Our crypto 101 series continues with a look at the basics of blockchain consensus.

If you’ve heard of Bitcoin, you’ve heard of mining, the process by which new bitcoins are created and issued. You’ve probably got a vague idea that mining involves solving complex mathematical problems (it kind of does) and that the energy used by this process is environmentally unsound (which isn’t entirely true, but we’ll get to that later). It’s fair to say there are a lot of misconceptions about crypto mining. In this article we’ll attempt to clear them up.

Read on to discover:

  • The origins of bitcoin mining
  • How mining works
  • How Proof of Work provides blockchain security
  • Greener alternatives to Proof of Work
  • The truth about mining’s environmental impact

In this article we’ll focus on mining as it applies to Bitcoin. But the same principle applies to the multiple other blockchains that utilise the Proof of Work algorithm.


How Bitcoin works
As you know, Bitcoin is a distributed network. This means that its ledger – i.e. the record of every transaction and who owns how much bitcoin – is stored on thousands of computers. Because anyone can download this transaction history, it’s easy to independently verify that the network’s rules are being upheld. This also makes it virtually impossible for anyone to cheat by stealing bitcoins, since they would need to update the majority of the computers that are storing the network’s history.

Note the use of the term “majority” here. One of the challenges with a shared ledger is ensuring that all of the computers hosting the database can reach consensus, or agreement, as to the network’s current state. The solution to this problem, and the real genius behind Bitcoin’s invention, is mining, the means by which transactions are confirmed, consensus is reached and economic rewards are shared.

Approximately every 10 minutes, a new block of confirmed transactions is added to the Bitcoin ledger. Who publishes this block to the network since Bitcoin has no central authority? Well, that honour falls to the bitcoin miner whose computer finds the answer to a set algorithmic problem the fastest. A bit like a completed Rubik’s cube, this answer is hard and time-consuming to find but easy to prove. This means that once the winning miner has published the proof, their fellow miners can easily verify that it is correct. The verified block is added to the blockchain, and the competition to find the next block begins.

The whole process is extremely energy-intensive and there are no shortcuts you can take to find the answer any faster – hence the term ‘proof-of-work’. Proof-of-work is brute force computation: as one commentator puts it, if you imagined a crowd of people all throwing a thousand-sided die millions of times over in a head-to-head race to find a specific number – well then you’d be approaching something like the proof-of-work algorithm.

In fact, the proof is so hard to find that it would likely take years to uncover by hand, and weeks to search for on an ordinary computer. That’s why these days miners use specialised devices that have been designed solely to excel at this one computation.

As you can imagine, running a high performance computer that’s performing millions of calculations per second doesn’t come cheap: over and above the hardware cost, overclocked computers consume serious amounts of power. Bitcoin miners are willing to spend this money, though, in the knowledge that if they find the winning answer first, they’ll get to publish the next block containing the latest transactions and claim the block reward, which currently stands at 6.25 bitcoin.


How much energy does mining use?
Bitcoin regularly comes in for criticism on account of its energy consumption. The energy in question is expended by the miners whose computers are running at full tilt around the clock in order to try and find the proof to the next block first. Bitcoin’s annual electricity consumption has recently been estimated at around 89,000 GWh, which is comparable to that of the entire nation of Argentina. Ethereum, the second largest cryptocurrency network by market cap and mining power, consumes 17,000 GWh per year.

Ethereum, however, is in the process of reducing its energy consumption by switching from Proof of Work consensus to the much less energy intensive Proof of Stake (PoS). This system is used by newer blockchains such as Solana, Polkadot and Avalanche. Tezos, for example, consumes just 0.5 GWh per year. Zumo itself is working hard to mitigate the environmental impacts of blockchains we work with, including identifying and investigating the best ways to neutralise the carbon footprint of crypto holdings and transactions. You can find out more about our work in this area on the Zumo sustainability hub.


The trouble with other consensus
Given how energy efficient Proof of Stake is, why doesn’t Bitcoin switch to this consensus model, you may be wondering. Well, for one thing, Proof of Stake is regarded as being less secure (or at least less tested) than Proof of Work. Given the value of transactions that are sent over the Bitcoin network, sometimes worth hundreds of millions of pounds, any successful attack on the number one crypto would impair confidence in the whole of cryptocurrency and blockchain. Bitcoin developers would rather not risk it by switching to a different consensus at this stage, since the network has been running smoothly for 12 years now. Bitcoin lives and dies by its security in the narrow and defined purpose for which it was designed, and this necessarily guides its design priorities.

There are of course other concerns with Proof of Stake: fair distribution; concentrations of wealth and governance power; comparative decentralisation of participants; the various as yet to be fully explored hypotheticals of the concept of governing a blockchain purely by financial stake. Today, it seems difficult to argue that a consensus system based purely on financial resource can provide an equal moat to a system that calls not only for money, but also for physical hardware, energy expenditure in the real world and sheer, unavoidable time put in. As ever, the debate is nuanced and really depends on the purpose and priorities of the blockchain in question.

As a result, Bitcoin and a handful of other so-called ‘first generation’ cryptocurrencies are unlikely to abandon mining in the near future. While there’s no disputing that Proof of Work is extremely energy intensive, there are a couple of defences to this charge. Firstly, because bitcoin miners must source the cheapest power possible to turn a profit, they’re incentivised to use renewable sources of green energy where it makes economic sense. In China, for example, miners have in the past relied on hydropower generated during the rainy season. Other miners around the world draw their energy from solar, wind and even flared natural gas that would otherwise go to waste. And further, there are emerging arguments that Bitcoin mining can ultimately provide a net positive as a grid balancer in the heavily fluctuating supply of a renewables-powered future. You can find further information on these developments in our Bitcoin Mining guide.


Mining is hard work
Bitcoin and other Proof of Work cryptocurrencies aren’t energy efficient for a reason. Making it computationally hard to guess the number that awards the right to publish the next block is meant to be hard. A famous quote attributed to Arnold Schwarzenegger goes “A well-built physique is a status symbol. It reflects you worked hard for it; no money can buy it. You cannot borrow it, you cannot inherit it, you cannot steal it.”

That’s kinda how it is with crypto mining: Proof of Work is a system that cannot be cheated. It’s literally a consensus mechanism for proving that you put the work in and didn’t take shortcuts. Despite its many shortcomings, it’s likely that Proof of Work is here to stay. Thankfully, the rise of alternative forms of consensus, primarily Proof of Stake, mean that the future of blockchain is far greener than its present.