Bitcoin’s profitability called into question as energy consumption rises
Energy consumption required to mine for Bitcoin may soon become too expensive for cryptocurrency mining to become profitable. It’s estimated that cryptocurrency mining can consume as much as 0.5 percent of the world’s energy by the end of this year, according to economist Alex de Vries.
“The Bitcoin network can be estimated to consume at least 2.55 gigawatts of electricity currently, and potentially 7.67 gigawatts in the future, making it comparable with countries such as Ireland (3.1 gigawatts) and Austria (8.2 gigawatts),” de Vries said. “Economic models tell us that Bitcoin’s electricity consumption will gravitate toward the latter number. A look at Bitcoin miner production estimates suggests that this number could already be reached in 2018.”
Using a series of mathematical models that take hardware, electricity, and cooling costs into account, de Vries was able to approximate total energy consumption using upstream chip production numbers. In the past, more accurate energy estimates were not possible because of the secretive nature of Bitcoin mining facilities, which keep their operations behind closed doors.
So much energy is required in mining because of the decentralized nature of Bitcoin. Because cryptocurrency relies on a peer-to-peer network to keep records of transactions, energy is needed to power large distributed networks of computers.
“Those computers collectively perform quintillions of calculations per second, each “mining,” trying to solve a math problem that will give it the right to form the next block on the chain,” Live Science said of the process. “And the winner every 10 minutes is rewarded with 12.5 Bitcoins. That’s more than $100,000 at the coin’s current exchange rates.”
To capitalize on the rewards, miners need to have facilities with numerous computers dedicated to mining, and these computers generate heat. In addition to the energy consumed to mine, these systems also require a significant amount of energy for cooling. In the past, it was estimated that the power required to mine for a single Bitcoin could power your home for an entire week. To help offset some of the cooling costs, operations like Miner One want to locate mining facilities in cooler climates, like in Sweden. Another startup is using the heat generated from mining to warm your home as an alternative to using energy to cool mining facilities.
Because of the high cost associated with mining, a university researcher misappropriated the institution’s hardware and electricity to obtain $8,000 to $10,000 worth of Bitcoin, which incurred a total cost of approximately $150,000. In another example, a mining facility in Russia was suspended for not paying for several million kilowatt-hours of electricity.
As a result of rising cost, malicious agents may be motivated to steal energy for their own mining operations. However, there will still be some who will continue to mine for Bitcoin at a loss, and those people may be motivated by ” libertarian ideology (supporting a payment network that does not rely on a central authority), or speculative reasons.” As energy costs continue to rise, cryptocurrency mining may no longer be a profitable enterprise.
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