Saturday, May 22, 2021

Bitcoin: Blockchain, Mining, Energy

 

Bitcoin: Blockchain, Mining, Energy

It’s no secret that Bitcoin and cryptocurrencies, in general, have gained significant popularity and notoriety over the last 12 months. Most notably because the return has been an astronomical 430% over the time period, but also due to companies such as Tesla, MicroStrategy, and Square investing a collective $3.9 billion earlier this year. For anyone invested in Bitcoin or following the asset, this last year has not been without its ups and downs.

What is Bitcoin?

Bitcoin is a decentralized digital currency. All transactions made with bitcoin are noted on a public ledger and verified by a network of computers. Many people and companies are working to verify transactions instead of just one entity, making it decentralized. The public ledger of bitcoin transactions is stored in the blockchain.

What is the Blockchain?

Think of it simply as blocks being stacked on top of each other, one after the other, with each block containing different transactions. The massive network of computers mining the bitcoin is responsible for verifying each public transaction on the ledger. Once a block is full, it needs to be closed and another block opened for the next round of transactions. In order to close the block, an incredibly complicated math equation must be solved. Whoever is responsible for solving the equation is awarded bitcoin as payment.

While the bitcoin blockchain network is public, it remains completely anonymous. Each user is assigned their own specific public key. A long string of numbers and letters attached to each transaction instead of the user's name or username.

For more information and explanation on blockchain and how it can prevent large-scale attacks, click the links below.

  1. Investopedia
  2. Built In

What is Mining?

Mining is the process of solving a complex math problem required to close a block and add it to the chain. There are about four billion possibilities to sift through in order to solve the problem, thus confirming the necessity for equally complex and powerful computers. Miners who successfully solve the math problem are awarded their payment, currently worth 6.25 bitcoin. In dollars today, approximately $315,000.

However, mining doesn’t come without its own costs. Building these supercomputers and mining facilities is very expensive. Not only the upfront costs, but the expenses related to powering the systems are in a class of their own. If people and companies want to increase their chances of solving the equation first, they need more computers. More computers mean more electricity.

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Using data from the University of Cambridge’s Bitcoin Electricity Consumption Index, VisualCapitalist put together a visual and chart of bitcoin’s power consumptions compared to other companies, states, and even countries. The bitcoin mining network consumes more electricity than the entire country of Norway. Considering this massive power need, there is hope the bitcoin mining network will be a boon to the global transition to renewable energy. To learn more about the relationship between bitcoin mining and renewable energy, click here.

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