Banking uses 56 times more energy than Bitcoin, a Valuechain report showed. Data analysis of Bitcoin and the Lightning network shows that the banking system needs more energy, demonstrating that Bitcoin is better for the planet.
It is generally accepted in society that Bitcoin mining is extremely polluting to the environment, which is fueled by the fact that the computing power of mining farms requires really large amounts of energy. However, things are not so clear-cut when you start thinking about how much energy banking uses. The latest data on the power consumption, efficiency, and scalability of Bitcoin (BTC) serve to reveal the banking sector and show the world's largest cryptocurrency in a new light.
In a research report (via Cointelegraph) published by Michel Khazzaka, an IT engineer, cryptographer, consultant, and founder of the consulting firm Valuechain, it is estimated that Bitcoin payments are a “million times more efficient” than the legacy financial system. In addition, the banking sector “uses 56 times more energy than Bitcoin.” The report compiles almost four years of research and suggests a new calculation for estimating Bitcoin's proof-of-work energy consumption. In an interview Khazzaka told Cointelegraph:
“Bitcoin Lightning, and Bitcoin, in general, are really great and very efficient technological solutions that deserve to be adopted on a large scale. This invention is brilliant enough, efficient enough, and powerful enough to get mass adoption.”
Founded in late 2021, Valuechain offers an alternative to the energy estimates provided by the Cambridge Bitcoin Electricity Consumption Index (CBECI). The index estimates that Bitcoin consumes approximately 122 TWh per year. However, taking into account all the metrics, including the average lifespan of Bitcoin mining machines, as well as the rate at which new IT materials are created, Khazzaka suggests that Bitcoin consumes 88.95 TWh per year, which is significantly less than the Cambridge estimate.
Khazzaka also takes a close look at the banking sector to effectively compare the two monetary systems. The cryptographer told Cointelegraph that he “really underestimates every aspect of the banking sector,” and contrary to critics, his report is “biased to the banking system.” However, even with this approach, taking into account the creation of money, transportation of money, the energy consumption of the physical banking infrastructure, etc., it comes to 4,981 TWh, which is how much the “classical payments” sector consumes each year. So, a simple calculation shows that banking uses 56 times more energy than Bitcoin.
The report also looks at transaction efficiency, which shows that currently “at current block size and if the blocks are filled to their maximum capacity ηmax = 5.7× better energy efficiency than the classical system.” However, these calculations are made without taking the Lightning Network into account. In an interview, Khazzaka explained:
“Lightning will allow the bitcoin protocol to do more transactions without consuming more energy. And this is magic.”
Thus, the report concludes that the combination of Bitcoin and the Lightning Network allows Bitcoin to become “194 million” times more energy efficient than a classical payment system. This difference is enormous. The report also states that “Banking and payments industry needs to adopt blockchain and maybe even Bitcoin.” Khazzaka believes that Bitcoin can actually benefit banking:
“If they are courageous enough blockchain technology, it will improve their efficiency and their scalability.”
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About the Author
Eva Fox joined Tesmanian in 2019 to cover breaking news as an automotive journalist. The main topics that she covers are clean energy and electric vehicles. As a journalist, Eva is specialized in Tesla and topics related to the work and development of the company.