Bitcoin Mining’s Electricity Bill: Is It Worth It?

• By mining, you can earn cryptocurrency without having to put down money for it.
• Bitcoin miners receive bitcoin as a reward for completing “blocks” of verified transactions, which are added to the blockchain.
• Mining rewards are paid to the miner who discovers a solution to a complex hashing puzzle first, and the probability that a participant will be the one to discover the solution is related to the portion of the network’s total mining power.
• You need either a graphics processing unit (GPU) or an application-specific integrated circuit (ASIC) in order to set up a mining rig.

Why Bitcoin Needs Miners

The term “mining” is a metaphor used to describe the computational work that nodes in a blockchain network undertake in hopes of earning new tokens. Miners are getting paid for their work as auditors. They are verifying the legitimacy of Bitcoin transactions. 2 This convention, called “verifying transactions” was conceived by Bitcoin’s founder, Satoshi Nakamoto, in order to prevent the “double-spending problem.” By verifying transactions, miners are ensuring that Bitcoin users are being honest.

Double spending is a scenario in which a Bitcoin owner illicitly spends the same bitcoin twice. This isn’t an issue with physical currency: When you hand someone a $20 bill to buy a bottle of vodka, you no longer have it, so there’s no danger you could use that same $20 bill to buy lotto tickets next door. Counterfeiting cash is not the same thing as spending the same dollar twice. There is a risk that the holder of digital currency could make a copy of the digital token and send it to a merchant or another party while retaining the original, as explained by the Investopedia dictionary.

If you had one legitimate $20 bill and one counterfeit of that same $20, would you be able to tell which one was which? If you were to try to spend both the real bill and the fake one, someone who examined both of the bills’ serial numbers would see that they were the same number, and thus one of them had to be false. A blockchain miner verifies that users have not illegitimately tried to spend the same bitcoin twice. This is not a perfect analogy, we will explain in more detail below.

Why Mine Bitcoin?

Mining also releases new cryptocurrency into circulation in addition to lining the pockets of miners and supporting the Bitcoin ecosystem. In other words, miners are basically “minting” currency. As of March 2022 there were just under 19 million bitcoins in circulation out of a total of 21 million.

Every bitcoin that exists came into being because miners created it, with the exception of those created in the genesis block. Without miners, there would be no new Bitcoin created. The network would still be available to use, but the only Bitcoin that would exist would be the ones that are already in circulation. The final bitcoin won’t be circulated until around 2140 because the rate of bitcoin “mined” is reduced over time. This means that transactions will still be verified. Miners will keep verifying transactions and getting paid for it to keep Bitcoin’s network going.

To earn new bitcoins, you need to find the correct answer, or the closest answer, to a numeric problem. This process is also known as Proof of Work (POW). To start mining, you need to engage in proof-of-work activity to find the answer to the puzzle.

No advanced math or computation is really involved. It’s hard to compute the math because there is no efficient way to do it. While it is true that miners are solving difficult mathematical problems, the difficulty lies not in the math itself, but in the fact that there is no efficient way to compute it. The miners are trying to find a 64-digit hexadecimal number that is less than or equal to the target hash. It’s basically guesswork.1

The odds of guessing the correct answer to each problem are essentially random, but because there are trillions of possible combinations, it would be incredibly difficult to find the right answer through brute force alone. As more miners join the mining network, the level of mining difficulty increases. First, miners need a lot of computing power to solve a problem. The higher your hash rate, the more likely you are to successfully mine for digital currency. Hash rates are measured in gigahashes per second (GH/s) and terahashes per second (TH/s).

In addition to the benefit of receiving newly created bitcoins, coin miners also have “voting” power when changes to the Bitcoin network protocol are proposed. This is known as a Bitcoin Improvement Protocol (BIP). Miners have a say in decisions like forking. The more hash power you possess, the more power you have to influence the direction of Bitcoin Cash.

Bitcoin mining and energy consumption

Mining new Bitcoin requires computers to solve a difficult math problem in order to verify a recent block of Bitcoin transactions. This process requires a lot of energy and computational resources. The miner who solves the math problem is rewarded with newly minted Bitcoin. The math problem is more difficult if the network’s computational power is low. } The Bitcoin network is becoming increasingly attractive to miners, as the mining difficulty increases. Usually, the amount of energy consumed by a mining rig increases as well.

This means that the Bitcoin network currently consumes more electricity than both Ireland and Austria combined. In the past year, the estimated amount of electricity that the Bitcoin network consumes per year has increased by 413.37 percent. The Bitcoin network uses more electricity than the Czech Republic does in a year.

Alex De Vries is a data consultant and blockchain specialist. He believes that Bitcoin mining consumes a lot of energy, which is a problem. The average amount of electricity consumed per Bitcoin transaction is 300 kwH, but it has the potential to reach 900 KwH by the end of 2018.

De Vries told Cointelegraph that even though society can not see the changes being made to the environment via Bitcoin mining, mining operations are not helping the world get closer to their climate and environmental goals:

” We know that mining can be done using renewable energy, not just coal-electricity. In the former case, we do know what we are displacing, but renewable energy always has some lifetime carbon footprint. We still have more work to do, but we are having an impact. Bitcoin will have a negative impact on the environment due to the amount of energy it uses. This will in turn have a negative impact on everyone. It’s not helping us reach our climate goals.”

It’s difficult to say definitively how Bitcoin mining is affecting the environment because there is some uncertainty about the extent of its impact. Although some of the electricity used is sourced from coal, mining operations themselves do not usually release carbon emissions. The amount of resources consumed and the opportunity cost involved in mining should be concerning, even if miners do not see the physical impact it has on the environment.

Hash rate and energy consumption

The energy consumption of mining seems to be increasing. As mining equipment becomes more efficient at solving blocks, the amount of electricity consumed by each mining rig increases. Mining companies are constantly looking for equipment that can mine at a higher hashrate in order to stay ahead of their competitors. The hashrate is a measure of how fast a miner can solve the math problem. The higher the hash rate, the faster the computer can solve the math problem.

At first, a standard CPU could solve the problem, but as more miners joined the network and the problem became more difficult, miners found that a GPU was better suited to solve the problem. The technology improvements meant that GPUs were no longer the most efficient option for solving a block, so FPGAs and ASICs were developed to be better suited for the task.

Bevand believes that the high energy consumption of mining will lead to further innovation in renewable energies. Bevand believes that the energy consumption will eventually lead to decreased costs of renewable energy for society at large:

” Because miners are so responsive to changes in electricity prices, they often push utilities to further develop renewable energy sources, which are now the cheapest source of energy. For example, miners in China are attracted to the Sichuan province because of its access to hydroelectricity. An Australian entrepreneur is building a 20 megawatt, solar-powered mining farm. If the energy use of cryptocurrency miners continue to increase it will help decrease the costs of renewables for society at large (increased demand → increased R&D → increased capacity & higher efficiency → lower costs through economies of scale).”

Electricity costs have already forced miners to search for a cheaper source of energy. Companies have been looking to places where electricity is cheaper, such as Canada and the Sichuan province. Miners are motivated to use inexpensive electricity, which results in increased research and development in the energy sector. This will make forms of electricity cheaper for everyone in the future as new advancements are made in the energy industry.

The Price of Network Security

Some individuals believe that the benefits of mining crypto-currencies – like network security – outweights the negative externalities, such as electricity consumption.

Bitcoin is secured by a process called proof-of-work. Miers are rewarded with freshly mined Bitcoin and transaction fees for correctly solving a block, which in turn secures the network. If miners are not able to solve the cryptographic proof, blocks of transaction history will not be added to the blockchain. This would nullify blockchain technology as a whole, because no record of transaction history would be created if blocks were not added to the chain. The PoW consensus uses a lot of energy, which makes it expensive.

Cypherpunk Jameson Lopp took to twitter to express how he feels about Bitcoin’s energy expenditure problem. He believes that the current situation is not sustainable and that something needs to be done about it. Lopp believes that the electricity expense incurred from Bitcoin mining is simply a tax that must be paid in order to maintain network security.