proof-of-Stake blockchains do not rely on raw computing power to secure the network, but instead on validators who put their own funds at „stake“ in the network. These now represent around 60 percent of the top 100 blockchains, and will soon include leading protocol Ethereum, with a market capitalisation of more than USD 500 billion. Ethereum is transitioning to Proof-of-Stake and has forecasted a 99.95 percent reduction in its energy consumption with this change.

Report author Katalin Tischhauser, Sygnum’s Head of Discretionary Solutions and Research comments that „Bitcoin’s high energy consumption is an often-used criticism against the world’s first cryptocurrency, often described by the media in a way that suggests that cryptocurrencies in general have an ‚energy problem‘. They don’t.“.

Price movements indicate investors‘ support for Bitcoin despite energy inefficiency

In this latest market rally, investors have continued to favour Bitcoin and have not pressured for an upgrade to its energy inefficient protocol and mining practices. If this continues, it may signal a lack of genuine concern over Bitcoin’s energy inefficiencies. However, for the first time, investors are putting pressure on miners to use clean energy sources, and products that filter for this feature are starting to emerge in the market. While this does not address the protocol’s energy inefficiencies, it may be the sign of an impending tipping point in Bitcoin’s evolution.

Sygnum Bank research report

Sygnum Bank’s report „Does crypto have an energy problem?“ contains insights on:

  • Why does Bitcoin consume a lot of energy?
  • Modifying Bitcoin
  • Implications of China’s Bitcoin ban and relocating miners
  • Conclusions and outlook

The full report can be downloaded here.

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