Will Bitcoin mining leave humans without electricity?

This is not an exaggeration. According to incomplete statistics, the global activities of the Bitcoin network will occupy 255 million kilowatts of electricity, which is almost equivalent to Ireland's annual electricity consumption. By the end of this year, the total energy usage of the Bitcoin network may reach 770 million kilowatts, which is almost equivalent to 0.5% of the world's total annual electricity consumption.

Unlike the centralized network infrastructure that is completely controlled by a third party, in a distributed system, keeping transaction records honest and credible has a key role, which is to determine who can write to the database. In the Bitcoin protocol, any entity that requests write permission to the distributed database must prove work, because they need to prove that they have contributed to the network, and based on this contribution, they will receive new Bitcoins as a reward.

Bitcoin's PoW consensus algorithm consumes a lot of computing power, and the increase in computing power means an increase in power consumption. In order to save costs and gain more profits, miners will seek to use low-cost electricity, which is usually provided by highly polluting coal-fired power plants. People are generally concerned about the huge impact of high-energy-consuming Bitcoin mining pools on the environment and climate.

Equally concerning is the potential for high hashrate mining activity to lead to 51% attacks. The Verge network has been the target of at least two 51% attacks since April. Earlier this month, the ZEN coin of the privacy-centric ZenCash was also attacked, with 23,152.3 ZEN coins (nearly $620,000) being laundered in three separate attacks.

As the mining industry has evolved from amateur to professional, mining equipment has become increasingly high-tech. ASIC rigs have now appeared, which are specially designed to mine blockchain networks at a high rate and consume a lot of electricity.

Concerns about the environmental impact of Bitcoin mining have long been around. The Bitcoin Energy Consumption Index, published by cryptocurrency news agency DigiConomist, shows that the annual carbon footprint of Bitcoin mining exceeds 32 million tons per year.

Dutch economist Alex de Vries has been studying the growing energy needs of the Bitcoin mining community since late last year. In May, he published a new report titled "Bitcoin's Growing Energy Problem," which collected a lot of detailed information on the mining economy.

Assuming the entire network is using the most efficient known mining hardware (Bitmain's Antminer S9), de Vries puts the lower limit of energy consumption for Bitcoin mining at 2.6 gigawatts (almost as much electricity as Ireland consumes in a year). However, because people are using other less efficient hardware, the actual energy consumption is higher than this figure.

To keep creating a new block every 10 minutes, the difficulty of the mining task automatically adjusts. If more computing power joins the network, producing a new Bitcoin will take more computing power, making existing mining hardware less profitable and causing each Bitcoin to consume more electricity.

De Vries assumed that electricity prices accounted for 60% of mining costs, an average of 5 cents per kilowatt-hour, and calculated how much electricity Bitcoin miners would consume without making a profit, and came up with an upper limit for Bitcoin network energy consumption of 7.7 gigawatts (close to half of the world's total electricity consumption). If energy consumption is higher than this figure, it will mean that a large number of miners will suffer losses and mining activities will stop.

However, in periods of rapid price increases, like we saw in the fall of 2017, miners will make huge profits producing Bitcoin using less than 7.7 GW of power because there isn’t enough mining hardware to go around. While miners will continue to update their hardware, it will take some time for manufacturers to scale up production of super-efficient hardware.

If Bitcoin remains at its current price of around $8,000, de Vries expects the network to consume 7.7 GW of energy by the end of the year. If Bitcoin prices return to their highs near $20,000 in December, mining will regain huge profits and energy usage is expected to grow at a faster rate. This is consistent with Morgan Stanley's research, which found that Bitcoin mining pools are expected to consume more than 5% of the world's total energy consumption when the price exceeds $8,600.

On the other hand, if the price of Bitcoin plummets, miners will start to shut down energy-inefficient mining equipment, and actual energy usage may decline. Morgan Stanley's research also pointed out that if the price of Bitcoin is much lower than $8,600, Bitcoin miners will not spend a lot of money to mint new coins.

To some extent, Bitcoin's high energy consumption will be resolved over time. The Bitcoin network plans to reduce block rewards by 50% every four years, with the next halving scheduled for mid-2020. In this case (assuming the Bitcoin price remains constant), mining revenue will be cut in half, which should mean energy usage will also be cut in half. Similarly, energy usage will be cut in half by 2024 and 2028, although this could be offset by further gains in Bitcoin prices.

de Vries points out that each Bitcoin transaction on the network uses about 300 kWh of electricity, which is obviously a lot, but this number is often misunderstood. Since mining an empty block requires almost as much electricity as mining a full block, allowing people to mine fewer Bitcoin transactions would not save a lot of energy, and it might even cause the amount of electricity consumed per transaction to rise to even more ridiculous levels.

However, MIT Berkeley Lab researcher Jonathan Koomey has challenged de Vries’s calculations, saying that they are “out of thin air” and warning that the “highly unreliable” figures are defamatory to the cryptocurrency world.

Coincidentally, the research team of Coinshares, a London-based cryptocurrency investment company, released its research results of several months this month, "Bitcoin Mining Network: Trends, Marginal Creation Costs, Electricity Consumption and Sources". The report pointed out that the energy consumption of Bitcoin mining is actually lower than that of Luxembourg, which has a population of less than 600,000 (Ireland has a population of nearly 5 million).

The report states that DigiConomist's estimate of Bitcoin's annual electricity consumption is about 65 terawatt hours, while in mid-May, its consumption was 35 terawatts. Christopher Bendiksen, head of CoinShares Research, said that if DigiConomist's estimate is indeed correct, the security of the Bitcoin network should be higher than it is now. He pointed out that contrary to previous reports that Bitcoin has a carbon footprint of 32 million tons, his research did not find evidence for this claim.

The report said that in fact, Bitcoin mining mainly relies on cheap renewable energy, with the main energy source being hydropower. The reason is simple: coal is too expensive. In addition, the report also questioned the claim that China's Bitcoin mining activities consume coal resources, pointing out that the long-term limited use of coal-fired power generation in some parts of China, coupled with seasonal migration, only accounts for a small part of the network's total electricity demand.

The report mentioned that China has a huge surplus of hydropower stations in the southern and southwestern provinces. The large-scale energy surplus has led to the emergence of cheap and renewable sources of electricity, which are used for Bitcoin mining. It is worth noting that Bitcoin mining in many places does not cause pollution. For example, Canada has a large amount of clean energy, and Quebec is actively inviting cryptocurrency companies to consume its excess hydropower. In addition to Canada, Iceland's geothermal energy and Sweden's hydropower can provide sufficient electricity for cryptocurrency mining.

In addition, the electricity consumed by mining is under great price pressure, so some miners will migrate with the seasons, seeking to obtain the cheapest renewable energy in the most favorable climate. There is evidence that because Bitcoin miners can migrate and the power generation infrastructure itself is not mobile, miners may choose to develop new or more remote sources of renewable energy.

After the Chinese government banned bitcoin mining, the number of miners in Nordic countries, Canada and the northwestern United States increased. Bendiksen said that in order to avoid further expansion of the impact of mining on the external environment, bitcoin miners have been looking to establish infrastructure in Iceland, which is rich in geothermal energy.

What all these places have in common is a cool climate (mining in colder countries doesn’t require cooling servers), as well as cheap supplies of renewable energy, high-speed internet and business-friendly governments. As Bendiksen says, bitcoin miners are increasingly turning to cheaper renewable energy to power the computer processors needed to solve cryptographic puzzles and generate new bitcoin blocks.

In general, it is difficult for researchers to obtain real data. On the one hand, it is difficult to collect all the data because miners are spread all over the world. On the other hand, these miners are reluctant to share their own information. Therefore, data used to understand Bitcoin's energy consumption is very scarce. Although there have been many attempts to quantify Bitcoin's energy use, most of them have failed.

Without risk (energy consumption), there is no reward (Bitcoin). Even though people have criticized PoW for consuming a lot of energy, it is this energy expenditure that ensures the security of the Bitcoin network. Because malicious behavior in the network will reduce the value of Bitcoin rewards, which is a financial loss to the attacker. The end result is that any attempt to fraudulently modify or append to the database requires an additional capital expenditure that is larger than the size of the existing mining network. The greater the ongoing energy expenditure and the upfront capital expenditure, the larger the attack will require.

However, due to the lack of relevant data, controversy may continue to exist.

After de Vries’ study was published, he was asked to respond to Koomey’s comments. While de Vries did not respond directly at the time, he issued his own statement via a press release. He agreed that “back-of-the-envelope calculations” do not tell the whole story, urging people to engage in more “scientific discussions” to determine the future of the Bitcoin network.

So, will we eventually run out of electricity due to cryptocurrency mining?

Alan Shipman of the Open University in the UK said: There is no need to worry. Most economists believe that the market will adjust everything.

While mining Bitcoin and other cryptocurrencies may consume a lot of electricity, blockchain technology has the potential to impact the world's energy grid in a more positive way, such as reducing carbon dioxide emissions and increasing the use of renewable energy.