By
Chimamanda U. Martha
April 24th, 2024
According to Bankman-Fried, Bitcoin is very inefficient and has a high environmental cost which undermines its status as a payment network.
The argument against Bitcoin with regards to its carbon emissions and energy-hungry Proof-of-Work algorithm has been revived as Sam Bankman-Fried, founder of FTX exchange believes it hinders its future. According to Bankman-Fried, Bitcoin is very inefficient and has a high environmental cost which undermines its status as a payment network. This puts the Proof-of-Stake assets in a better position than the largest crypto on the planet.
“Proof of stake networks will be required to evolve crypto as a payments network as they are cheaper and less power-hungry. I don’t believe bitcoin has to go as a cryptocurrency, and it may still have a future as an asset, a commodity, and a store of value such as gold, ” he said.
The operation involved in Bitcoin mining demands a large amount of electricity to enable a computer to solve these complex puzzles. In 2021, Cambridge researchers published that Bitcoin consumes 121.36 terawatt-hours (TWh) a year, which is more than that of Argentina, the United Arab Emirates, and the Netherlands. It was reported that the energy it uses can power all the kettles used in the UK for 27 years.
David Gerard, the 50 Foot Blockchain Author also emphasized that Bitcoin is anti-efficient.
“So more efficient mining hardware won’t help – it’ll just be competing against other efficient mining hardware. This means that Bitcoin’s energy use, and hence its CO2 production, only spirals outwards. It’s very bad that all this energy is being wasted in a lottery, ” he stated.
In addition to the negative effect on the environment, Bitcoin is also slow compared to traditional payment networks like Visa and Mastercard. Data from Blockchain.com discloses that the average Transaction Per Second (TPS) on Bitcoin is 2.58.
Regardless, he believes that the digital currency can perfectly serve another purpose as a store of value.
“To be clear I also said that it does have potential as a store of value. The [Bitcoin] network can’t sustain thousands/millions of TPS, although BTC can be [transferred] on lightning/L2s/etc, ” said Bankman-Fried.
The PoS is less energy-intensive and depends on validators that have staked a huge amount of the native token of the network. Validators who take part in the process are rewarded with a yield. Those who validate fraudulent transactions are punished by losing a part of their staked funds. PoS is mostly preferred by environmental activists as it conserves energy by more than 99%. Ethereum is currently working to transition from the PoW to the PoS in what is called Ethereum 2.0 or the Merge. This is expected to occur in the second half of 2022.