In this five-part series on Bitcoin and the environment, we aim to deliver a thorough overview and context of Bitcoin’s energy use and environmental impact. First, one must understand what drives Bitcoin’s energy use. From there we provide an overview of the current state of the Bitcoin Network from an energy consumption point of view, alongside important industry trends and metrics.
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It is often claimed that Bitcoin offers little use to a society that traditionally operates using fiat currency. Others maintain the perspective that Bitcoin is solely an investment tool used to generate capital gains or diversify a portfolio. Whilst the latter perspective may be valid, it is limited. Bitcoin can be viewed as a highly disruptive technology which may have the potential to evolve our financial system.
In this second instalment of the E in ESG series from Monochrome Research, we explain Bitcoin’s Proof-of-Work consensus mechanism, the source of its power consumption. An explanation of both endogenous and exogenous incentives for Bitcoin miners will also be given, and a breakdown of the Bitcoin mining industry’s position as a near-perfectly competitive market will be analysed.
It can be challenging to reimagine the current financial system. However, whilst most of us will continue to have access to and use traditional banking systems in the foreseeable future, Bitcoin may play a more significant role for the 31% of adults globally that remain unbanked and underbanked under the status quo.