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Investors support Bitcoin despite energy inefficiency

Investors support Bitcoin despite energy inefficiency

Insights Crypto Industry

Zurich, 3 December 2021 – Digital asset bank, Sygnum, has published a 15-page research report entitled “Does crypto have an energy problem?” that analyses Bitcoin’s energy usage, the emergence of a green blockchain standard and potential implications for the industry’s future. Key takeaways include:

  • Despite mining Bitcoin being more energy efficient than mining gold, it remains energy inefficient
  • Crypto energy challenge was solved in 2013 with new generation of “green” blockchains – now in the majority
  • Investors continue to vote for Bitcoin via their wallets, however future pressure from ESG driven investors and green alternatives could create a tipping point in Bitcoin’s evolution

Bitcoin “Miners” compete to validate transactions and earn block rewards of newly minted Bitcoins by contributing their computing power to the network. This results in a significant amount of wasted energy, as only one miner will end up validating each transaction. Bitcoin proponents argue that the prohibitively high cost of mounting an attack on the network is a major source of its continued security. However, Bitcoin’s energy inefficiency, plus its exploding popularity, has escalated the network’s energy use at times to the level of small countries.

New green blockchain standard
The new generation of Proof-of-Stake blockchains do not rely on raw computing power to secure the network, but instead on validators who put their own funds at “stake” in the network. These now represent around 60 percent of the top 100 blockchains, and will soon include leading protocol Ethereum, with a market capitalisation of more than USD 500 billion. Ethereum is transitioning to Proof-of-Stake and has forecasted a 99.95 percent reduction in its energy consumption with this change.

Report author Katalin Tischhauser, Sygnum’s Head of Discretionary Solutions and Research comments that “Bitcoin’s high energy consumption is an often-used criticism against the world’s first cryptocurrency, often described by the media in a way that suggests that cryptocurrencies in general have an ’energy problem’. They don’t.”.

Price movements indicate investors’ support for Bitcoin despite energy inefficiency
In this latest market rally, investors have continued to favour Bitcoin and have not pressured for an upgrade to its energy inefficient protocol and mining practices. If this continues, it may signal a lack of genuine concern over Bitcoin’s energy inefficiencies. However, for the first time, investors are putting pressure on miners to use clean energy sources, and products that filter for this feature are starting to emerge in the market. While this does not address the protocol’s energy inefficiencies, it may be the sign of an impending tipping point in Bitcoin’s evolution.


Sygnum Bank research report
Sygnum Bank’s report ”Does crypto have an energy problem?” contains insights on:

  • Why does Bitcoin consume a lot of energy?
  • Modifying Bitcoin
  • Implications of China’s Bitcoin ban and relocating miners
  • Conclusions and outlook


The full report can be downloaded here.

About Sygnum
Sygnum is the world’s first digital asset bank, and a digital asset specialist with global reach. With Sygnum Bank AG’s Swiss banking licence, as well as Sygnum Pte Ltd’s capital markets services (CMS) licence in Singapore, Sygnum empowers institutional and private qualified investors, corporates, banks, and other financial institutions to invest in the digital asset economy with complete trust. Sygnum operates an independently controlled, scalable, and future-proof regulated banking platform. Our interdisciplinary team of banking, investment, and Distributed Ledger Technology (DLT) experts is shaping the development of a trusted digital asset ecosystem. The company is founded on Swiss and Singapore heritage and operates globally. To learn more about Sygnum, please visit www.sygnum.com.

Disclaimer
This document was prepared by Sygnum Bank AG. This document may contain forward looking statements and may be subject to change. The opinions expressed herein are those of Sygnum Bank AG, its affiliates, and partners at the time of writing. The document is for informational purposes only and contains general material. It is for use by the recipient only. It does not constitute any advice or recommendation, an offer or invitation by or on behalf of Sygnum Bank AG to purchase or sell assets or securities. It is not intended to be used as a general guide to investing, and should be used for informational purposes only. When making an investment decision, you should either conduct your own research and analysis or seek advice from an expert to make a calculated decision. The information and analyses contained in this document have been compiled from sources believed to be reliable. However, Sygnum Bank AG makes no representation as to its reliability or completeness and disclaims all liability for losses arising from the use of this information.

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