One of the biggest advantages of cryptocurrencies like Bitcoin that crypto advocates cite is the ease with which these new forms of “digital cash” can transfer value all around the world. Compared to an international bank wire, sending someone your Bitcoins is generally a faster method, although it’s worth noting that high transaction fees may make it less cost-effective.
However, the process used to “mine” new Bitcoins has a surprising cost attached to it: a shockingly high level of electricity consumption.
Putting aside the dynamics of how computers “mine” for cryptocurrencies, approximately 4 million Bitcoins (out of a predetermined maximum of 21 million) have yet to be released into “circulation.” This is by design, but it’s unlikely that anyone would have foreseen how quickly the market has grown. Now everyone is scrambling to get their hands on BTC by any means possible.
Unfortunately, the cost of doing so yourself through mining (rather than simply plunking down approximately $7,000 for one) is becoming prohibitively high due to the amount of electric power required.
We live in an era characterized by Moore’s Law, which predicts (quite correctly, thus far) that computing power rises rapidly over time, roughly doubling every 18 to 24 months. This is because of advances in the greater speed and number of processors that can be placed on each microchip.
Moore’s Law cannot account for the amount of electric power that must be consumed for those machines to run, however. A rough estimate of annual power consumption by the so-called “Bitcoin mining industry” is north of 22.5 terawatt-hours, which is enough to power tens of millions of suburban homes for an entire year. Just as incredibly, the “extraction” of each Bitcoin from the mining network now requires the equivalent of 20 barrels of oil!
The notion that the process of Bitcoin mining is actually this energy-intensive poses a threat to the long-term viability of cryptocurrency mining. It may prompt greater regulation or taxation on the practice in order to slow down or reduce the amount of electricity being consumed.
When you start to compare this energy expenditure to other real-life mining operations, the scale of the problem becomes clear. It’s unsustainable for so much electricity to be consumed for the purposes of mining cryptocurrencies.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.