The Problems with Bitcoin and Cryptocurrency Mining
The price of Bitcoin soared over the last year, which created a buzz for cryptocurrencies and sparked interest in massive Bitcoin mining operations everywhere. With all these new mining facilities popping up, cryptocurrency mining’s energy usage has also reached new heights.
An energy research company based in the UK found that in the year 2017, the amount of electricity used to mine Bitcoin surpassed the annual energy usage of some 159 countries. Moreover, the energy spent globally on Bitcoin mining exceeded the electricity consumption of Ireland and most African nations.
Issues that Bitcoin Miners are Facing
- There are serious problems as far as proof-of-work mining is concerned.
- Networks like Bitcoin, Litecoin, and Dash are becoming even more centralized.
- The power to control these networks have been placed in the hands of a few industrial scale mining operations that burn through electricity.
- To compete, individual miners have to rely on mining pools.
- Those mining pools contribute to network centralization.
- Mining is now becoming more of a problem than a solution.
The Reasons for Mining Problems
Such mining issues are occurring because Bitcoin mining is accomplished with the help of energy-hungry mining computers which run 24 hours a day. These computers include the Batman S9, which consumes up to 1400 watts of electricity.
Massive factory-style operations dominate today’s mining, and Iceland is a popular location for such activity. A warning has been issued by the Icelandic government stating that the country is running out of resources required to feed the endless demand for more energy from mining operations.
The Icelandic government stated that they would be unable to keep up with demand if every investor who is interested in mining operations were allowed to enter the country.
Electricity Costs Remain a Key Concern for Miners
In the previous year, creating cryptocurrency became more profitable as prices reached new highs. A rapid global expansion of mining activity led to the introduction of hundreds of new tokens. Bitcoin alone had a total value of more than $325 billion in December, which exceeded the market capitalization of Wal-Mart. Its price rose to nearly $20,000, from less than $800 a year earlier.
According to Bloomberg New Energy Finance, in order to retain and sustain Bitcoin, mining devices require an amount of energy that’s equivalent to 30 nuclear power reactors running at full capacity. Moreover, the industry is already using more power than all the world’s electric vehicles combined.
More efficient technologies might evolve around cryptocurrencies requiring less energy. But electricity costs remain a key concern for miners because Bitcoin fell to below $8,000 this month.
Even in places where electricity prices are low, older operations are under pressure from investors and regulators due to compounding risks from volatile prices.
“Miners are looking for where they can have higher margins,” said ETF Securities’ executive director and head of research and investment strategy, James Butterfill.
Why Energy Sources are getting more Attention
This is happening because of the increasingly difficult computations which are needed to create new blocks. Even more powerful computers are required by the encrypted digital ledgers that underpin cryptocurrencies.
To keep from overheating, many of the big server farms require air conditioning. Bloomberg New Energy Finance estimates that in the past year, the industry’s electricity use jumped almost eightfold. It’s believed that total annual spending on power can eat up 30 to 60 percent of miners’ total revenues.
“The price of electricity mostly drives where mining is taking place,” said the founder of Cryptoeconomics Lab, Christian Catalini. “If the price of electricity increases in one location, mining will likely just move somewhere else.”
In addition to Bitcoin’s environmental sustainability, there’s also some doubt as to the financial viability of Bitcoin and cryptocurrency because of the exploding prices observed in recent months.
An article in Newsweek stated that by the year 2020, Bitcoin computer operations might consume the entire world’s energy. Another website, Digiconomist, claimed that the energy consumption of Denmark was equal to that of all Bitcoin operations. That’s equivalent to 3,071,823 US households’ energy consumption.
Some experts opine that it’s difficult to measure the amount of electricity that Bitcoin consumes, as it’s spread all over the world. Other experts stated to the Washington Post that the energy consumption of Bitcoin was equal to the output of one to three nuclear reactors, because Bitcoin likely uses 1 to 4 gigawatts of electricity. That amount is equivalent to less than 1 percent of America’s electricity consumption, or no more than 0.14% of global electricity generation.
The Bitcoin network operates in a different way, and it becomes difficult to determine how much energy is consumed by mining operations. This digital currency is not controlled by any commercial clearinghouse or central bank. It’s controlled by a network of users who expend enormous amounts of computing power to build a blockchain comprised of Bitcoin transactions.
Mike Reed, who is the director of Intel’s Blockchain Program Office, believes that Bitcoin will continue to use more energy if its price continues to rise.
All cryptocurrencies using proof-of-work mining algorithms are facing growing problems, including rising energy costs, increasing electricity usage, and centralization of mining. All these cryptocurrencies need to unite so that they can solve the current issues related to proof-of-work consensus. There’s a solution to every problem, and as time goes on, the problem involving energy and cryptocurrency mining is going to become more and more apparent. If nothing is done about this, government regulation of mining could be the next step.
Source: Bitcoin Isle