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It’s very challenging to figure out how much electricity is used for Bitcoin mining. That’s because the cost of electricity—and the equipment used to run mining rigs—varies from miner to miner, depending on the equipment being used and the region it’s housed in, among other factors.

Bitcoins are mined by computers that solve complicated mathematical calculations. This process not only creates new bitcoins, it also secures the network and validates every transaction that takes place on the Bitcoin blockchain. This global decentralized network of miners keeps Bitcoin running, since it isn’t centrally controlled by a bank or other entity.

Although the estimated figures can differ greatly, there’s no disputing that the Bitcoin mining electricity cost is high because of the constant mathematical calculations required to verify transactions and mine Bitcoin.

Why Does the Bitcoin Network Need Electricity?

The Bitcoin blockchain is designed to issue new blocks every ten minutes, regardless of how many mining machines are in operation. All the miners in the network are competing to mine those blocks, because whoever mines the block gets the Bitcoin reward.

While the rate of mining blocks stays more or less the same the difficulty in doing so varies according to the current hash rate, which is the amount of computational power being contributed to the network through mining. As more hash rate is added to the network and newer, faster machines calculate more computations within the same amount of time, the difficulty adjusts. A high difficulty means that it will take more computing power to mine the same number of blocks, making the network more secure against attacks.

How Bitcoin Miners Impact Electricity Usage

Bitcoin mining drives the majority of electricity use. Generally, when the price of Bitcoin goes up, more people become interested in mining. The more machines on the network, the more electricity they use—not only because there is an increase in equipment being devoted to Bitcoin mining, but because as more miners join the network, it becomes harder to mine Bitcoins, so more computational power and electricity get used in the process. Only one miner can win the Bitcoin reward for mining any particular block, so the miners are competing using computational power.

How Bitcoin Transactions Affect Electricity Usage

Once all bitcoins have been mined and are in circulation, electricity will only be needed to verify transactions and keep the network running.

The way the Bitcoin blockchain works, there are currently a limited number of transactions that can be recorded on each new block created, and each block can only hold 1MB of information. So an increased number of users transacting with Bitcoin doesn’t mean more electricity gets used. It just means there is a longer wait time for transactions to get verified, and higher transaction costs.

Will the Bitcoin Network Use more Electricity as it Grows?

One often-misreported concept is that as the Bitcoin network expands, it will consume a greater amount of electricity because there are more transactions taking place. It may sound counterintuitive, but as time goes on the network may actually use less energy. It’s the increase in overall number of Bitcoin miners and increased difficulty of mining that increases electricity use, and not the expansion of the Bitcoin network as more transactions take place.

Will Electricity Required for Bitcoin Mining Ever Decrease?

There are a few possible scenarios in which less electricity will be used for Bitcoin mining:

•  At some point in the future, it may become too expensive for new miners to start an operation, so the number of miners in the network may plateau or decline.

•  If the Bitcoin price plateaus, fewer new miners will join the network and existing miners may shut down their operation. Mining can be a costly pursuit, as miners constantly need to upgrade their equipment and pay for electricity and facilities.

•  Over time the equipment used to run the entire network will gain efficiency as old machines get phased out. New equipment will likely be more efficient—with more sophisticated cooling mechanisms—and use less electricity than older models, resulting in lower energy bills.

•  Demand to join mining pools has been increasing. Individuals who don’t want to run their own mining operation but want to invest in mining can also pay to join a mining pool, in which costs and energy usage is shared among investors.

How to Calculate Bitcoin’s Electricity Usage

Annual energy consumption is recorded in terawatt hours (TWh). This is a unit of energy that’s equal to outputting one trillion watts for one hour.

The range for the annual consumption of the Bitcoin network is likely between 100MW and 3.4GW, which is such a wide range it isn’t particularly useful. Some estimates also claim it is much higher, such as the Cambridge Bitcoin Electricity Consumption Index.

How Much of the Bitcoin Network is run by Renewable Energy?

It’s difficult to figure out precisely how much of the network is run by renewable energy sources. However, there are some likely estimates. Approximately 73% of Bitcoin miners use renewable energy for at least some of their operations, according to a 2019 report from CoinShares , and about 39% of all Bitcoin mining is done using renewables, according to a September 2020 report from the Cambridge Centre for Alternative Finance, although other estimates put the percentage much higher.

Incentives to Use Renewable Energy to Power the Bitcoin Network

The Crypto Climate Accord was formed to help make the entire cryptocurrency industry run completely on renewable energy by 2025. Already, there are a number of reasons miners are either using renewable energy or considering it:

•  It benefits Bitcoin miners to seek out cheap renewable energy, because it lowers their operating costs and increases their profits. Some Bitcoin mining is done using renewable energy, especially hydropower and geothermal—but mining also takes place in regions that primarily use coal power.

•  Many miners also seek out colder locations, because mining rigs create a lot of heat, so if they run in cooler climates the miners don’t have to pay to cool them down. In fact, some miners even use the heat to heat their homes and offices.

•  In countries like China and Norway, the government offers subsidies to miners, which adds an additional incentive for them to seek out cheap renewable energy.

•  Many Bitcoin miners also set up their operations in areas where there is excess energy being created that was previously going to waste. So they aren’t contributing to an increase in energy production and they are helping keep energy companies in business. For instance, some miners use natural gas that gets leaked out from oil fields.

•  In some regions, Bitcoin mining is also creating an incentive for renewable energy development, so the industry is helping to accelerate the transition to renewables. But it’s yet to be seen how this will scale as both demand for renewable energy and demand for Bitcoin increase.

Why Does Bitcoin’s Electricity Use Matter?

The deeper debate around Bitcoin’s electricity use is about whether people believe Bitcoin has value or if the electricity use is worth it for what Bitcoin provides.

There is a full spectrum of beliefs about Bitcoin and the cryptocurrency industry. If someone doesn’t see value in Bitcoin, they may think using electricity to keep it running is a waste.

On the opposite end of the spectrum, some people think Bitcoin could ultimately replace USD or other major currencies or act as a hedge against the traditional financial system and the depreciating US dollar. In that case, they might argue that the huge amount of energy used to keep the USD system running is a waste. There is not a clear right or wrong answer to this debate.

Millions of people around the world now use Bitcoin every day, including people who previously didn’t have access to any form of banking system and people whose governments and currencies are unstable. So there is a proven use case for the Bitcoin network.

Still, like every industry, the cryptocurrency industry needs to continue working on ways to reduce its energy use. Some ways the network can improve are by mining in regions that have underutilized energy sources and making adjustments to the code that make the network run more efficiently. Switching to a different consensus mechanism is another option.

The Takeaway

The Bitcoin network is operated by miners who mine Bitcoin and validate transactions on the blockchain network. These complicated mathematical computations are done by machines developed expressly for this use, around the world. Bitcoin’s electricity use is a complicated topic and the conversation will continue to evolve over time. It’s just one of many things that are good to know about before investing in cryptocurrency.

Photo credit: iStock/MicroStockHub

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