Take a cryptocurrency like Bitcoin for example: the process of mining Bitcoin alone consumes about 96 megawatt-hours of electricity per year, more than the total electricity consumed by the Philippines, a country of about 110 million people. And its electricity consumption has grown alarmingly, increasing about tenfold in the last five years. Why does the cryptocurrency industry consume so much electricity?

1. Transactions

Still using Bitcoin as an example: if you want to pay in Bitcoin, or make any transaction using Bitcoin, it must first be verified by the Bitcoin network, and through this process, the seller can be assured that the Bitcoin he receives is genuine. This goes to the heart of the entire bitcoin bookkeeping system, and maintaining the massive bitcoin public ledger can lead to significant power consumption.

2. Mining

Around the world, companies and individuals known as Bitcoin miners are competing: using powerful, power-hungry computers to try to beat everyone else. Because if they succeed, they are rewarded with newly created bitcoins, this competition to create bitcoins is known as "mining".

A miner who verifies a standard "block" of bitcoin transactions is rewarded with 6.25 bitcoins, each worth about $45,000. So it's understandable why there is an influx of "miners" into the "mining" industry.

Because more and more miners are involved, this further increases the demand for faster, more power-hungry computers. On top of that, the design of the Bitcoin network has made mining harder and harder. Specifically, it's designed so that it always takes an average of 10 minutes to win. And as more people join the game, the game is retooled to make it harder so that the length of time needed to win can be maintained.

This is why bitcoin mines are always stacked with computers that are computationally powerful, calculating as fast as they can and using a lot of energy in the process.

3. Design

In a decentralized product, to disrupt legitimate transfers or to scam with fake bitcoin transactions, one would need to win a majority of the cryptocurrency network to have majority power over the network, which requires a lot of money and a lot of power. And it would make more economic sense for potential hackers to spend their resources mining bitcoins and collecting rewards rather than attacking the system itself.

In some ways, bitcoin mining is about converting electricity into security. It's also the underlying design of the system itself is extremely energy-intensive by nature.

In the early days, when bitcoin was less popular and less valuable, anyone with a computer could easily mine it at home. That's not the case anymore.

Today, you need highly specialized rigs, a lot of money, a large space, and enough cooling equipment to keep the constantly running hardware from overheating. That's why mining farms are now mainly run by companies or groups.

Mining sites around the world are usually in places where there is a lot of cheap energy. For years, most bitcoin mining was done in China, although recently, China has begun to crack down on it. Researchers at the University of Cambridge who track bitcoin mining recently said that China's share of global bitcoin mining fell from 75% at the end of 2019 to 46% in April. During the same period, the U.S. share of mining grew from 4 percent to 16 percent.

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