Bitcoin Energy Use: The Electricity Costs of Cryptocurrency Mining
When it comes to Bitcoin, most people think about its current worth or how to get in on Bitcoin trading. However, what you may not think about is the energy consumption of Bitcoin.
According to The University of Cambridge Bitcoin Electricity Consumption Index, Bitcoin has an electricity consumption of 129.24 TWh per year – that’s more than entire countries such as Argentina and Ukraine, which consume 125.03 and 128.81 TWh each year, respectively. In comparison to Canada, Bitcoin uses approximately a quarter of the electricity that Canada would consume in a year.
Ever since Bitcoin reached a record-breaking high of over $50,000 USD earlier in the year, it’s been a trending topic on social media and news outlets.
Below, we’ll be detailing what exactly Bitcoin is and answering questions such as why Bitcoin uses so much energy and also what the environmental effects of Bitcoin electricity consumption are.
What is crypto mining?
According to the Association for Computing Machinery, ‘[Bitcoin] mining is when computers solve complex math problems to generate new bitcoins on the bitcoin network. The computers that solve each progressively more complex equation receive a reward in bitcoin.’ Another way of putting it, from Investopedia, is that miners are auditors – they verify the legitimacy of Bitcoin transactions through completing blocks of verified transactions.
However, not every miner will receive bitcoins – every miner needs to fulfill two conditions before being rewarded with bitcoin: (1) The miner needs to verify around 1 MB of transactions and (2) The miner needs to be the first to have the correct answer or closest answer to the complex math problem.
This difficult complex math problem isn’t calculus or anything like that – it’s really guessing the correct 64-digit hexadecimal number/hash that corresponds to the target hash.
As you’ve probably deducted, it isn’t a person that’d be guessing these hashes. Most people (or mining pools, which consist of several miners working together for a chance at bitcoin) use graphics processing units (GPUs) or application-specific integrated circuits (ASICs) to set up mining rigs.
Other cryptocurrency-mining (like Ethereum) works similarly to Bitcoin mining in primary functioning where miners compete against each other to complete a mathematical equation correctly to earn cryptocurrency. Differences, however, arise in that Ethereum is a centralized software platform whereas Bitcoin is a decentralized peer-to-peer electronic cash system. There are also differences in the mining algorithms for each cryptocurrency.
How much energy does Bitcoin mining use?
As mentioned earlier, The University of Cambridge estimates that Bitcoin power consumption equals approximately 129.24 TWh per year. This number is based on a model developed by the University of Cambridge that relies on a few assumptions that you can read about here. You can also check in the infographic how the Bitcoin electricity use compares to some countries.
At this point, you may be wondering how much power does bitcoin mining use per mined Bitcoin. Unfortunately, quantifying the electricity needed to mine 1 Bitcoin isn’t really possible – that’s because there are many variables factored into the power consumption associated with Bitcoin mining.
For example, different ASICs and GPUs have different energy efficiencies – so there isn’t one figure that will represent how much power any given Bitcoin mining hardware will use to mine a single Bitcoin. There’s also power associated with processes that aren’t tied directly to mining Bitcoin, such as the power used to cool machines.
Why does crypto consume so much electricity?
Bitcoin relies on a large de-centralized network of computers (and thus, computing power) to verify and record every transaction made with cryptocurrency. Since it comes down to correctly guessing a number or hash in order to be rewarded with Bitcoin, that incentivizes miners to invest in more Bitcoin mining hardware as well as hardware that has more hash power for a better chance at being rewarded. That also means a tremendous amount of electricity being used by mining rigs, which we’ll explore later on in this post.
It’s also important to know that with time, the complex math problem that miners are required to solve also becomes more difficult, which also incentivizes miners to invest in and use more mining rigs.
One other factor to consider is that mining rigs also require cooling, which further adds to the amount of electricity they use.
Can crypto mining be eco-friendly or carbon neutral?
Crypto mining certainly has the potential to be more eco-friendly than it currently is. In a survey done by the 3rd Global Cryptoasset Benchmarking Study, only 39% of the surveyed miners’ energy consumption came from renewables. Solar, nuclear and geothermal power are particularly scarcely used as power sources in hashing facilities, sitting at 15%, 12% and 8% respectively of the total power used by surveyed hashing facilities. So, with more investment in renewable energies, crypto mining could see reduced carbon emissions and become more eco-friendly.
Being carbon neutral means achieving net-zero carbon dioxide emissions – one way of doing so would be through carbon offsetting. Individuals and businesses can buy carbon offsets, which make up for their own emissions by preventing or absorbing carbon dioxide released elsewhere.
Another way of working towards being carbon neutral would be through purchasing renewable energy certificates (RECs). Businesses can purchase RECs as a way to fund ‘green’ energy generators that will add clean energy to the grid to offset any energy sourced from coal, oil or any other source that produces carbon emissions.
Do Bitcoin Mining Energy Costs Affect Its Price?
In general, as something increases in supply (such as Bitcoin), the price of it will decrease. So you would think that as more and more bitcoins are mined, that the relative value of each one would decrease – however, that’s not the case.
Though mining equipment is improving in efficiency and there are reduced energy costs in the sense that miners can mine more Bitcoin given the same amount of energy used, Bitcoin hasn’t declined in price.
The reason for this is because the difficulty of the complex math problems required to earn Bitcoin have increased as well as the fact that the number of Bitcoins rewarded for correctly guessing the target hash will be halved approximately every 4 years.
So, to summarize – the electricity costs of crypto mining don’t really affect the price of Bitcoin, but what it does affect is the profitability of Bitcoin mining.
What is hash power?
Hashing power refers to the power of an individual mining set up on a specific cryptocurrency network. In essence, the higher a hash power, the faster miners can find the answer to the complex math problem and the more Bitcoin they can potentially earn in a given amount of time.
Does crypto mining have a large carbon footprint?
According to Alex de Vries, the creator of the Bitcoin Consumption Index, Bitcoin has an estimated carbon footprint of 90.2 metric tons of CO2, which is roughly the amount of carbon emissions produced by the metropolitan region of London, in the United Kingdom.
This doesn’t come as a surprise – a mining map from the Cambridge Bitcoin Electricity Consumption Index shows that China consistently makes up approximately 70% (+/-5%) of the average monthly share of the total hash rate. Coal happens to be the most carbon-intensive fossil fuel and a large source of energy for China. It accounted for 57.5% of the country’s energy use in 2019 according to CarbonBrief.
However, that doesn’t mean all crypto miners are relying heavily on fossil fuels – the 3rd Global Cryptoasset Benchmarking Study found that 76% of hashers use renewable energies as part of their total energy usage, though the share of renewables in their total energy consumption is only about 39%.
Another thing to note is that while China does rely heavily on coal for power, many regions in China produce and use hydroelectric power, especially during the rainy season. In fact, hydroelectricity is the number one source of energy for PoW mining (of which Bitcoin is a part of), according to the 3rd Global Cryptoasset Benchmarking Study.
So, will Bitcoin mining move more and more towards relying on renewable energy to support its energy needs? All things considered, it’s likely. Climate change is presently an important subject to both individuals and investors alike. According to an article from the Independent, if Bitcoin doesn’t transition quickly enough to relying on mainly renewable energy, investors and consumers could look towards other cryptocurrencies that impact the environment less.
So, if cryptocurrencies want to remain competitive, mitigating their environmental impact is quite important.
How can Bitcoin and other crypto miners save on their energy costs?
So, as crypto currency miners are expending more and more energy to mine, how can they save on energy costs? Below are some simple ways to keep energy costs down for crypto miners:
- Compare rates – Comparing the energy rates of providers in your area is a great place to start for lowering power bills. Sites like EnergyRates.ca can help you compare the best available electricity rates in your area with just your postal code. Once you’ve found an energy supplier that suits your needs, our guide on how to switch energy suppliers can help you make a smooth transition.
- Use energy-efficient appliances – This is simple but often overlooked – various comparison sites can help you determine for example how efficient your GPUs are and what better alternatives may be for your mining rigs.
- Start your businesses in places with low electricity costs – The cost of electricity around the world certainly isn’t equal – according to a graph from Statista, some countries have electricity costs averaging less than $0.10 USD/kWh such as China and Russia, which have average electricity costs of $0.08/kWh and $0.06/kWh respectively.
Lastly, if you’ve been considering how you can power your mining rigs with green/cleaner energy, EnergyRates.ca can help with that. There are various options to choose from (such as RECs and carbon offsets), and our team can help you determine what’s right for your needs.