Is Bitcoin Mining Sucking the Energy Market Dry?

Bitcoin has crossed a threshold. The value of a single bitcoin peaked at $20,000 in December 2017, putting dollar signs in tech-savvy eyes around the globe.

The result is a surge in value-boosted Bitcoin mining and, some say, the consequential electrical demand. Is powering Bitcoin more volatile than the young cryptocurrency itself?

Why Bitcoin Mining Consumes so much Electricity

Bitcoin mining can be stripped down roughly to a simple analogy. Imagine a three-digit combination lock. Each digit space contains a number, from 0 through 9. You could potentially go through 1,000 number combinations before you eventually unlock that combination.

Bitcoin mining is a bit like that, except it’s a specific set of hardware and a program essentially guessing the numbers as it solves mathematical puzzles. Of course, the possible combinations are exponentially more complex.

When a Bitcoin miner (a computer connected to the global Bitcoin network) gets the number right, it also validates various transactions in the currency and helps secure the network.

The winning miner has issued a Bitcoin reward. The more power put into mining, the more Bitcoin could potentially be earned.

In total, there are 120 million bitcoins for mining. With each computation doling out another bitcoin, each puzzle becomes harder to solve, thus increasing the amount of electricity it needs to harvest the cryptocurrency.

Bitcoin Mining and Electrical Demand

More and more people are mining Bitcoin themselves. Even big companies are investing in large Bitcoin miners to cash in on this 21st-century gold rush. There’s a potential asset to be gained, and all it takes is some upfront know-how and equipment.

Along with all the excitement and skepticism, Bitcoin is under new scrutiny. A stream of publications are speculating on Bitcoin’s possibly disastrous impact on energy grids.

Headlines like “Bitcoin Consumes 30 Times More Electricity Than Tesla Cars” and “There Is Nothing Virtual about Bitcoin’s Energy Appetite” strike fear in the hearts of the grid-conscious.

Claims that Bitcoin mining uses as much energy as Ireland or more energy than 159 other countries seem convincing. They come from credible sources, and they use facts and figures. But as always, there’s another side to the story.

Bitcoin Might Not Be the Energy Guzzler It’s Made out to Be

Most every source of media outlining Bitcoin’s heavy energy-drinking ways links back to this single report by Digiconomist. The problem with that report, according to CNBC, is that while it’s being cited “by journalists, analysts and investors,” the projections aren’t based on hard data.

“Several energy experts caution that there is currently no reliable, verifiable way to measure just how much electric power is consumed in the process of minting the cryptocurrency. They say the first step is gathering hard data from the data centers, and no one has done that work yet.” – Tom DiChristopher, CNBC

In the same article, Digiconomist founder Alex de Vries, despite standing by his projections on the whole, also admitted that “the Power Compare forecast based on his estimate is unrealistic.”

Another article, from Forbes, combats the fear that increasing Bitcoin mining could devour the world’s energy supply by 2020. It notes that these forecasts are based on current technology, which changes almost daily.

Jonathan Koomey, a Stanford lecturer and a pioneer in IT equipment and electricity usage, notes that even if the Digiconomist numbers are right, “power consumption from Bitcoin mining would only amount to a fraction of 1 percent of global demand.”

Bitcoin Mining and Electrical Demand: Clean or Dirty?

Another aspect of concern is that most of the industrial-scale Bitcoin mining is happening in China, where power is derived from coal-fired power plants. But as China scales back allowing Bitcoin mining due to a strain on resources, it seems the skeptics may be right after all. At least for the time being.

A piece of better environmental news is that more mining ventures are looking to operate in places relying on clean energy sources, such as Iceland.

The downside is that the Icelandic government is reporting an inability to keep up with the volume of energy required with this influx of Bitcoin mining.

Electricity Costs of Mining Bitcoin Likely to Improve as Tech Progresses

Over time, mining for Bitcoin will become increasingly efficient, especially if Bitcoin continues to shift from more complex proof-of-work algorithms to more straightforward (and energy-efficient) proof-of-stake systems.

At the same time, fewer bitcoins will be available, making them more difficult to earn. Also, the rewards are scheduled to reduce systematically over the next few years. These factors alone could cause Bitcoin mining to taper off and reduce energy demand.

Curious about cryptocurrencies? Check out this article: “SolarCoin, an Energy Cryptocoin with a Bright Future.”