One of the most debated arguments about bitcoin network is the fact that  mining is inefficient because it uses a lot of electricity, but part of the reason this argument persists is that of two fundamental misunderstandings:

  • The first is that mining scales independently of the use of the currency, but we don’t need more mining the more the currency is used.

In fact, if mining becomes inefficient in terms of the cost of electricity because the network it’s a self-regulating market, it will adjust dynamically to discourage mining by making it unprofitable. Mining is already good enough to secure the bitcoin network, and in fact, it doesn’t really need to scale unless it’s profitable, and is profitable only if it is efficient, as a means of securing the network and delivering the value of the transactions

  • The second misunderstanding is the mining is about creating the currency, but it’s not about creating the currency.

Mining is about securing the network and creating the currency is a side effect of the network, is the reward as an incentive system, that makes mining viable as a security mechanism. But the reward is also helping to build the bitcoin network security. Thanks to the compensation distributed for every block solved, miners, have always invested in better mining equipment to grow their mining power. This approach has started a virtuous cycle, bringing the bitcoin network to be 100 000 times more powerful than the top 500 computers.

Bitcoin can replace the whole banking system including the entire economic activity without increasing the mining activity

Bitcoin active nodes worldwide

Mining doesn’t just replace the central bank or the Federal Reserve. It also replaces the guards, the guns, the trucks, the bolts and the buried treasures, the safe deposit boxes, the security systems, the alarm systems, the credit checking systems, the identity and fraud protection systems.

Bitcoin is three times more efficient than the whole banking system, click here to read more about this estimation.

Also a vast enormous of data centers that do number crunching and algorithms in order to figure out if there’s fraud happening. Massive losses in the order of five to ten percent of the entire payments Network, incurred every single year in terms of fraud that are considered part of doing business today.

If you look at it just as a payment system, mining is probably creating the most efficient and secure mechanism on a per transaction basis than any of the payment networks that have existed ever before.

So mining may be creating one of the greenest payments networks we’ve ever had. We can take the actual amount of mining and scale the payment system, to include the entire economic activity without increasing the mining, and it will be the greenest currency ever, and that’s only with the existing form of mining.

Other mining algorithms are more efficient and that allow you to distribute the mining from Asics all the way down to CPUs in various forms of difficulty. See China blockchain projects ranking.

We still see tremendous innovation in this space, so it’s very premature to judge Bitcoin based on its current state and to misunderstand the function of mining and to assume it’s just about currency issues.

Click here to learn more about bitcoin mining and nodes.

Nica Tudor

Blockchain, Smart Contracts, and cryptocurrencies enthusiast.

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