How Much Power Do Miners Really Need?
Tags: Bitcoin

How Much Power Do Miners Really Need?

Proof-of-Work vs. Proof-of-Stake

Recently the overconsumption of electricity and other resources by cryptocurrency mining has reached levels that some consider concerning. Many of crypto’s detractors point this out as a reason it’s not feasible.

Vast Consumption

Global Bitcoin mining currently uses more electricity than most countries, as much as 61 TWh (Forbes, April 19 2018), which is almost 20% of Great Britain’s annual electricity usage. Not only does this electricity cost money and raise demand (and consequentially price), it also releases enormous quantities of CO2. Most electricity is still produced using fossil fuels, so pollution necessarily ensues as a direct result of mining.

What’s Mining?

Mining is a component of Proof of Work wherein computer or nodes compete to solve cryptographic puzzles in order to complete blocks. These puzzles are at the end of each “block” and the reward for solving them is currently 12.5 Bitcoin (in the Bitcoin blockchain that is). That 12.5 Bitcoin (plus the transaction fees in the block) is quite valuable even with the current fluctuation, so every miner desperately wants to win. However, the cryptography is so complex the computers must use brute-force methods, where they more or less guess thousands of times a second until they get the right answer. This leads miners to buy more and more machines and expend more and more electricity trying to increase their chances of earning block rewards.

Miner Macgyvers

Some miners join pools, where they cooperate with thousands of other computers to earn rewards. Others will build custom machines to try and optimize and increase efficiency. Either way, they’re still relying on random chance and brute-force computing to win rewards. They also need to deal with the downsides of mining, i.e. expensive computers that generate considerable noise and heat. Some miners actually take advantage of those side effects and use their devices as space heaters and white noise machines. Even with Macgyvered space heating, POW is criminally inefficient and not scalable for a global currency.

Proof Of Stake

Instead, most new blockchains operate based on Proof of Stake (POS) or a mix of Proof of Work and Proof of Stake. POS enables verification and block completion based on the number of tokens held by the node. Not only does this encourage a more widespread and decentralized network, it also increases the cost of a 51% attack and lowers the likelihood of the same. Because POS requires the nodes to maintain balances of the blockchain’s native asset, it’s in the participants’ best interest to keep the blockchain running smoothly and normally.

Saving Power

POS systems reduce energy expenditure involved in operating a blockchain exponentially. It’s easier for nodes with larger stakes to win the block rewards and because of this, there’s less need for farms of thousands of mining computers. Instead, a node owner could spend all the money they would have spent on miners on a stake in the blockchain’s native asset and have far fewer computers (and less power consumption and upkeep).

Fiat Money Costs More

Despite the POS vs POW debate, cryptocurrencies remain far more efficient than traditional fiat systems in part due to decentralization. While the up-front cost might seem higher (fiat money doesn’t cost much to print), there are myriad auxiliary costs of fiat currency. For one, central banks and all of their employees! The various treasury departments would be another, and those costs add up quickly.

We’re confident that as the blockchain community grows and evolves efficiency will improve further, whether through Proof of Stake or other new innovations that we haven’t yet seen.