New calculations show: Bitcoin currently uses 56 times less energy than the traditional monetary system. The Bitcoin Lightning Network, on the other hand, is even 194 million times more energy efficient.
Bitcoin – more environmentally friendly than expected
A recently published study compared the energy needs of Bitcoin with the traditional financial system. The result was: Bitcoin currently uses 56 times less energy. Even with the current PoW system, a bitcoin transaction is five times more energy efficient than a traditional transaction.
On the other hand, Bitcoin Lightning is 194 million and 1 million times more energy efficient than traditional and instant payments, respectively.
The study defines that money has three functions: as a unit of account, as a medium of exchange, and as a store of value. In this regard, both bitcoin and fiat currencies are becoming comparable.
The authors first calculate the energy consumption of fiat currencies and bitcoin.
In calculating the energy consumption of banknotes and coins, the authors take into account the energy required to print paper money, to renew coins, to operate ATMs, to transfer money, to use electronic payment systems (EPOS), to issue card payments, operate bank offices, employ bank staff and process interbank transactions.
As a result of a detailed calculation of the individual categories, the authors make an estimate that the classic monetary system consumes 4,981 terawatt hours per year.
The study excludes the Layer 2 Bitcoin solution, Lightning Bitcoin Network – and only considers the current PoW system.
After calculating the energy consumption of various mining devices, the authors conclude, Bitcoin’s energy ceiling is 88.95 terawatt hours per year.
The paper states:
“We can conclude that Bitcoin PoW crypto payment system consumes at least ~ 56 times less energy than the classic electronic money and payment system.”
After calculating the energy consumption, the authors use this input to calculate the energy efficiency of each system, by estimating the amount of work and energy.
In determining the energy efficiency of each system, the authors also consider the time it takes for each system to complete a transaction.
Bitcoin vs. traditional finance
A bitcoin transaction typically takes about ten minutes to confirm and complete. On the other hand, normal payment is made within one to five working days. That means, a classic payment process is 288 times slower than a bitcoin transaction.
For cross-border payments, a standard payment may even take up to seven working days. In these cases, Bitcoin transactions are 1,008 times faster than classic transactions.
Bitcoin Lightning Payments vs Instant Payments
Finally, the authors compare the best cases of the two systems: traditional instant financial payment with the Bitcoin Lightning network.
Traditional finance instant network uses the same hardware and speeds up the payment process by prioritizing certain tasks. Therefore, the energy consumption of instant payment networks remains more or less the same as traditional finance, and its duration is reduced.
However, with 31 trillion transactions per year, Bitcoin Lightning is scaling much faster than instant payments. This is also reflected in the comparison results. The report states:
“Lightning at a single transaction level enables Bitcoin to be X194 million more energy efficient than traditional payment and up to X1 million more energy efficient than Tx immediately.”
Text credit: Cryptoslate
Last updated June 19, 2022
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