This article has originally been published in German. It was translated by @soulexporter and @Frito2x.
Bitcoin's power consumption depends on the hardware used for it. Newer mining hardware consumes less electricity than old hardware relative to the mining power (so-called hash power). However, only the mining power generated by the entire system can be measured. This is currently 154.0 EH/s (154 quintillion hashes per second).
Whether Leila in Sudan is still mining for Bitcoins with a first-generation Antminer S1 (90 GH/s per 100 W) or a newer S19 (3140 GH/s per 100 W) remains unknown to the system. But as the examples show: With the same power consumption, the newer device generates almost thirty-five times the hash power.
Because Bitcoin is an extremely decentralized system comprised of the hardware of not only Leila from Sudan, but also Han from Shangdong and Mark from Vancouver, it is impossible to calculate the precise power consumption using hash power alone.
Of course there are attempts at estimating power consumption. The most complex approach is likely to be the Cambridge Bitcoin Electricity Consumption Index of the University of Cambridge, based on Marc Bevand's model.
The index provides a minimum and a maximum value for electricity consumption. The minimum value represents a system in which only the newest and most efficient hardware is used. The maximum value assumes only outdated hardware is being utilized.
The range of the two values is therefore enormous – currently the minimum value is 4.83 GW and the maximum value 50.18 GW. The presumed electricity consumption calculated from this is 14.84 gigawatts (as of 3 March 2021). This corresponds to an annual consumption of 130 TWh.
As soon as electricity is not freely available, older, less efficient mining hardware can no longer be operated profitably - even if it has already paid for itself. Electricity costs exceed inefficient equipment revenues. Therefore, it is assumed that in most cases, new and efficient equipment will be used.
Another much-cited source is the index by Alex de Vries of digiconomist.net. The calculations of the Bitcoin-critical online portal with the slogan "We uncover the unintended consequences of digital trends", assume a good half of the energy consumption estimated by the Cambridge index and estimate 77.78 TWh.
For the further calculations in this article, however, we take Cambridge's 130TWh into account.
That pretty much fits. According to the International Energy Agency (IEA), Argentina's electricity consumptionin 2019 was 132.7 TWh, while Norway's was 125.7 TWh. By way of comparison, Switzerland currently consumes 63.1 TWh.
The calculation is mathematically correct, but the comparison is completely nonsensical.
Bitcoin's energy consumption serves to secure the system. If you think of Bitcoin as a virtual vault, the energy determines the thickness of the armoured walls. The more energy utilized, the more secure the vault. If you wanted to raid the vault, you would need more energy than the amount used to secure the system. At the moment, this system secures a fortune of about one trillion dollars (and rising). The vault needs to be very secure.
If one wants to make a comparison, then comparing Bitcoin's electricity consumption with that of the banking sector would be more appropriate. Precise figures do not (yet) exist. Simple calculations come to the conclusion that the banking sector needs at least 78 to 100 TWh of electricity per year. Construction and maintenance of the infrastructure, which is much leaner for Bitcoin, are not included in these calculations.
The much-vaunted comparison with the efficiency of VISA is also misleading. Everyday Bitcoin transactions can be carried out with the Lightning network. It is accessible to everyone worldwide, within seconds, almost free of charge - and almost free of electricity costs.
Note: Bitcoin currently uses about 0.5 percent of the world's electricity production.
Note: 8.25 percent of the electricity produced worldwide – sixteen times that which Bitcoin consumes – is lost during transport and delivery.
8.25 percent is only the global average. In Haiti, 60 per cent of the electricity produced goes nowhere. In Benin 61 percent, in Libya 71 percent. In Spain (10), Portugal (11) and Serbia (15), double-digit percentages of electricity are lost. In Switzerland, the figure is seven percent. And for total energy - not just electricity - the efficiency statistics are even more dire:
Note: Mankind currently loses more energy every day to inefficiency than the entire Bitcoin network needs for an entire year.
The Bitcoin system helps to use waste electricity and incentivizes optimizing efficient use of energy.
Electricity costs take up a large share of mining costs. In China they account for 49%, in Europe 41% and in North America 38%. The other big cost is sourcing new miners (37% in China, 43% in Europe, 52% in North America). China's Bitcoin miners benefit in terms of equipment from their proximity to the most important manufacturer (Antminer). Only those who can buy a kilowatt hour for well under 10 cents can mine profitably. On average, it is between 3 and 6 cents per kWh in Europe and Asia.
Thanks to the current Bitcoin boom, miner profit margins are currently decent. Still, mining is only possible where the electricity price is extremely low. Low electricity prices exist under three conditions:
Here are three examples:
Iceland has extremely low energy production costs due to geothermal and hydropower. A kWh costs 4.75 cents for industrial consumers, 13.4 cents for private households. Icelanders can afford the luxury of heating even some streets and pavements. The country's entire electricity production is based on renewables.
But Iceland has a problem. Because of its location, it cannot export the energy. So it goes the other way and imports energy-intensive industrial operations. Specifically: the melting of aluminium. The raw materials are imported by ship, processed in aluminium smelters and then exported again.
The favourable electricity prices in Iceland also attract Bitcoin miners. Because not only are the prices and the CO2 balance of the electricity perfect - the climate also goes along with it. Hundreds of mining computers need to be cooled. And the harsh temperatures on the island help with that.
65% of the hash power in the Bitcoin system comes from China. The Xinjiang Uyghur Autonomous Region (30.13%) and Sichuan (18.58%) account for nearly half of the world's hash power.
After 20 years of aggressive dam-building policies, Sichuan's hydropower plants reached 75 GW of capacity in 2017. This is too much for the local power grid. Output exceeds the grid's capacity by two times. In other words: Half of the electricity produced could not be used. Similar to Iceland, smelters sprang up next to the power plants in response - and some illegally in backyards. The government intervened when too many farmers preferred to produce metals rather than food.
How can all the excess electricity be utilized? Bitcoin mining is the answer. Instead of letting the countless megawatt and even gigawatt hours go to waste, Sichuan transforms into a leader of Bitcoin mining - especially during the wet season.
Just before the wet season / melt water season, Bitcoin's hash rate collapses a bit. The reason: local miners move their equipment away from cheap coal power to the then even cheaper hydroelectric power. If the hydro runs dry and with it the source of the cheapest electricity, the miners move their hardware back again.
Wind and sun are intermittent sources of energy. On certain days, a lot of electricity is produced (when there is abundant wind / sunshine), but then on other days almost no electricity is produced at all (no wind / night). Traditional demand for electricity does not scale well to availability of renewable energy. This is one of the major problems of a transition to renewable energy that needs to be overcome. Anyone who operates a private solar system in Switzerland will most likely have signed a declaration that the system can be taken off the grid in the event of a surplus. What rarely happens in Switzerland is commonplace in California.
If the sun shines on a windy day in the West Coast state, too much electricity is produced. Specifically, in 2020 grid operators in California had to waste 1.6 GWh of renewable electricity. Electricity in abundance that can otherwise not be utilized is ideal for Bitcoin mining.
Various waste products are produced during oil extraction - including natural gas. If this cannot be stored or diverted due to a lack of infrastructure, it is usually burnt on site for various reasons (including environmental ones). The Oshie gas flame of an oil production plant of the Italian manufacturer Agip in the Niger Delta has been burning since 1972.
An American company is now harnessing this waste energy. It produces mobile all-in-one solutions to convert waste energy into Bitcoin hash power. The escaping gas becomes a source of energy for Bitcoin miners. In the USA, 20 such systems have already been installed, with more already planned.
Bitcoin mining does not rely on any gas pipeline networks or railroad or street connections. It works in a wide range of settings such as in the middle of Tokyo or, with satellite internet, also in the Russian pampas. That's why Bitcoin mining offers a good opportunity to utilize waste energy in many settings.
Certified Organic Natural Gas Fed Bitcoin Mining ✅ pic.twitter.com/qengwRSKCs
— GreatAmericanMining (@GAMdotAI) February 28, 2021
China is not only the world's largest producer, but also the world's largest consumer of coal-fired electricity. Made in China means 62 percent made by coal-fired power- regardless of product or service.
What the hydropower plants are in Sichuan, the coal-fired power plants are in Xinjiang. In the Uyghur province, where by far the most Bitcoins are mined worldwide (30.13 %), the coal deposits are enormous and so are the coal-fired power plants. For economists, it is clear that subsidies are responsible for the fact that China's coal industry has boomed in recent years.
Despite abundant energy, only 24 million people live in the largest of all Chinese provinces (40 times the size of Switzerland). The electricity produced there finds few customers - except for Bitcoin miners. Bitcoin miners find the cheapest electricity here.
It is doubtful whether coal-fired power would be competitive without subsidies. The battle for the cheapest sources of electricity has been waged by renewables for some years now. At the moment, wind is just ahead of solar. Coal-fired power is almost twice as expensive.
China is making Bitcoin mining difficult in some areas. For example, starting in April, Bitcoin mining will be banned in Inner Mongolia. At the moment, 7.71% of global hashrate comes from there.
The government justifies this step with concern regarding heavy environmental impact. In addition, state regulations, from which Bitcoin miners have so far been spared, are increasing. This has led to an exodus of mining companies, according to a local scene expert. Interestingly, companies appear to be moving towards Sweden and Norway.
Therefore, China's mining dominance is shrinking. As recently as September 2019, 75.6% of the hashrate came from the most populous country. A year and a half later, it's down to 65%.
Similar to electricity consumption, the decentralised nature of Bitcoin makes it difficult to determine percentages of the electricity's origin. The problem is reflected in the figures of the studies.
According to a report by the University of Cambridge from September 2020, an average of 39 % of the hashrate is currently produced with renewables. 76% of miners use renewables as part of their electricity mix.
Other figures can be found in Coinshares' December 2019 research report, where the investment firm reports renewables are responsible for 73% of the hashrate. If true Bitcoin mining would be one of the cleanest of the major industries.
The huge discrepancies show how much the researchers are fumbling around in the dark. And then there is the problem of methodology. In which category does a miner who covers his energy needs with a gas flare fall? Statistically, his energy source belongs to fossil fuels. But the waste gases are produced anyway - the miner is an intermediate use.
Watson asked Australian Bitcoin energy specialist and civil engineer Hass McCook about the future of Bitcoin mining.
How much electricity will Bitcoin gobble up once upon a time? Hass McCook: To scare people, I always say that Bitcoin will eventually consume 50 per cent of theworld's electricity. At 50 per cent of electricity consumption, Bitcoin would be unbreakable with secular electricity resources.
And this electricity comes from Chinese coal-fired power plants?
Bitcoin miners aren’t ecologists, no do-gooders and no idealists. They want to earn money. But for that they need the cheapest possible electricity. And we have to be aware that in many regions of the world, the cheapest electricity is generated with renewables - with geothermal energy, wind, water and solar. The future belongs to these sources.
It is not looking good at the moment.
We also have coal-fired electricity in Australia. It costs 23 cents per kWh, making it the most expensive electricity of all. Our coal industry also benefits indirectly from Chinese subsidies. These are a real problem. Because they cause really low local electricity prices.
But we have to be aware that electricity and energy consumption per se is not a bad thing. On the contrary. Historically, the use of more and more energy stands for progress - recently we were able to land a robot on Mars. Without the use of energy, we would never have come so far. What is bad, however, is the environmental pollution that can result. And that must be prevented. If Bitcoin should actually devour 20 or 30 per cent of the electricity produced worldwide at some point, then it will have been produced from purely renewable sources.
How do you have to imagine that? Will there be no electricity for the oven?
At some point, it will be lucrative to build a power plant somewhere, in a remote location, a wind turbine, solar panels, a micro-nuclear power plant - without connecting it to the grid. The only use of this powerplant will be to produce electricity for Bitcoin. I can imagine this scenario very well. Already today, Bitcoin could eat up 30 per cent of the energy produced worldwide - without any losses or additional burden on the environment. We are simply giving away too much. But Bitcoin is about to take that energy.
Bitcoin is called "digital gold" for a reason. It is a store of value that is equally accessible to everyone worldwide, at low fees, everywhere and at any time.
The energy comparison with Argentina is also interesting because the currency of the South American giant has been devalued several times in recent decades. By government decision. At the push of a button. Those who held their savings in Bitcoin were not affected (and in fact benefited via inflation of the hardest asset).
40% of all US dollars were printed last year or this year. The fear of inflation is also spreading in the USA. That is why well-known companies such as Tesla or MicroStrategy are now also investing in Bitcoin.
But the arguments go even deeper: for hardcore Bitcoin supporters, it is precisely the US dollar and its status as the global reserve currency that is the root cause of much suffering, war and hunger. They see in Bitcoin the chance to restore power to the individual and small businesses because sound money creates a more fair environment.
Ultimately there will be a question asking how much energy or electricity a service may claim.
It is unclear whether this question will be answered by competition or by regulation.
Yes. The goal of the netpositive.money campaign is for Bitcoin to not only be climate neutral, but for it to even have a positive impact on climate change.
And one last statistic to consider: according to netpositive.money, Bitcoin is currently responsible for producing 4.55 megatonnes of CO2 per month. That is 0.15% of global emissions.
