Why bitcoin mining uses so much energy

HostIt's hard to wrap your head around the idea that a digital coin, something you can’t even hold in your hand, could need as much electricity as a whole country. We hear these stories about giant warehouses filled with rows and rows of humming fans and blinking lights, all just to keep a bit of code running. I wanted to dig into why this system was built to be so hungry for power in the first place. Like, what's actually happening inside those warehouses that draws so much energy?

GuestIt helps to stop thinking about it as a bank or a computer program and start thinking about it as a massive, never-ending security job. In a normal system, like your bank, there's a boss. The bank keeps a list of who has what money, and because we trust the bank, we trust the list. Bitcoin doesn't have a boss. There's no one person in charge of the list. So, to make sure no one cheats or spends the same money twice, the system uses a sort of high-stakes guessing game. This game is what people call mining. Every ten minutes or so, the system wants to add a new page of deals to its big record book. But to be the one who gets to add that page, you have to prove you did a huge amount of work.

HostWait, so all that power is just for a guessing game? That sounds like a massive waste of electricity if the computers aren't actually solving a real problem.

GuestIt feels that way because the math they're doing doesn't build a bridge or find a cure for a disease. The computers are basically trying to guess a very long, secret number. Imagine a giant digital jar of jellybeans, and millions of computers are shouting out guesses as fast as they can. The first one to get it right wins some new coins. But here is the thing, the difficulty of that guessing game is what keeps the money safe. If it were easy to guess the number, it would be easy for a bad actor to take over the list and write in that they have a billion dollars. By making the game incredibly hard and expensive, you make it almost impossible for any one person to cheat. You would need to buy more computers and pay for more power than any government or company on earth to even try to hack the list.

HostI still don't get why it has to be this hard, though. If I want to send you five bucks on a phone app, it takes a tiny blip of power. It’s done in a second. Why can't this digital money just use a simple password or a normal check?

GuestThe difference is that your app has a company behind it that can say yes or no to your five bucks. They have a central lock on the door. Bitcoin is trying to be a vault that stays locked even though there's no one standing there holding the key. To do that without a leader, you have to use physics. You use the cost of power as a wall. Think of it like a giant physical wall around a city. If you want to move the wall or change what's inside, you have to be stronger than the wall itself. In this case, the wall is made of electricity. The more power the network uses, the thicker that wall gets. If it used as little power as your bank app, someone could just walk in and change the numbers. The high energy cost is actually the price of not needing a middleman to tell you your money is real.

HostSo, the better we get at making fast computer chips, the more power we end up burning? It feels like we're running as fast as we can on a treadmill just to stay in the same place.

GuestThat's a great way to put it, and it's actually built into the code. There's a rule in the system that acts like a thermostat. It's called the difficulty adjustment. If more people start mining, or if the computers get faster and start guessing the secret numbers too quickly, the system notices. Every two weeks, it looks at how fast the guesses are coming in. If they're too fast, it makes the game harder. It adds more jellybeans to the jar, so to speak. This ensures that a new page of the record book only gets finished every ten minutes, no matter how much gear people throw at it. It's a race where the finish line keeps moving away from you the faster you run.

HostThat sounds like a recipe for a power disaster. If the price of the coin goes up, more people buy machines, the game gets harder, and the power bill just grows and grows. Is there any ceiling to this, or does it just keep climbing forever?

GuestThe ceiling is usually the cost of the power itself. People only mine as long as the coins they win are worth more than the electricity bill they pay. If the price of the coin drops, or if power gets too expensive, miners turn off their machines because they're losing money. But there's a flip side to this. Because miners are always looking for the cheapest power possible to keep their costs down, they often end up in places where there's extra energy that no one else is using. You see them popping up next to big dams in the mountains or near wind farms that make more power than the local town needs. They kind of act like a sponge for energy that would otherwise go to waste.

HostThose warehouses full of humming fans are essentially turning a wall of electricity into a wall of trust.

GuestThe whole system is basically a bet that the cost of burning all that power is worth the freedom of having money that no single person or group can ever control.

HostThe next time I see a headline about how much power a digital coin uses, I'll be thinking about those rows of blinking lights as a giant, hungry lock on a door that has no key.