Energy consumption of Bitcoin mining.
The facts behind the growing energy demand of this market.
In the past few years, both the business world and the research community have intensified the discussions around the energy spent on cryptocurrency mining. Ever since its introduction in the market, Bitcoin (BTC), the most popular and valuable cryptocurrency, has maintained its “desirable commodity” status among customers despite, and perhaps because of, the volatility of its price. The overall high appreciation of its value in the last decade still makes Bitcoin a very profitable investment, even though the prices related to cryptocurrency acquisition are also rising.
But why is Bitcoin so sought after and how is that related to energy consumption?
Unlike physical currencies, Bitcoins are also generated by users of the system, as a reward for their decentralized contribution to its maintenance. This process of creating Bitcoins is called mining, and the participants of this peer-to-peer, distributed network are called miners.
As a decentralized computational process, Bitcoin mining consists of the verification of transactions that are carried out globally to be grouped and archived into a block of transactions. When a new block of transactions is verified by the system’s users, it is added to the rest of the chain. For this addition into the blockchain to take place, however, a signature between the new block and the previous block is needed.
According to the document that supports this article, by Küfeoğlu, Sinan and Özkuran, Mahmut on their study on the Energy Consumption of Bitcoin Mining (May 2019, University of Cambridge)¹ this process “is done via finding a nonce value that will satisfy a cryptographic hash function, Secure Hash Algorithm 256-bit (SHA-256)”¹, created randomly for every new block. The processes in which miners generate a hash that is less than or equal to the target value is called proof-of-work, and demands huge amounts of computational power; the finder of the block is then rewarded with Bitcoins.
These valuable Bitcoin rewards have attracted a large number of miners, and “to keep the flow of rewards stable, the network self-adjusts the difficulty of hash calculations, so new blocks are only created once every 10 min on average’’¹. The bigger the difficulty, the more computational power is needed. In this setting, we have a growing number of people mining for cryptocurrency and each spending more energy in order to achieve the same previous results. The following table illustrates this development.
Energy Consumption of Bitcoin Mining – Küfeoğlu, Sinan and Özkuran, Mahmut, May 2019, University of Cambridge, pg. 9
According to a comparison study conducted by the University of Cambridge², Bitcoin mining alone currently consumes approximately 53.81 TWh of electricity annually. This would leave this cryptocurrency in the 48th place in a ranking of the highest energy-consuming countries in the world, ahead of nations such as Romania and not far behind Israel. Its consumption accounts for 0.24% of all the electricity used in the world in one year.
Nevertheless, even though it is known that the difficulty of being rewarded with a finite number of Bitcoins is going to increase, it is hard to predict the future of electricity use for mining.
It is safe to say that miners will remain active for as long as the price of BTC is higher than the cost to obtain it. However, this cost and earnings relation is affected by two major points that vary and may sustain profits for miners in the years to come.
“Firstly, the Bitcoin prices directly affect mining and hence energy consumption”¹; if the price lowers, fewer people will leave their machines on, therefore consuming less power. “Secondly, hardware efficiency plays another major factor”¹; as the mining race got fiercer over the years, the use of new and more efficient hardware is made necessary. Newer machines with more hash power and higher energy consumption are cyclically developed, but their high initial market value still allows the use of older models. This scenario prevents energy use to peak disproportionally even with the increasing difficulty of the system’s has calculations. Table number 2 shows how important the evolution of hardware is.
Energy Consumption of Bitcoin Mining – Küfeoğlu, Sinan and Özkuran, Mahmut, May 2019, University of Cambridge, pg. 11
However difficult it can be to predict the future, there are solutions to be adopted in the present that can preserve the sustainable development of cryptocurrency mining. Investing in renewable energy will not only benefit the communities around the plants, but the surplus generated can power the whole Bitcoin industry many times over: biofuels & waste can currently power the whole network 11 times; this number jumps to 27 times with solar, wind and others and it gets to 80 times with hydro generated electricity².
As the questioning about the energy consumption in Bitcoin mining continues, investing in hosted mining that relies on renewable energy presents itself as an ideal and beneficial solution.