Bill Electricity of Bitcoin Mining: is it worth it?

They say it takes money to make money; To take advantage of Bitcoin mining, you need to buy mining equipment and pay your electricity bill first. While more miners join the Bitcoin network, some individuals fear that the amount of electricity consumed by mining activities will have a negative impact on the environment. Others we believe the benefits of Bitcoin mining outweigh the costs of producing the digital currency.

Bitcoin extraction and energy consumption

The new Bitcoins are produced through a process called mining, in which computers use computational energy and resources to solve a difficult mathematical problem that verifies a recent block of Bitcoin transactions. The miner who solves the math problem adds block to the blockchain and receives newly formed Bitcoin. The difficulty of the mathematical problem depends on how much computational power the network has in sum. Since the Bitcoin network attracts more miners, the difficulty of extraction increases and, usually, the amount of energy that a drilling rig consumes increases.

The Bitcoin network currently consumes around 2.55 gigawatts (GW) of electricity annually; to put it in perspective, the entire Irish country has an average electricity consumption of 3.1 GW and Austria has an average electricity consumption of 8.2 GW per year. In the last year, the estimated amount of TwH that the Bitcoin network consumes each year has increased by 413.37%. Compared to countries such as the Czech Republic, the Bitcoin network uses 102.3 percent of the entire electricity consumed by the country each year.

Data consultant and blockchain specialist Alex De Vries believes that the amount of energy that Bitcoin mining consumes is problematic. In a recent research study published on Joule, De Vries found that the average amount of electricity consumed per Bitcoin transaction is 300 kwH, and at the speed with which new miners join the network – and the difficulty of extraction increases – this number has the potential to reach 900 KwH by the end of 2018.

De Vries told Cointelegraph that even if the company can not see the changes made to the environment through the extraction of Bitcoin, the extraction operations are not helping the world to get closer to their climatic and environmental goals:

"We know that the extraction is done with coal electricity, but also with renewable energy.In this last case, we do not know what we are replacing, moreover the renewable energy has never zero CO2 emissions over the lifetime.There is more work to do here, but there is certainly an impact.More energy uses Bitcoin, the greater will be the impact on the environment, which in turn it will have an impact on everyone, it is not helping us achieve our climate goals ".

It's a gray area when it comes to understanding how Bitcoin mining is having an impact on the environment. Although part of the electricity used comes from coal, mining operations usually do not release carbon emissions. Just because miners do not see the physical impact that mining has on the environment, the amount of resources consumed and the opportunity cost required should be inherently troubling.

Hash rate and energy consumption

The amount of mining energy consumption appears to be increasing. With the increase in mining equipment in solving the blockages, the electricity consumed by each mining rig increases. To keep up with their competitors, miners are always looking for mining equipment with a higher hasrate. The hashrate is the speed at which the miner is able to provide answers to the math problem. The higher the hash rate, the faster the answer to the problem can be guessed.

In the beginning, the problem was easy enough to be solved by a standard CPU, but as more miners joined the network and the problem got harder, the miners found that the GPUs were better suited to solving the problem. . Only a few years later, FPGAs and then ASICs – application-specific integrated circuits – were better suited than GPUs to solve a block.

Others, such as the entrepreneur and former Google information security engineer, Marc Bevand, believe that the amount of energy consumed by the mining industry will cause further innovations in the form of renewable energy. Bevand believes that energy consumption will eventually lead to a reduction in the costs of renewable energy for society in general:

"Because miners are so sensitive to electricity prices, they are often drivers who drive companies to further develop renewable energy, which is now the most economical source of energy, for example in China many miners are in the Sichuan Province because of its abundant hydro-electricity Another example is an Australian entrepreneur who is building a 20-megawatt (MW) solar-powered mining farm If the energy use of cryptocurrant miners continues to rise, will help reduce renewable energy costs for society in general (increased demand → increased R & D → increased capacity and greater efficiency → lower costs through economies of scale). "

Electricity costs have already put miners in search of a cheaper source of energy. Companies have searched for places like Canada and the Sichuan province, where electricity is generally cheaper. Since miners have incentives for the use of cheap electricity, this leads to more R & D in the energy space. In the long run, this should make the forms of electricity cheaper for the whole of society, since innovations are made to energy.

The price of network security

Although the amount of energy extraction operations consumed does not go unnoticed, some individuals believe that the benefits of mining – network security – outweigh the negative externalities such as electricity consumption.

The Bitcoin network is protected by a consent algorithm called proof-of-work (PoW). The miners are paid newly issued Bitcoins and transaction fees to resolve a block, protecting the network in the process. If a miner is unable to solve the cryptographic test, the transaction history blocks would not be added to the blockchain and the blockchain technology as a whole would be canceled; no record of the transaction history would have been created if the blocks had not been resolved and added to the chain by the miners. The cost that must be paid for this network security is the large amount of energy consumed by a PoW consensus.

Cypherpunk Jameson Lopp took on Twitter to express how he feels about the Bitcoin energy expenditure problem. Lopp believes that the electricity expenditure accumulated by Bitcoin is simply a tax that must be paid for network security.

The complaint about energy expenditure to protect Bitcoin from computational attacks will have no effect. The Bitcoin ecosystem pays contractors (miners) for security; if you want them to stop, you'll have to make a better offer on the open market.

– Jameson Lopp (@lopp) May 18, 2018

Economic researcher Vasily Sumanov also believes that energy inefficiency and waste are currently the price we pay for blockchain experiments:

"Increased energy consumption is associated not only with environmental pollution but also with the greater security of a distributed ledger dedicated to storage and transfer of value.I have the distinct feeling that this is a temporary situation and that in the future the energy efficiency of Bitcoins based on the volume of transactions and energy consumption will increase as a result of the adoption of the Lightning Network ".

"Just look at any other industry, for example, cars or electronic devices: their environmental pollution and energy costs have decreased considerably over time as these industries developed, so why do people expect high energy efficiency from Bitcoin? at the start? He is only 9 years old. "

Consensus algorithm

PoW is currently the most popular form of consent on a blockchain network. Before verifying the transactions, the miners must solve the cryptographic evidence. However, it is also the most energetic form of consent. Energy-efficient alternatives like Proof-of-Stake and Lightning Network are being developed to make blockchain networks more efficient.

But for the most part, these innovations have not been officially launched. Bitcoin is still in its early stages and is not yet 10 years old and, throughout history, it is not uncommon for the technologies to be sub-optimal in the early stages.

Improve efficiency

At the same time, there are people working for solutions for these network problems. The Ethereum network is examining stake test solutions to increase its efficiency while reducing electricity consumption; the Bitcoin network is trying to implement the Lightning network. But until these solutions are out of the test phase of their system and go live, PoW will continue to be criticized for its electricity consumption.

Once the electricity consumption of the Bitcoin network is optimized, the overall efficiency of the Bitcoin network will increase. In an academic article entitled Banking on Blockchain: Cost Savings thanks to Blockchain technology, Luisanna Cocco, Andrea Pinna and Michele Marchesi of the departments of electrical engineering and computer science at the University of Cagliari, have discovered that Bitcoin must increase its economic efficiency , operational efficiency, and service efficiency before it really optimizes global financial infrastructures.

"Simply put, all our results show that the overall efficiency of the Bitcoin system can only increase after overcoming its main limitations: the low number of transactions per block and the too high computing power it currently needs "

Bitcoin is useful for its transparent ledger, secure data storage and user enhancement features, but will have difficulty with mass adoption until it is able to resolve scalability issues and energy consumption. The total amount of Bitcoins that can ever exist is 21 million, and because the mining platforms consume more energy, the miners run into higher electricity bills and the reward for the extraction of Bitcoin decreases. In the end, the profit from Bitcoin mining alone will not be enough to cover the cost of electricity. In the future, miners will have to supplement their cost of electricity with money from the transaction fees received for signing a block.

Is it worth the energy expenditure?

Although some people believe that the amount of energy they consume is problematic, it is difficult to measure how much of the company is benefiting from Bitcoin. Bevand told Cointelegraph:

"Answer" is the value of Bitcoin's energy consumption worth it? "It's very subjective, because we do not have any concrete data measuring how much Bitcoin is helping society, how many Venezuelans are using it to escape inflation, how many families are using it for international remittances and thus avoiding the average rate of 7.13 % of remittance providers? How many Bitcoin millionaires have returned their new wealth to charity? We do not have much data for any of these questions.I do not think the current level of energy consumption is worrying. 2-0.5% of global electricity consumption – as Morgan Stanley researchers said in their reports, cryptocurrency miners are currently only a "blip on the radar" for utilities "

So far, there is no way for the world to quantitatively measure or know how many people are using Bitcoin, what they are using it for, and whether it is improving their lives. But individuals like Bevand and companies like Morgan Stanley say there's no reason to worry, because Bitcoin mining consumes so much of the world's total electricity consumption.

Innovation is imperative

Although we may not be able to see the balance that Bitcoin mining is taking to the naked eye, there is no doubt that the Bitcoin network will have to reduce its energy consumption before Bitcoin blockchain undergoes an uptake. mass. It would not be surprising to see a regulator create policies and regulations for miners in an attempt to control / reduce electricity consumption.

Because Bitcoin miners are so sensitive to the price of electricity, this should push R & D into the energy space and produce more efficient energy solutions. It's hard to understand the positive and negative externalities of Bitcoins, so it's hard to say if the amount of energy consumed is really "worth it". But if the amount of electricity consumed by the mines is not kept under control or made more efficient, then it is possible that the impact on the environment is irreversible once people become aware of the negative effects that the mines have. Bitcoin extraction has had on it.