Bitcoin Mining’s Staggering Energy Consumption and the Search for Cheap Electricity

In recent years it has been well documented that Bitcoin mining requires a large amount of energy. While Bitcoin mining’s ever increasing energy consumption has been a topic of discussion for some time now, recent reports have highlighted that Bitcoin mining’s energy usage is continuing to grow at a staggering rate.

For some perspective, in May 2018, it was estimated that Bitcoin mining was consuming about 2.6 gigawatts of electricity per day, it has now risen to over 5 GW of electricity per day and could potentially rise to 7.7 GW of electricity per day by the end of the year. In fact, Bitcoin mining now accounts for about 1 % of the world’s total electricity consumption and now takes as much energy as mining for gold.

Bitcoin mining’s immense and growing total energy consumption have caused Bitcoin miners to search throughout the world for a cheap source of electricity in places such as the State of Washington, China, and Iceland. This search and utilization of cheap electricity by miners present difficult and unique challenges for local residents and utilities in Bitcoin mining localities.

Understanding the issues surrounding Bitcoin mining and energy consumption requires a working understanding of Bitcoin, how its mined, and what makes mining such an energy intensive process. Bitcoin is an open source software that is a decentralized cryptocurrency, which allows users, via a peer to peer network, to transfer Bitcoins. Transfers are tracked on what is essentially a giant ledger called the blockchain. Since there is no central authority to verify transactions, volunteers referred to as miners, set about verifying the transactions. Each time miners verify a block of transactions it is added to the ledger and the miners are rewarded with a few Bitcoins. The verification process requires an energy intensive computing program that solves an immense and complex mathematical problem.

Nowhere has miners hunt for cheap electricity highlighted the challenges faced by local residents and utilities than in the Mid-Columbia Basin (“Basin”) in Washington. The region attracted the attention of miners due to its vast excess of hydro-electric power, electricity rates one fifth of the national average, and cool and dry winters that lessen the equipment cooling demands. These factors made it one of the ideal locations to perform the energy intensive calculations necessary to verify Bitcoin transactions. When miners first moved in to the area, residents and local utilities were unperturbed by the new business since the miners were only collectively using a few hundred kilowatts or a couple of megawatts at most. However, as large-scale commercial miners came to town this rapidly changed. The Basin’s utilities have now received applications for future power contracts that, if all of them are approved, will take up 2000 MW or two thirds of the Basin’s total power output, which has forced the Basin to confront the costs and benefits faced by other mining communities throughout the world.

Locals in Bitcoin mining communities recognize and value that the new business is bringing both investment and a new high-tech industry to their area. However, they are not without concern.  First, many locals and industry commentators are worried that this is similar to the dot-com bust. Mining Bitcoin only makes sense if the costs of mining it are less than the reward one receives for verifying a block. In order to keep the supply of Bitcoin under control, over time the Bitcoin operating system not only makes the calculation to verify a block of transactions harder, but it also decreases the number of Bitcoins rewarded for successfully verifying a block. Therefore, there is a possibility that in the near future it will not make economic sense to mine Bitcoin for most miners. This leaves utilities and localities in a situation where they have invested a lot in providing a large amount of power to a location, that may not need it in a few years. Second, in many of the areas that have become mining hubs, such as the Basin, excess power was one of the areas greatest resources. Local residents and utilities are hesitant about losing this resource. Third, utilizing such a large amount of power requires that miners take safety precautions to prevent electrical overloads and fires. There is at least some evidence, such as a fire in a converted laundromat in the Basin, that these precautions are not being properly implemented. The future of Bitcoin mining is uncertain, but there is no doubt that it is here to stay in at least one form or another. Utilities are required by law to consider any legitimate request for power and miners should have the right to consume power for which they are paying the going rate. Furthermore, Bitcoin mining can also bring new investment to a locality.  However, the concerns from local residents and utilities of mining hubs as well as the challenges facing the future of Bitcoin mining should not be dismissed lightly. Both sides must work together to develop an equitable solution to the challenges of Bitcoin mining.

Killian Steer, November 12, 2018