Why does Bitcoin consume a lot of Power ?

Elon Musk Tweet on Bitcoin Energy Demands

Blockchain basically has the following components :

1. Previous Block’s hash
2. Transactions content
3. Nonce

Previous Block’s Hash is as simple as it sounds. It is the hash (a unique value that acts like a fingerprint to identify a block ). This is required in the current block to form a link between the previous block and the current block.

Transactions Content This is basically the list of transactions between peers.

Both Transactions Content and Previous Block’s Hash are sent into a SHA-256 ( Secure Hashing Algorithm 256 bits ) to create a hash for the current block.

This block has a Prev Hash and Transactions content ( Data ), and both are sent into an SHA-256 to generate the hash for the current block.

But the block isn’t sent to Blockchain yet. For a Block to be sent to Blockchain, the hash has to start with four leading zeroes.

How to rehash the current hash for it to be accepted under Blockchain ?

Here the comes the concept of Nonce

Nonce is the special number / hash which when hashed with the current hash under SHA -256 generates the final hash with leading zeroes and goes to the blockchain.

Nonce <H> Hash = Final Hash

<H> refers to the act of hashing with the help of SHA-256

How to find Nonce ?

This is the actual work of Bitcoin miners. They do brute force computations to find the Nonce that generates the Final Hash with leading zeroes. When the Nonce is found and the Final hash is generated, the peers in the network accept the transaction. This process of finding Nonce requires a lot of computational power and hence requires a lot of electricity.

The miners are rewarded with some Bitcoins ( or part of them ) for their contribution towards finding the nonce.

Due to the increase in Bitcoin price, many miners started using very high-power computers that find nonce fast, which also consume vast amounts of electricity. If two miners find the nonce for the same block simultaneously, the miner with early contributions is given priority over the newbies. So miners are investing in mighty machines to do calculations and find nonce and these consume lot of electricity.

This is the main reason behind Bitcoin consuming a lot of electricity. Alt coins under development are trying to make the nonce finding algorithm less computer-intensive in anticipation of reducing carbon footprint.