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How Energy Consumption Influences Bitcoin Mining Numbers And Prices

Bitcoin, the world’s most traded-cryptocurrency, is up by 600 percent since the start of this year. But that jump in its price has come at the cost of increased energy usage. A spate of reports, recent and past, have outlined costs associated with mining bitcoin, an energy-intensive activity that requires networking of several high performance computers to solve difficult mathematical problems. Bitcoins are rewards for guessing the closest possible solution to the problems.

The bitcoin mining community reportedly generated five quintillion 256-bit hashes per second in June. (A hash is a unique hexadecimal address used to identify blocks, which hold a collection of transaction records that are part of blockchain, bitcoin’s underlying technology). The more difficult a hash, the more computationally intensive it becomes and, as a result, more energy is required to solve it.  

According to some estimates, the amount of power used up by mining rigs in June was 500 MW, or roughly the amount of energy supply for 325,000 homes. In 2014, when bitcoin’s price plummeted from highs of over $1,000 to $200, the cryptocurrency’s network was utilizing power equal to Ireland’s consumption levels.

The Digieconomist website has calculated that if the cryptocurrency were a country, it would rank 69th in terms of overall consumption. The bitcoin country would consume more energy than Ecuador and less than Nigeria in the rankings.

What’s Powering Bitcoin Mining?    

China, which reportedly makes two-thirds of all bitcoins issued daily, uses cheap hydropower to fuel bitcoin production. Several bitcoin mining factories in the country are situated in the Sichaun province, which accounts for roughly 25 percent of all hydropower in China. These factories bolster the region’s economy, which has been hit due to closure of coal mines. Owners of bitcoin mines in the region have not divulged power consumption numbers at their facilities.

Bitcoin mine owners in Iceland are more forthcoming. The country is a popular destination for bitcoin miners because it offers naturally cooling Arctic air for overheated computing systems, in addition to plentiful hydropower. According to Genesis mining, a bitcoin mining firm which moved production from China to Iceland, each extracted bitcoin cost $60. The company’s CEO estimated it was one of the country’s biggest users of electricity. Within the United States, government regulation has become a roadblock to creating a large market for bitcoin mining. For example, Chelan county within Washington state, a location with weather conducive to bitcoin mining, increased electricity rates for bitcoin mining last June.

Since energy accounts for 90%- 95% of overall bitcoin mining costs, it plays a critical role in maintaining the cryptocurrency’s supply and, to a certain extent, its price. A Forbes post last year suggested that bitcoin’s growth may be constrained by electricity supply because, eventually, it will cost more to produce the currency than its value. As of last year, the industry’s estimated spend on electricity was $250 million upon revenues of $550 million.       

The Future Of Energy Usage In Bitcoin  

As Ethereum (and smart contracts associated with its blockchain) grow in scale and numbers, it is likely that energy use will multiply. According to some estimates, bitcoin’s power demand is expected to surge to 14 gigawatts by 2020. For context, that figure is equal to Denmark’s current energy consumption. There are already suggestions that negatively-priced solar energy (resulting from the Duck Curve) can be harnessed for bitcoin mining operations. However, that will only provide a temporary solution during periods when solar energy is extremely cheap. With a multiplication of applications across industries, cryptocurrency mining operations are expected to boom in the coming years. Data centers for such activities will need to be operational 24X7 to meet demand.

A possible solution may lie in bitcoin’s algorithm. Recalibrating the hash algorithm that governs its production rate could make it easier to compute possible solution and reduce energy use. Bitcoin Gold, a fork from bitcoin’s main network, was recently used to make it easier for lay users to mine bitcoins. The algorithm consumes less processing power from systems and, consequently, less energy. But there are no immediate quantified statistics relating to this exercise.

Ethereum, which is used for smart contracts, has adopted a different algorithm - proof of stake (which rewards miners who already have a stash of the cryptocurrency) - that is less computationally intensive. Manipulating rigs used for bitcoin mining will also help reduce hardware costs related to bitcoin. Bitmain, one of the world’s largest bitcoin miners, announced yesterday that it was planning to launch custom artificial intelligence chips that are faster and more energy-efficient as compared to regular chips.

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