The electricity consumption needed to “mine” cryptocurrencies this year will outpace global electric vehicle demand according to some reports. This growing increase for power has brought energy usage to the forefront of the crypto conversation. Even a slight edge in terms of computational power can help miners win a larger share of the distributed rewards, which has prompted a race to build more powerful and more energy-consuming mining computers. At the same time, the Bitcoin network keeps making calculations harder to solve, necessitating more and more power to secure the same rewards.
It’s hard to make reliable calculations because mining facilities tend to keep their operations behind closed doors. But some research claims the entire Bitcoin network could consume as much as 7.7 gigawatts of electricity by the end of this year—enough to power a country the size of Austria. According to the Bitcoin Energy Consumption Index, half of a Bitcoin’s value is tied up in the cost of the energy needed to mine it, if you’re efficient. A couple of years ago, National Science Foundation-funded supercomputers gobbled up $150,000 in electricity when a researcher used them to mine just $8,000-$10,000 worth of Bitcoin. More recently, a mining facility in Russia (with 6,000 devices) was shut down after not paying for several million kilowatt-hours of electricity.
We don’t want to sound alarmist because there is enough sensationalism in the media about this, but some say cryptocurrency mining’s massive energy consumption may be leaving a big carbon footprint too. The network is mostly fueled by power plants in China where coal-based electricity is available at very low rates. Even with a conservative emission factor, this results in an extreme carbon footprint for each unique Bitcoin transaction.
The Bitcoin network currently processes 200,000 transactions per day using at least 300 kWh per transaction. This could exceed 900 kWh per transaction by the end of this year. That doesn’t factor in the electricity needed to get rid of all the heat these machines produce which adds significantly to the energy load depending on factors such as climate and chosen cooling technology.
Even if cryptocurrency mining is using a lot of energy, many believe that the tradeoff is worth it. “Even if the electricity was from tire burning factories, I could think of few better uses of electricity than securing programmable, censorship-resistant money for the internet age that replaces paper government fiat,” said Ragnar Lifthrasir, founder of the International Blockchain Real Estate Association (IBREA).
It is important to note that Bitcoin miners are running a business and will only continue to operate as long as it’s profitable. The Bitcoin protocol has been designed to decrease energy consumption over time and miners, as business men, will continue to find ways to operate more efficiently and employ cheaper energy. The Bitcoin community is experimenting with solutions such as the Lightning Network to improve the throughput of the network and some believe solar power could make mining more viable, but for now it seems cryptocurrency mining may have a fast growing energy problem.