Bitcoin introduced the first functioning concept of crypto-based blockchain networks to the world. While being a successful technological advancement, it is not without its unpleasant attributes. For one, Bitcoin’s consensus mechanism Proof of Work isn’t energy-efficient, which makes the whole network harmful to the environment. Additionally, the heavy reliance of the Proof of Work algorithm on electricity keeps it open to 51% attacks because miners often resort to places with low electricity costs.
Furthermore, miners on the Bitcoin network achieve PoW consensus by solving a difficult cryptographic puzzle. With each halving that occurs on the blockchain, it gets more difficult for mining machines to solve this puzzle. As mining difficulty increases with time, it only proves that Bitcoin’s PoW concept is gradually moving towards eventual self-destruction.
Fluctuating, High Fees
The block size of Bitcoin is 1 MB, which is too small for a large network that processes approximately hundreds of transactions a minute. Usually, the number of transactions waiting to confirm exceeds the block’s limit. Miners take advantage of the situation and choose to validate transactions with the highest fee.
With the recent crackdown of miners in China, a quarter or more of Bitcoin’s hash rate has reduced and its mining difficulty is at its peak. Blocks are coming in at a slow pace with multiple blocks taking a long time to be mined. It has turned the market into a competition: users are competing to get their transactions verified by including higher fees.
Transaction Speed and Scalability
With the growth of the Bitcoin network, its scalability issue has been exposed. It has been reported6 that Bitcoin can facilitate a maximum of 7 transactions per second, while Visa can achieve close to 24,000+ transactions per second.
Transaction throughput largely depends on the block size and the block interval. The block size is around 1 MB in the Bitcoin network, and the block interval is 10 minutes. Therefore, the average bandwidth of the whole system that sets the block propagation time becomes a bottleneck of the system.
Due to its increasing usage, Bitcoin’s limited size and throughput are far from enough to deliver all transactions occurring on its network. It leads to elongated transaction latency. Besides, as the scale of a blockchain increases, the storage space needed by all blocks grows accordingly. Thus, the full nodes – which store all the data – require a large storage capacity. All these restrictions degrade Bitcoin’s capability to process transactions faster.
Crypto Transaction speeds compared to Visa & Paypal
Increasing Energy Consumption
Miners in the Bitcoin network are always competing with each other by solving computational puzzles, which results in a large dissipation of electricity and computing Power.
As per the Cambridge University research7, Bitcoin mining consumes more than 120 Terawatt Hours (Twh) per year, using more electricity than countries like Argentina, Colombia, and Austria. The research also concludes that Bitcoin could rank in the top 30 electricity consumers if it were a country. Another index compiled by Digiconomist shows that the Bitcoin network could consume as much energy as all data centers globally and could alone produce enough carbon dioxide to increase the global warming above 2 °C within less than three decades. Although PoW works securely, it’s not green enough to be a sustainable consensus mechanism to become a standard for future blockchain-based projects.
Since Bitcoin’s PoW uses natural resources like electricity to achieve consensus, it puts enormous pressure on the environment and reports suggest that it is also a major contributor to global warming. Nature, a weekly journal of Science, published a study in 2018 that talks about climate change, in which Bitcoin has been referred to as a major contributor to climate change. The entire network of Bitcoin has been accused of playing a major role in breaching the threshold of 2 degrees Celsius.
While the world focuses on ways to reduce emissions, there are currently no plans in place for creating a more environmentally friendly algorithm or making adjustments to PoW to alleviate environmental damage.
The report further concludes that the Bitcoin network alone produced close to 69 million metrics of CO2 in the last 30 months, which is about as much as the production of 1 million cars in the same period. Its PoW consumes about 66.7 terawatt-hours, roughly equivalent to the power consumed by the entire Czech Republic. As per Forbes, if Bitcoin is made a country, it would rank in the top 30 worldwide for using electricity. Moreover, the network surpasses Switzerland in terms of energy consumption.
Bitcoin Electricity Consumption by cbeci.org
This high-energy consumption is concerning because we are not even halfway to reaching mainstream adoption. If even half of the world joins the Bitcoin network, imagine the environmental effects. Due to these rising concerns of Bitcoin over climate, even Tesla suspended vehicle purchasing using Bitcoin.
Though Bitcoin’s PoW produces secure and fair results, it creates a ton of carbon emission, which is predicted to grow in the near future. However, there are other reasons that make it essential for users to shift away from Bitcoin’s PoW to a better consensus mechanism.
Prone to 51% Attack
While being a distributed ledger that is spread across the world, Bitcoin is still prone to attacks if miners are able to control the majority of the hash rate, which can cause a network disruption. As discussed above, since Bitcoin’s PoW uses electricity, it can create an unnecessarily concentrated locus of energy for the network. This centralization of the PoW process makes Bitcoin and every other network using PoW mechanism prone to 51% attack.
The 51% security threat was first realized in 2014 when the mining pool GHash reached a level of close to 55% of Bitcoin’s hash rate in over a 24-hour period. Though the share of the mining pool reduced to 38% a month later, the risk of a single entity controlling the network became a reality.
In such a case that 51% attack has occurred on the network, the entity controlling the majority of nodes can select the current block and then start mining and withholding the new blocks. If the new blocks are published on the blockchain, the changes will then overtake the original chain.
This will leave out all transactions happening on the network since the fork, and will eventually destroy the immutability of the underlying blockchain. The malicious actors also get the power to accept blocks mined by other participants of the network, which will ensure the other chain never gets its fair share.
The threat to Bitcoin’s security again came into the news when in November 2019 over 74% of the Bitcoin hash rate was coming from within China. It is difficult to wrap the head around when only a single country is responsible for producing about 1/3 of the hash rate. The country has now banned the mining of Bitcoin and other cryptocurrencies, however; the PoW mechanism of Bitcoin network is designed in a way that will eventually lead to the centralization of miners.