In 1999, on the verge of the dot-com bubble burst, anyone involved in technology was awakening to the almost endless opportunities that the internet and home computing could offer.
At the same time, we have seen activists and journalists (and all those who are incited to create panic) talking about the terrible energy-consuming world we are creating by using computers. Statistics suggest that a pound of coal would need to be burned to store 2MB of data and that by 2025, 20% of all electricity produced would be used by the internet.
Looking back, it’s clear that these numbers were incredibly distant, so should we take a little more consideration to say that Bitcoin’s energy consumption is excessive, unsustainable, or that the results of Bitcoin mining are bad for the environment?
These concerns are not new to Bitcoiners. Even Satoshi himself has had to address these power consumption issues, so let’s take a deep dive into why Bitcoin uses energy and how it is used.
The value of Bitcoin using energy
Bitcoin was not the first digital currency (centralized or decentralized) that we tried to create. In fact, it has more than 40 years of prehistory. David Chaum created DigiCash in 1989, but the company faced technological problems that forced it to centralize. In retrospect, perhaps the biggest problem with centralized private money is that if the company goes bankrupt, digital money becomes worthless because all of its databases and ledgers are no longer accessible to the public or even in the dark. line.
The second major problem we have faced when creating a digital currency is that digital data can be quite easily copied with enough time or money (and sometimes with little effort).
So in 2008 Satoshi took the ideas behind DigiCash and a few other sources and implemented what we now call a blockchain and Bitcoin!
Let’s see what he used and how he did it.
Securing the network (it’s money, after all)
How do we secure the network and how do all the participants in the network verify the transactions and know that all the participants are honest and are not creating fake transactions?
The simplest proposition might be that you allow a group of computers to form a network. If the majority of computers agree that a transaction has taken place, or agree on general network rules, then all is well.
There is a small flaw with this approach. If every computer on the network had the same vote, it would be relatively cheap and easy to buy enough computers to control the network by buying thousands of cheap computers like Raspberry Pis.
Once the person or people controlling the new majority are connected to the network, they can strike new coins, double expenses, or do a number of other things that could harm the integrity of the network. This type of attack is called a Sybil attack.
Satoshi realized 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 the Hashcash proof-of-work algorithm proposed by Dr Adam Back, he implemented proof of work on Bitcoin.
By implementing proof of work, the nodes in the network that mine transactions are created to try to solve a difficult (calculated) mathematical puzzle. The difficulty of the puzzle becomes less and less difficult every two weeks based on the total computing power of the network, which is measured in hashes per second (h / s). This feature is known as Bitcoin Difficulty Adjustment.
Satoshi then chose to reward these nodes for their work by offering them a block reward of 50 bitcoins for each puzzle they successfully solve before another mining node does.
So we have a cost to validate transactions on the network and a reward to validate these transactions.
Finally, we must consider that the higher the computing power introduced into the network, the higher the cost of the transactions to be mined. Computing power and energy are positively correlated, so the more computing power is needed, the more power is consumed.
Now, it can feel like a never-ending cycle of increasing computing power and power consumption. Yet mining nodes are businesses that have an economic incentive to operate efficiently. So increasing their computing (or hash) power and increasing their electricity costs without having to do so wouldn’t make economic sense.
The Bitcoin network therefore does not use more energy than it needs.
This pattern of increasing difficulty as the hash power of the network increases is what makes Bitcoin secure and resistant to anyone attempting to take control of the network, as they must purchase enough computing power to equal at least 51% of the network. network computing power.
If we consider the Bitcoin network to be the future of money or the greatest store of value – whatever you think it is that makes Bitcoin important – it is made important because of the energy consumption of the network. which is directly correlated to the computing power (and Sybil resistance) of the network.
The Bitcoin network does not “waste” energy; he consumes it. We all recognize the value of burning thousands of tons of fuel to test rockets that might one day make it to Mars, so why do we have a problem using energy to secure a truly decentralized global financial system?
In 2010, Satoshi already understood this when he wrote:
“It’s the same situation as gold and gold mines. The marginal cost of gold mining tends to stay close to the price of gold. Gold mining is wasteful, but that waste is far less than the usefulness of having gold available as a medium of exchange.
I think the case will be the same for Bitcoin. The usefulness of the exchanges made possible by Bitcoin will far exceed the cost of the electricity used. Therefore, not having Bitcoin would be a net waste.
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