As the Bitcoin price surges so does the energy consumption as mining increases, but management and regulatory options are possible.
In January of this year, within less than a month, Bitcoin prices surged over $40,000, more than doubling the previous record of almost $20,000 from December 2017.
With it, and incentivised by the prospects, the demand for Bitcoin mining devices also surged to the extent that China’s Bitmain, one of the largest manufacturers, reported selling out through August 2021.
This is bad news for the energy demand for mining, which according to Bitcoin energy monitor specialist Alex de Vries could reach up to 184TWh by year end – close to the 200TWh consumed by all the data centres globally.
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At that level its carbon footprint would be approaching that of London.
Estimates for the current consumption, which is at a record high, are from 81TWh by de Vries’ Bitcoin Energy Consumption Index, which he initiated in 2016, to as much as 128TWh by the Cambridge Bitcoin Electricity Consumption Index.
Bitcoin price and energy use
In a new commentary in the journal Joule, de Vries draws a clear parallel between Bitcoin price and energy use, saying that it directly effects the value of the mined coins and therefore the amount of resources miners can afford to spend on mining.
“Economic models do not indicate exactly when the network will reach an annual energy consumption of 184TWh, but miners have a strong incentive to add new mining devices as fast as possible,” he says.
The situation is further complicated in that Bitmain and other device suppliers have a no refund policy, ensuring that the devices will be produced regardless of the Bitcoin price fluctuations.
De Vries assumes an average electricity price paid by Bitcoin miners of $0.05/kWh and finds that for miners who only care about electricity costs, a Bitcoin price of $25,200 would be sufficient to sustain an annual electricity consumption of 184TWh.
However, if the price was to collapse – an 80% drop was experienced during 2018, for example – a price of around $8,000 could sustain a consumption of at most 60TWh per year.
Given the growing implications of the cryptocurrency mining industry, policymakers might feel increasingly pressured to intervene, de Vries continues.
To some extent this has started to occur. For example, in 2018, the Canadian power company Hydro-Québec and Québec Energy Board imposed a moratorium on new mining operations after a significant number of applications threated to destabilise the local grid.
In January 2021, Iran confiscated mining equipment following outages blamed on cryptocurrency mining activities.
These examples illustrate how policymakers might have multiple options in putting a halt to cryptocurrency mining, he says, citing possibilities such as targeting large-scale miners with higher electricity rates, moratoria, or, in the most extreme case, confiscation of equipment. Manufacturers like Bitmain could be burdened with additional taxes like tobacco companies or limited in their access to chip production.
Nevertheless, there are also some boundaries to the policy options, he adds. Ultimately, any laptop or computer is theoretically capable of participating in cryptocurrency mining and any location that has access to internet and electricity might be used to host these devices.
“Miners could simply move elsewhere under adverse policy decisions, or mining might become more decentralised (and harder to control) when large-scale mining facilities or manufacturers of specialised devices are severely restricted.”
Energy sector options
While energy sector players are limited in the scope of restrictive actions they can take, management options are emerging that can be exploited.
In Sweden, Vattenfall is pioneering the use of flexibility from blockchain mining to the frequency containment reserves for disturbance market.
The US startup Digital Power-Optimisation is demonstrating the potential of cryptocurrency mining as a service to smooth out load imbalances of wind and solar generation, thus offering an alternative to storage.
Time will tell of the potential of these initiatives to manage the impact of crypto mining on the grid but it – and data centres – are here to stay and these and other possibilities that will emerge are critical to the ongoing evolution of the sector.
Note for readers, the crypto mining energy challenge applies to Bitcoin and to a lesser extent other currencies such as Ethereum and Monero, which together have an energy consumption about half that of Bitcoin.
Private or ‘closed’ blockchains such as the Energy Web Chain are not energy intensive. For example, EW Chain with its proof-of-authority consensus mechanism, has an energy consumption 2–3 orders of magnitude lower compared to Ethereum, Energy Web has indicated. The energy consumption of Ethereum is in turn about one-sixth that of Bitcoin.