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It is no secret that the extraction of Bitcoin (BTC) is an expensive activity and in more than one way. Not only has it become less profitable by halving mining premiums in July 2016 to 12.5 BTC, but competition between miners and a growing hashrate has led to ever-higher energy consumption, with all the damage to the environment they derive from it.
Because of the high energy intensity of Bitcoin extraction, one question still remains: is there a seasonal variation in the energy consumption of cryptocurrency? Even though consumption is increasing overall, does something different happen during the summer months?
Well, the data was not collected on Bitcoin's electricity consumption for long enough to provide a truly authoritative answer to this question, but what data do we suggest is that the summer brings a slight, but noticeable, weakening increasing the energy consumption of BTC. This is more likely because, on a global level, energy prices increase during the summer months, putting a strain on the profitability of Bitcoin mining activities.
Constant growth
When it comes to the question of Bitcoin's energy consumption, the first thing that needs to be said, it must be said that direct consumption figures have not been made available by large mining companies. However, over the years many indirect estimates have been produced, based on parameters such as profits, network difficulties and hardware efficiency, and all of these show that consumption has increased steadily.
Already in June 2014, the first rigorous study on the energy consumption of BTC was published by Karl J. O & # 39; Dwyer and David Malone of the National University of Ireland Maynooth: estimates that the annual cost of the Bitcoin energy is between 0.1-10 GW (taking into account the uncertainty about which mining equipment was used), although the authors did not fully explain why – on 3GW, which was equivalent to the level of annual consumption of Ireland at the time.
Since then, the most cited data come from the Bitcoin Energy Consumption Index (BECI). from the analyst Alex de Vries, the BECI has been based on a higher figure than that of the model of O & # 39; Dwyer and Malone, and has continued to reveal increasing daily increases in the consumption of BTC since it began to collect data in February 2017. In December, it recorded an annual consumption of 32 TW / h in the year, equal to 3.65 GW. On the contrary, its last figure – for September 12 – indicates that the Bitcoin network is now consuming 73TW / h – or about 8.8GW – every year. However, in an independent document revised since May, de Vries made an annual consumption of 2.55 GW (22.4 TW / h).
As shown in the table below, de Vries's data show that there were few dives during this general increase. The strong increases continued also during the first half of 2018, when the price of BTC saw a considerable correction from its December high of $ 19,900. For example, when the price fell 46.4% in three months at the February 17 price of $ 10.707, BTC's energy consumption increased 42.6% over the same period – from 34.96 TWW / ha 49.85 TW / h. And when the value of BTC fell 9.87% between April and the end of June (to $ 6,366), its energy consumption increased by 20.9% (to 71.1 TW / h).
"We do not notice seasonal variations because the network has grown fast enough, so any – presumably small – s easonal variation is lost in large quantities hashrate of capacity – and thus energy consumption – added every month. For example, a year ago, the hashrate was a seven exahash / sec and today has grown to 45 exahash / sec. "
However, despite the general impression that there has been a continuous increase in consumption, some subtle variations are observable in the data that de Vries collected as part of the Bitcoin energy consumption index. [19659002] For example, if we calculate the growth in consumption in the summer months 2017 and compare it with the previous three months, we will see a slowdown in the general rate of increase from 10 February to 10 May (10 February 2017 is the first date for which data are available), consumption increased by 33.1%:
- 10 February – 9.6 TW / h
- 10 May – 12.8 TW / h
But between 1 June and August 31 (meteorological summer), consumption increased by only 21.9%:
- 1 June – 13.42 TW / h
- 31 August – 16.37 TW / h
What is interesting about this is that the price of Bitcoin has increased by 96% between June 1 and 31 August 2017:
- 1 June 2017 – $ 2,405
- 31 August 2017 – $ 4,714
In comparison, the price increase between the winter months of February. May 10 and 10 was & # 39; only & # 39; 79%:
- 10 February – $ 978
- April 21 – $ 1,759
Put simply, the price of BTC has grown faster during these three summers months of 2017, but its energy cost has grown more slowly.
Why? And what about the summer of 2018?
Well, in the three months between June 1 and August 31, the energy consumption of BTC has increased only by 5%:
- 1 June – 69.6TW / h
- 31 August – 73.1 TW / h
In the same period, the value of BTC decreased by 6.3%. The fact is that its value fell by a good 27% between March and May, during which energy consumption increased by 31.6%. And between December 1 and February 28, consumption increased by an impressive 69%, while the total value of the BTC grew only by 7.8% between these three months (even though they were large peaks at lower time intervals within this quarter).
As with the year before, the 2018 movements underline two things: a) that the growth in energy consumption slows appreciably in the summer months and that b) this slowdown can not be correlated with price movements in particular with regard to data for 2017. In 2017, energy consumption slowed while price increases accelerated, in 2018, even if the price had decreased on 31 August compared to its position on June 1, it was still 49 percent higher than it was on August 31, 2017. Such a Annual difference should, in theory, provide a greater incentive for miners to extract Bitcoin and increase their capacity mining, however we see which facilitated growth during the summer months.
Summer = higher electricity prices
The fact that the price of BTC does not take full account of its energy consumption raises an enigma. However, it is one that is solved by referring to the most important factor in the use of Bitcoin electricity, which is the price of electricity itself. Globally, electricity is generally more expensive in the summer, when there is more demand, both from people turning on their air conditioners and from companies – including mines – that require more energy for the cooling down.
For example, the US Energy Information Administration – a branch of the US Department of Energy – noted in a 2013 review that energy consumption in the United States peaks in the summer for residential, commercial and industrial customers, with a variation from 18 billion KW / ha to 67 billion KW / h (compared to non-peak periods). Similarly, in France and Germany, the demand for energy during the hot season in June 2017 increased consumption by 2GW and 4GW respectively. Meanwhile, China, home to some of the world's largest mining facilities, is facing the possibility of a lack of energy this summer, "as the nation's distribution networks struggle to cope with vertiginous temperatures and the fastest growing energy consumption in seven years ".
RMIT's Urban Research Center explained in a 2017 report on electricity prices in Australia:
"During the heat, the electricity sector aims to reduce the peak in electricity demand through "price signals" – higher electricity prices used sometimes when many households use air conditioning to refresh their homes. "
As a single example , the US Energy Information Administration notes in a January bulletin that electricity wholesale prices peaked at $ 55 / MWh in California in August 2017, when they were only $ 36 / MWh in January of that year – equal to an increase of 52.7 percent.
It is therefore clear that electricity demand and prices tend to increase ease in the summer, particularly at the global level – and in particular in China, where mining is more widespread. By extension, this would explain why the increase in Bitcoin's energy consumption also tends to level slightly during the summer, as miners are reacting to rising costs – and decreasing profitability – temporarily reducing their capacity, at least in areas affected by hot summers.
This discovery is supported by a few select individuals who actually devote themselves to monitoring Bitcoin's energy consumption. Speaking with Cointelegraph, Ian Wright, the founder of Power Compare, has confirmed that there is no significant or pronounced seasonality in Bitcoin's energy consumption. However, the poor seasonality is determined by the cost of electricity.
"If there is a seasonal effect, it would fall to the price of electricity, so, for example, prices could fall in some areas with many solar capacity installations when the sun is shining, or it can go up in other hot spots, as more and more people turn on AC and demand increases. "
Marc Bevand, who sees no significant change in energy consumption, nevertheless also recognizes that consumption levels are influenced by profits.
"Energy consumption is driven primarily by the increase in the price of Bitcoin, if miners make more profits, they will invest more capital in the mines."
Even if you do not explicitly mention electricity here, this assessment is still consistent with the idea that seasonal electricity prices can affect consumption levels, as these prices inevitably have an impact on profits.
This idea is also supported by a May document written by CoinShares Research, in which Christopher Bendiksen and Samuel Gibbons studied trends in the cost of Bitcoin extraction. In particular, their research has confirmed that mining companies are significantly affected by seasonality:
"We also note that the migration of miners and / or price increases occur during the dry season in China."
Although this document did not describe any mining network that reduces capacity, the fact that networks have a tendency to migrate whenever they can suggest that, when they can not migrate to an area with cheaper electricity, they may simply resize. As the authors conclude:
"Some miners may have felt compression during the bottom of the market, particularly if they were late in terms of modernity of their mining equipment and / or operate in areas with relatively higher electrical costs." [19659052] Renewables
While the above shows that the energy consumption of BTC is slightly seasonal – as the capacity increase decreases slightly during the summer – there are two caveats that are worth addressing . The first, which is the least serious, is that the figures produced by Alex de Vries are not unanimously accepted by all those who monitor the energy consumption of Bitcoin. For example, the entrepreneur Marc Bevand built his own model to calculate the cost of BTC's energy, noting that it was between 2.85 TWh and 6.78 TWh in the year. This is significantly lower than the first de Vries estimate of 9.6 TW / h (for February 2017), which then grew to 32 TWh for December, and then to 73 TW / h for this month of August. It is also lower than the estimate put forward by SetOcean co-founder Oscar LaFarga, who put the annual consumption around 18.25 TW / h.
Other commentators have put their estimates even higher than de Vries. However, even with this change, de Vries recently noted that he used the BECI methodology to write a peer-reviewed document – although he produced a lower estimate than BECI for overall production. He also notes that a report by Morgan Stanley criticized the approach of Bevan, which presumably underestimates the cost of mining networks for cooling, which alone can consume up to 30% or 40% of a network's revenue. As such, this analysis has remained faithful to de Vries's data. Moreover, even if they are in the highest range of possibilities, the consistency of the methodology used for the BECI means that this would have a minimal impact on the attempt to specifically follow the increases and decreases in the energy consumption of BTC over time.
The second most significant warning is that the modest seasonality of BTC could weaken further as the industry matures. Ian Wright says:
"[…] the price of bitcoin compared to electricity prices is increasingly the main driver of consumption and is also shifting high-cost areas to places with lower prices."
Marc Bevan describes a similar process:
"Miners also design their mines for execution 24/7/365, so seasonal weather patterns do not interrupt their mining operations."
Here, Wright and Bevan refer in part to the creation of new mining centers in colder countries such as Iceland, where the extraction of Bitcoin is under way this year to burn more energy than all the houses of the nation put together. Large mining companies, such as Bitmain, increasingly crowd the areas with cheaper renewable energy and colder climates, such as Canada.
In the process, the vague seasonality currently visible in the energy consumption graphs will be diluted, allowing consumption to rise consistently until the price of Bitcoin remains high and maintains its costly proof-of-work (PoW) algorithm. And by doing so, mining companies will also contribute to reducing the impact Bitcoin is having on the environment. That said, an energy expert at the University of Pittsburgh recently observed that such companies are already making significant use of green energy sources and that overall Bitcoin consumption is still negligible compared to that of the banking sector.
But as long as Bitcoin does not move completely to renewable sources, its energy consumption will continue to show some slight seasonality, by loosening the foot from the gas during the summer months, just as the rest of the world is doing the opposite. Although this subtle decline may seem like a bad thing from the point of view of the Bitcoin community, it does not seem to have negative consequences in practice – except perhaps an increase in the average confirmation time for transactions in the summer of 2017, something that has not It was a problem in 2018 due to the update of the SegWit update. In other words, Bitcoin's ability is growing very steadily, making it easier than ever to send a transaction to its network and get it accepted.
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