In the last six months of 2019, the Bitcoin hash rate nearly doubled.
A hash rate is a term used to describe the processing power of the Bitcoin network. The higher this rate is, the more people there are mining for this cryptocurrency.
As the Bitcoin market starts to rebound, a renewed focus is being put on the problems facing this industry. While market instability is a concern for some, the amount of power consumed by the Bitcoin network is a bit more troubling.
On average, the Bitcoin network consumes enough power in a year to power the country of Venezuela.
Many economists and energy experts agree that the current energy usage trajectory that Bitcoin is on is not sustainable. Every time you turn on the news, you see more and more stories about how global energy production needs to ramp down.
This is why many in the Bitcoin community are touting changes to fix the looming energy crisis this cryptocurrency is threatening to cause.
Here are some of the things you need to know about both Bitcoin energy usage and what can be done to fix the problems this usage may cause in the future.
Table of Contents
Why Does Bitcoin Need So Much Electricity?
If you are new to the world of Bitcoin mining, you are probably wondering why mining for this cryptocurrency is such a drain on the world’s energy supply.
The answer to this question is both multi-faceted and complicated. Before we delve into the energy consumption problems Bitcoin faces, you need to understand more about the Bitcoin mining process.
In short, the process of Bitcoin mining involves generating new cryptocurrency while simultaneously updating and sharing the Bitcoin network’s shared transaction ledger.
Since thousands of people around the world mine for Bitcoin daily, it can cause a lot of activity on the Bitcoin network. On average, Bitcoin miners generate roughly 75 bitcoins an hour. At the current rate, this is just shy of $8 billion worth of Bitcoin a year.
As the price of Bitcoin rises, more and more miners will start to use higher amounts of electricity. If the electricity rates a miner is paying is far lower than the price of Bitcoin, the ends justify the means.
Estimates show that the Bitcoin industry spends roughly 60 percent of revenue on the cost of electricity. On average, the Bitcoin network is consuming roughly 74.75 TWh of electricity a year.
The overall level of energy consumption used by the Bitcoin network depends heavily on the value of this cryptocurrency. If we see a sharp decline in the value of Bitcoin, you will also see a significant reduction in the amount of power used by the Bitcoin network. Since the overall value of Bitcoin is a bit unpredictable, only time will tell how this electricity crisis will pan out.
What Makes Assessing Bitcoin’s Electricity Usage Difficult?
As you may have noticed, the definite numbers regarding exactly how much energy is used by the Bitcoin network and miners are a bit up in the air.
Without a definite figure on how much energy is being used, many Bitcoin enthusiasts write this energy crisis off as nothing more than a scare tactic being used by traditional banking institutions. Tracking the exact amount of electricity is difficult for some of the following reasons.
Bitcoin Mining Rigs Aren’t Being Tracked
In the beginning, conventional servers for Bitcoin mining were supplied by companies like IDC and Dataquest.
As time has gone by, more and more Bitcoin miners have developed customized computing devices to handle the work involved in the mining process. Since these customized rigs are hard to track, estimating just how much energy they are using is almost impossible.
The number of servers actually mining for Bitcoin is important information used to determine energy usage, but most newcomers to the world of Bitcoin mining aren’t using traditional servers which is where the problems are occurring.
Rapid Changes in the Bitcoin Mining World
Most people fail to realize that the world of cryptocurrency changes much faster than most normal IT infrastructures.
When Bitcoin servers are undergoing drastic changes, it can cause instability in the market. The rise and fall of Bitcoin’s value determine just how much electricity is used to mine it.
This market volatility is what has many on edge about the future value of Bitcoin. If the prices were to rise substantially in a short period of time, the amount of energy used by Bitcoin miners can overwhelm the existing power grids in the United States and other countries.
The Varying Efficiency of Computational Loads
The amount of electricity used to complete Bitcoin mining is also affected by things like the total computation load, the number of servers a miner has, and the mining difficulty on the Bitcoin network. Each of these factors can change at a moment’s notice, which means the amount of electricity used for a single Bitcoin mining transaction can also change.
Possible Solutions to the Bitcoin Energy Crisis
Solving the looming Bitcoin energy crisis is a lot harder than most people realize. One of the main things you can do as a Bitcoin miner is who is trying to lower the cost of this investment is finding the best possible energy rates. (source: https://www.energybot.com/electricity-rates-by-state.html)
In the past, companies like Google allowed people in the Bitcoin mining community to purchase clean energy assets. A large scale campaign to sell these clean energy assets can help to offset the environmental impact of Bitcoin mining.
Many people have also encouraged Bitcoin to use renewable sources of energy to power its network. The belief is that others in the cryptocurrency and mining communities would follow suit if Bitcoin were to push renewable energy as a solution.
The Future is Uncertain
Only time will tell how the cryptocurrency industry will handle the energy crisis building at the current moment.
As more data comes out showing how much of a drain mining is on the world’s energy supply, governments may start to pass regulations in an attempt to fix this issue.