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Dutch Bank Worried About Electric Consumption of Bitcoin Mining

Dutch Bank Worried About Electric Consumption of Bitcoin Mining

Dutch Bank Worried About Electric Consumption of Bitcoin Mining

ING, one of the largest commercial banks in the Netherlands, has released a report which addressed the sizable electric consumption of Bitcoin mining.

ING senior economist Teunis Brosens wrote:

"By making sure that verifying transactions is a costly business, the integrity of the network can be preserved as long as benevolent nodes control a majority of computing power. Together, they will dominate the verification (mining) process. To make the verification (mining) costly, the verification algorithm requires a lot of processing power and thus electricity. Bitcoin's energy costs stand in stark contrast to payment systems that have the luxury of working with trusted counterparties. E.g. Visa takes about 0.01kWh (10Wh) per transaction which is 20000 times less energy,”

The Bitcoin network requires substantial electric consumption due to its proof-of-work (PoW) consensus protocol. For miners to obtain newly created Bitcoin, they are required to compute mathematical algorithms through the usage of mining equipment and electricity. Despite its inefficiency, it is a fair system in which miners are incentivized for their share of work and wherein new Bitcoins are created transparently.

Such consensus protocol separates Bitcoin from centralized financial systems like Visa and traditional stores of value such as fiat currencies. As security expert John McAfee noted, mining is a vital part of the Bitcoin network and its structure which provides Bitcoin with value.

Fiat currencies such as the US dollar can be printed and produced at the demand of central authorities, like the Federal Reserve. However, Bitcoin is created through mining, which requires substantial work, capital, and resources. Therefore, although the process of mining requires significant electric consumption, such method of producing Bitcoins allow the cryptocurrency to obtain a fair market cap and justification of its value from an open market.

There exists various ways in which electric consumption for BItcoin can be decreased. For instance, the Ethereum network is eyeing the migration from Proof-of-Work to Proof-of-Stake (PoS), to settle transactions and smart contracts with lower fees and at faster speeds, for scalability purposes.

Unlike Ethereum and other blockchain networks, Bitcoin was developed and structured to operate as a robust store of value. As such, its value originates from its security measures and security value, which are provided through Bitcoin mining.

The difficulty in mining Bitcoin and creating new supply of the cryptocurrency is not a disadvantage but a feature, and a very important characteristic of Bitcoin.

As Bitcoin and security expert Andreas Antonopoulos stated:

“You could think of this as wasteful or some concentration of mining in China, but what they’re doing is solving a problem. They have electricity that is being produced, they can’t turn it off, and they found a creative way to turn that into money. Bitcoin is a battery. It is a battery that stores energy in the form of Bitcoin that could be used to buy electricity, oil, other forms of energy. Bitcoin is an energy storage mechanism. I think that’s brilliant!”

Author : Joseph Young

Joseph Young is a finance and tech journalist based in Hong Kong. He has worked with leading media and news agencies in the technology and finance industries, offering exclusive content, interviews, insights and analysis of cryptocurrencies, innovative and futuristic technologies.

bitcoin Bitcoin mining Dutch Bank Electric Consumption