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Understanding Bitcoin energy consumption

There is a common misunderstanding that proof-of-work consensus algorithms are not scalable and use too much energy due to the computational requirements placed on miners.

This view has been reinforced by reputable online sources and institutions such as Digiconomist’s Bitcoin Energy Consumption Index which details the latest estimates of total energy consumption on the BTC network.

Their research conclusions, which are calculated based on BTC as the benchmark, would lead you to believe that “a rapid solution to Bitcoin’s carbon footprint is not within sight.” However, this conclusion is incorrect.

There are various attempted implementations of the Bitcoin protocol that have been developed, each with its own approach to improving the scalability of the technology. These different versions often compete with one another, as users and developers debate which approach is the most effective in addressing the challenges of scaling Bitcoin.

It is important to understand the usefulness of a digital asset and the real-world applications of blockchain technology to evaluate the energy consumption and overall value of the asset.

The complex and often confusing landscape of the cryptocurrency industry, with its mix of influential figures, fraudulent schemes, and illegal securities, can make it difficult for even the most dedicated individuals to fully understand and follow the developments in the field. However, it is worth noting that the underlying technology of blockchain is a significant technological innovation that is quietly revolutionizing various industries, even if it doesn’t always receive the same level of attention as the more volatile and speculative aspects of the digital currency market.

As for the question of whether the proof-of-work algorithm used by many digital currencies can scale effectively, the answer is not as complicated as the journey to reach it.

It is indeed challenging to defend the high energy consumption of the BTC network given its relatively limited usefulness. However, when the Bitcoin SV implementation (BSV) is considered in the same evaluation, the outcome is different: the BSV blockchain is the most sustainable Bitcoin node implementation.

Throughput is a measure of the rate at which actions are completed, and in the case of Bitcoin, it refers to the number of transactions that can be processed per second (TPS). BTC currently offers a relatively low TPS of between 4-7 yet consumes a significant amount of energy due to the speculative nature of block reward mining.

The developers of BTC have primarily focused on developing off-chain solutions to improve scalability, but these efforts have resulted in fluctuations in the cost of transferring and exchanging BTC, due to the restricted size of the blocks (1mb) in the BTC network.

Since the mining of block #556767 on November 15, 2018, Bitcoin SV (BSV) developers have made significant progress in breaking through scaling barriers that were previously thought to be impossible.

For example, on February 6, 2022, TAAL, an enterprise blockchain service provider, successfully mined block #725511, which was a 3.8 GB block holding over 188,000 transactions with an average transaction fee of $0.005. In addition, during a live blockchain conference in June 2021, BSV demonstrated its ability to achieve a throughput of 50,000-100,000 transactions per second (TPS) in real-time.

This is significantly higher than Visa’s reported capacity of 1,700 TPS, though the company claims to be able to handle up to 65,000 TPS. BSV has not only proven the ability to handle a high volume of financial transactions, but also has the potential to serve as a trustless accounting ledger, a global shipping and supply chain infrastructure, a solution for identity management, and much more.

The BSV blockchain is the most sustainable node implementation

MNP, a leading accounting, tax, and business consulting firm in Canada, has conducted extensive research on the topic of digital currency energy consumption and recently published two reports that examine the importance of the original Bitcoin protocol, the impact of changes to the popular BTC version on its capabilities, and how the competing version, BSV, has been able to tap into the native scaling capabilities that were present when the system was first released.

MNP’s independent blockchain technology energy consumption modeling confirms that block size and throughput have a significant impact on the efficiency of the proof-of-work algorithm.

The team used a combination of existing frameworks and input from industry experts to calculate the electricity consumption of the BTC, BCH, and BSV blockchains, and validated their model with real-world data from miners, also known as transaction processors.

Scaling = Sustainability

MNP’s research revealed significant differences between the various Bitcoin protocols: specifically, that the power consumption per transaction significantly decreases when network utilization is higher on proof-of-work protocols with more permissive block sizes, compared to those with more restrictive block sizes.

The arbitrary limitations of BTC have a significant impact on its power consumption per transaction. In contrast, MNP found that “BSV is the most efficient blockchain network when compared to the other SHA-256 proof-of-work blockchains. With greater utilization and throughput, these reductions in consumption per transaction and increase in efficiency will only improve.”

This conclusion contradicts the commonly held belief about the energy efficiency of Proof-of-Work protocols.

“After examining BTC and BSV compared to the original vision set forth in the whitepaper, forum posts, emails, and other writings by Satoshi, it is our opinion BSV is the implementation that currently best represents what Satoshi originally intended. BSV has a theoretically unbound block size, which allows payments to scale to the size of a Visa-like network without requiring an increase in fees to meet the economic requirements of the node operators. BSV also provides more functionality in terms of how developers can utilize the network for building their own transaction systems on top of the Bitcoin protocol.” Source: MNP – The Original Bitcoin Protocol: What is it and why does it matter? August 25th, 2021

What does this mean for Bitcoin Energy Consumption?

Scaling is crucial for improving the energy efficiency of a digital asset secured by proof-of-work. Increasing the number of transactions per second (i.e., the transaction throughput) reduces the energy consumption per transaction on a proof-of-work network.

This is due to the fact that the energy required to add a block to the chain is constant, regardless of the amount of data or the number of transactions included in the block. In other words, increasing the transaction throughput by a million results in a millionfold decrease in the energy cost per transaction.

Researchers overwhelmingly agree that Proof-of-Work is the most secure consensus mechanism for confirming and ensuring the integrity and availability of transactions.

A mining facility’s purpose is to produce blocks of validated, time-stamped, ordered transactions. The energy needed to run a mining node is the same whether it is validating 7 transactions per second or an unlimited number of transactions per second.

Source: Coin Dance

An Analogy

The airline industry contributes 5% of the world’s CO2 emissions. The CO2 footprint per passenger of daily flights is not a concern because of the tremendous benefits they provide. If an alternative mode of transportation were proposed that was more efficient but less secure for transporting passengers, it would not be seriously considered due to the importance of the human lives at stake (i.e., the cargo being transported). It is not acceptable to compromise necessary and required security for the sake of perceived sustainability.

However, if a new form of travel were developed that needed the same amount of energy per flight but could carry an unlimited number of passengers, the CO2 footprint per passenger would be insignificant.

Final Considerations:

Protecting critical national infrastructure requires using energy in proportion to the level of security needed. This is true whether we are talking about protecting a country’s borders, classified secrets, or data infrastructure.

Anything worth protecting requires efficient energy usage. Resources are limited, so they must be used wisely to give a competitive advantage or risk compromise.

Proof-of-Work supplies a trustless model for resilience and security, including the identification of assets and the prevention of fraud and risk, the protection of critical infrastructure, the detection of activities on a network, and the response and recovery from a security incident.

It is now incumbent upon blockchain experts, researchers, and educators to break the false paradigm of the blockchain trilemma and embrace the scalable solution that bitcoin has always been, and BSV demonstrates today, and is proving through sustainable, utility based, enterprise, and big data applications.

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