Cryptocurrency mining is quickly causing the price of electricity in small towns to go up. In the future, is there a possibility that Bitcoin would be less energy intensive or will the future of cryptocurrency be found in another currency? David Bowman is a Bitcoin miner who set up shop since 2014. He runs his mining operations in a small, upstate city in New York. Had he set up his operations somewhere else, he wouldn’t have raised red flags. However, his cryptocurrency mining business has been the center of a growing energy debate within the city.
Bitcoin was initially created in 2009. It is supported by an underlying infrastructure called blockchain. One of the reasons that people were highly supportive of Bitcoin was that it does not require a central authority to complete the transactions. As such, the person who is required to maintain the transactions on the blockchain is called a miner. In return for maintaining the blockchain, miners will be provided with Bitcoin. Miners need to have a high computing power to solve the mathematical algorithm within the blockchain.
As Bitcoin becomes more popular, so does the practice of mining. Surely, the creator of Bitcoin never imagined that people would be creating mining farms, which have dedicated hardware used only to mine Bitcoins. Gone are the days when people could mine cryptocurrencies by using a laptop. Today, the mining of cryptocurrencies requires Application-Specific Integrated Circuit (ASIC) hardware, which is special hardware made solely to mine cryptocurrencies. In fact, the price of graphics cards has increased globally due to increased demand. Today, mining cryptocurrencies are quickly becoming an arms race.
The race for the reward
The Bitcoin system works by providing cryptocurrencies to the miner who can solve the complex maths problem. Anyone who can successfully create a block of the transaction will be rewarded with cryptocurrency. However, many criticised this action because it takes up too much electricity and it can be an unsustainable operation. In fact, some even argued that Bitcoin is in a bubble and is waiting to crash.
With the value of Bitcoin fluctuating, the increasing prices of the Bitcoin brought investors together to spend millions in the pursuit of mining Bitcoins. However, the byproduct of this activity is a massive mining operation that takes up too much energy.
How much energy does Bitcoin use?
Bitcoin’s energy use is a highly debated topic. The global mining revenue is estimated to be around $7 billion. Meanwhile, the cost of running these mining firms ranges from around $3 billion. This is the exact reason why people are willing to mine cryptocurrencies.
Bitcoin is an energy-intensive infrastructure. Now, we have to figure out where this source of energy is coming from and whether these miners are paying their fair share of the system costs. You will be surprised at the length these miners are willing to go to reduce their operating costs. For instance, miners are setting up their mining operations in places with colder climates such as Switzerland. European countries are popular destinations for miners, as they take advantage of the low renewable energy costs. Meanwhile, in China where Bitcoin mining is increasingly rampant, miners are utilizing the cheap coal energy source.
If estimates are right, most of the world’s power consumption from Bitcoin mining originates from China. Miners have an economic reason to move to China. The fossil fuel power there is cheap. However, some are optimistic that the increasing amount of Bitcoin mining will drive up the investment in renewable energy to maximize the potential. In the Sichuan province, there is cheap hydroelectricity available to Chinese miners.
Can Bitcoin’s energy use be more efficiently?
By now, it is clear that Bitcoin requires a lot of energy to maintain the blockchain. This has caused scrutiny from environmental organizations that belief in this method of doing business is not sustainable. For miners, the cost of energy can take a huge portion of their mining costs. In fact, this can account for up to 25 percent of their total cost.
To answer the question, it is possible to make Bitcoin more efficiently. In fact, there needs to be a shift in perspective. However, in order to rewrite the blockchain, it will be very expensive and time-consuming.
A lot of the cryptocurrency mining energy use is expended to keep the computers cool. One of the proposed solutions is for miners to move to a colder climate. Some of the most popular locations at the moment are China, Europe, and the United States. Despite this, popular locations such as Iceland are looking more appealing to miners because they have cheap electricity and a cold climate.
What are the possible alternatives?
There are over 2,000 alternative cryptocurrencies in the market. Hence, Bitcoin isn’t the only option that you have when it comes to trading in the cryptocurrency market. However, it is the most popular cryptocurrency in the world. An alternative to Bitcoin is being created by the Ethereum network. The network will utilize proof of stake, which will reportedly take up less energy. However, it is not fully implemented yet.
In the years ahead, investors can expect to see a new breed of cryptocurrencies emerging. Also, consumers can also expect to see smart contracts utilized to automate transactions. Today, there are already ideas to allow users to borrow computing power or Internet bandwidth without having to pay to the Internet provider. Hence, there will be trading of solar energy within the system.
Despite the possibility of cryptocurrency mining becoming more efficient, the industry today still takes up a lot of energy. As more miners are moving to smaller villages, the impact of their operations will be felt by the villagers who may not be involved in the operations. An increase in the amount of money charged to miners is inevitable. After all, why should one pay a higher amount for bills when someone else is driving up the costs?
In fact, Plattsburgh became the first ever city in the United States to temporarily ban new cryptocurrency mining operations. At the moment, they are still trying to figure out some ground rules when it comes to mining businesses. These miners have to consider the impact on smaller communities where there is always a smaller amount of low-cost power available. The real concern is if miners use cheap energy without giving back to the community.