Bitcoin Mining’s Electricity Bill: Is It Worth It?

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They say it takes money to make money; in order to make a profit off Bitcoin mining, you have to buy mining equipment and pay your electricity bill first. As more miners join the Bitcoin network, some individuals fear that the amount of electricity consumed by mining will have a negative impact on the environment. Others believe that the benefits of Bitcoin mining outweigh the cost it takes to produce the digital currency.

Bitcoin mining and energy consumption

New Bitcoin are produced through a process called mining, where computers expend energy and computational resources to solve a difficult math problem that verifies a recent block of Bitcoin transactions. The miner who solves the math problem adds the block to the blockchain and receives newly minted Bitcoin. The difficulty of the math problem depends on how much computational power the network has in summation. As the Bitcoin network attracts more miners, the mining difficulty increases, and usually, the amount of energy a mining rig consumes increases too.

The Bitcoin network currently consumes about 2.55 gigawatts (GW) of electricity per year; to put that into perspective, the entire country of Ireland has an average electricity consumption of 3.1 GW, and Austria has an average electricity consumption of 8.2 GW per year.  Over the past year, the estimated amount of TwH that the Bitcoin network consumes per year increased 413.37 percent. When compared to countries like the Czech Republic, the Bitcoin network uses 102.3 percent of the entire electricity consumed by the country per year.

BTC

Data consultant and blockchain specialist Alex De Vries believes that the amount of energy Bitcoin mining consumes is problematic. In a recent research study published in Joule, De Vries found that the average amount of electricity consumed per Bitcoin transaction is 300 kwH, and at the rate new miners are joining the network – and the mining difficulty increases – this number has the potential to reach 900 KwH by the end of 2018.

De Vries told Cointelegraph that even though society can not see the changes being made to the environment via Bitcoin mining, mining operations are not helping the world get closer to their climate and environmental goals:

“We know that mining is done with coal-electricity, but also with renewable energy. In the latter case, we don’t know what we are displacing, plus renewable energy never has zero lifetime carbon footprint either. There’s more work to be done here, but there’s certainly an impact. The more energy Bitcoin uses, the more it will impact the environment for sure – which in turn will impact everyone. It’s not helping us reach our climate goals.”

There is a grey area when it comes to figuring out how Bitcoin mining is impacting the environment. Although some of the electricity used is sourced from coal, mining operations usually do not release carbon emissions themselves. Just because miners do not see the physical impact that mining has on the environment, the amount of resources consumed and the opportunity cost involved should be concerning in itself.

Hash rate and energy consumption

The amount of energy mining consumes seems to be increasing. As mining equipment becomes better at solving blocks, the electricity consumed by each mining rig increases. To stay ahead of their competitors, miners are always looking for mining equipment with a higher hashrate. The hashrate is the speed at which the miner is able to provide answers to the math problem. The higher the hash rate, the faster one can guess the answer to the problem.

At first, the problem was easy enough to be solved by a standard CPU, but as more miners joined the network and the problem became more difficult, miners found that GPU were better suited to solve the problem. Just a few years later, FPGAs and then ASICs – application specific integrated circuits – were better suited than GPUs to solve a block.

Mining

Others, like entrepreneur and former Google information security engineer Marc Bevand, believe that the amount of energy that mining consumes will cause further innovation in the form of renewable energies. Bevand believes that the energy consumption will eventually lead to decreased costs of renewable energy for society at large:

“Because miners are so sensitive to electricity prices, they are often a driver pushing utilities to further develop renewables which are now the cheapest source of energy. For example in China, many miners are located in the Sichuan province because of its abundant hydroelectricity. Another example is an Australian entrepreneur who is building a 20 megawatt (MW) solar-powered mining farm. If the energy use of cryptocurrency miners continue to increase it will help decrease the costs of renewables for society at large (increased demand → increased R&D → increased capacity & higher efficiency → lower costs through economies of scale).”

Electricity costs have already put miners in search for a cheaper source of energy. Companies have been looking to places like Canada and the Sichuan province where electricity is typically cheaper. Because miners have incentives to use cheap electricity, this leads to more R&D in the energy space. In the long run, this should make forms of electricity cheaper to all of society as innovations are made in energy.

Cost

The Price of Network Security

Although the amount of energy mining operations consume does not go unnoticed, some individuals believe that the benefits of mining – network security – outweigh the negative externalities like electricity consumption.

The Bitcoin network is secured by a consensus algorithm called proof-of-work (PoW). Miners are paid newly minted Bitcoin and transaction fees for solving a block, securing the network in the process. If a miner is not able to solve the cryptographic proof, blocks of transaction history would not be added to the blockchain and blockchain technology as a whole would be nullified; no record of transaction history would be created if blocks were not solved and added to the chain by miners. The cost that has to be paid for this network security is the large amounts of energy that a PoW consensus consumes.

Cypherpunk Jameson Lopp took to twitter to express how he feels about Bitcoin’s energy expenditure problem. Lopp believes that the electricity expense that Bitcoin mining accrues is simply a tax that must be paid for network security.

Cointelegraph

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Betty Chigozirim
Betty Chigozirim is a passionate Writer, Editor, Speaker, Poet, Blogger and a bunch of many creative abilities. A trained Information Professional @Abia State University, a Public Speaker/Corporate Presenter and also a Certified Project Management Professional. She is a calculated risk taker with deep tech knowledge on investment, inspiration and lifestyle, with many online and offline publications to her credit. She is a Writer and Editor for Investment Watch; and most of her publications are geared towards inspiring people towards the right investment, Investment Opportunities, Personal Finance, Economy and Investment News. When she's not speaking, writing or exploring any of her creative abilities, you sure can find her reading, conversing with family and friends or finding a solution to a problem for the 13th Billionth time! You can follow/contact Betty by clicking any of the below: