Bitcoin is commonly known to those with more than a cursory knowledge of it to be a horribly inefficient product. Indeed, its very premise is to use large amounts of energy computing pointless math problems to prevent fraud without having a trusted agent verifying transactions. Yet, if you search about it's energy consumption compared to that of traditional banking, you'll just find tons of copy-and-pasted fluff pieces about how Bitcoin only uses half of much energy as traditional banking. Is this true? How can this be?
Energy Use
Is this true? Well, sort of. It's technically true on its face, but horribly misleading and damning for Bitcoin with a little critical thinking.
Bitcoin currently uses ~17½ GW, although it's been growing at a rapid pace.
Banking uses ~31 GW from the original Galaxy Digital claim.
So Bitcoin currently does use around half as much power as the entire global banking center. Why is this so misleading? Isn't that a great improvement from the old?
Efficiency
The problem is that nobody uses Bitcoin. That's obviously hyperbolic—criminals and some misled people do use Bitcoin—but compared to the global banking infrastructure, nobody uses Bitcoin.
Bitcoin processes 300k transactions per day.
Meanwhile, for normal banking:
- There are over 1 billion credit cards transactions processed every day globally.
- On top of this, in the US alone, [the Federal Reserve processes 45 million daily ACH transactions.
- SWIFT handles 46 million FIN messages per day.
- EU handles of hundreds of millions of other types of transactions per day.
- The Reserve Bank of India handles another ~78 million transactions per day.
Totaling up this very-much-incomplete list gives us an efficiency of 1.8 million transactions per GWh Even if all of the banking industry's power was used just for that, that would be 2,500 times more efficient that Bitcoin. Bitcoin may only use half the power of the banking industry, but it does less than one four-thousandth of the work. Although Bitcoin currently uses less energy, it is far less efficient and uses drastically more comparatively for the small number of transactions it handles.
Currently, Bitcoin uses about 0.55% of the entire world's power just to process its ~0.02% share of the world's transactions. Doing some simple math, you can see that if we tried to use Bitcoin for all financial transactions, it would require over 2400% of the world's power usage. We would need to dedicate every spark on power on 24 copies of the Earth to come close to having enough power to use Bitcoin at scale at current efficiencies. Now compare that to conventional banking which currently processes 99.9% of the world's non-cash transactions for 1% of the world's energy use.
If you do want to focus just on credit cards, it gets even worse. Specifically compared to credit cards, a Bitcoin transaction produces a million times as much CO2 as a Visa transaction.
But Wait, What About the Lightning Network
Not everyone in the Bitcoin ecosystem is ignorant to this glaring problem, and they have created a system called "the Lightning Network" to solve it. It's not super widely used yet, but it's growing. This is admittedly much more energy efficient than the traditional Bitcoin ecosystem, although that's not saying much.
Basically what it does is it combines tons of tiny transactions into one big one by everyone writing temporary IOUs to someone with a larger sum of money until he can pay them all out economically. Due to scaling problems with routing, it likely will require more centralization upon large BTC holders to act as hubs to process the payments. Ironically, this "solution" to the impracticality of blockchains is basically "stop using the blockchain" as much as possible and turning the large BTC holders into passive payment processors.