In 2017, as the Bitcoin price surged above $17,000, environmentalists noted that the cryptocurrency’s power consumption was likely to skyrocket. That’s because the process of Bitcoin mining – aka the process of creating Bitcoins and updating transactions to the Blockchain ledger – requires electricity. But no one knows exactly how much electricity the crypto industry consumes.
To find the answer, Alex De Vries – a Blockchain expert at PwC’s Experiment Center in the Netherlands, outlines a method for calculating how much electricity the Bitcoin network uses in a year – in a journal post even Joule. His initial estimates were rather conflicting: At a minimum, De Vries reckons the Bitcoin network could use 2.55 gigawatts a year, which is on par with the electricity consumption of the entire country of Ireland.
This number is derived from estimating the number of devices connected to the Bitcoin network – at least 10,000 network nodes, but those nodes can be a single device or a group of machines in the mining camp. However, this approach can only give a minimal estimate.
When machines do Bitcoin mining, they can produce the same amount of heat as a fireplace. Large-scale Bitcoin mining operations have to deal with all that excess heat with cooling technology, which requires additional electricity. But Bitcoin miners are often not transparent about the cost of electricity for cooling, but only about mining profits.
So, De Vries turned to the economic problem. Higher computing power means more Bitcoins, but also requires greater power requirements. Of course, if the cost is equal to or greater than the profit, there is no point in mining Bitcoin. De Vries drew on cost and lifespan data of miners from the manufacturer Bitmain and estimated the amount of power used by the machines; when equilibrium is reached and how much electricity the Bitcoin network can use at that point – that’s a whopping number: 7.67 gigawatts.
This economic problem helps policymakers understand the importance of a growing industry – especially when countries around the world join hands to reduce electricity consumption according to their goals. Paris Agreement. However, there are still limitations, such as miner manufacturer Bitmain keeping the data fairly secret, meaning that De Vries’ estimates are still conjecture.
There are many reasons why an individual or a company is still mining Bitcoin at approximately the loss threshold, De Vries noted: Bitcoin’s anonymity is only available to a few; the fact that this decentralized coin is free-thinking to free up third parties; and with high risk and high return, that still attracts speculators to the Bitcoin market.
Of course these also depend on the price of Bitcoin, which is volatile. Today, Bitcoin is worth around $8,500 – less than half its value at its peak last December. Depending on what you think, Bitcoin is either a losing spiral or poised to recover. However, it is not the only cryptocurrency on the market anymore.