Estimates of how much electricity goes into making cryptocurrencies vary widely -- from the output of one large nuclear reactor to the consumption of the entire population of Denmark. But analysts agree that the industry’s power use is expanding rapidly -- especially after a price rally that made bitcoin almost four times more valuable than just three months ago.
Total electricity use in bitcoin mining has increased by 30 percent in the past month, according to Alex de Vries, a 28-year-old blockchain analyst for accounting firm PwC.
“The energy-consumption is insane,” said de Vries, who started the Digiconomist blog to show the potential pitfalls in cryptocurrency. “If we start using this on a global scale, it will kill the planet.”
Some analysts dismiss such claims as overly alarmist, noting that even the high-end estimates of demand account for only about 0.1 percent of what the world uses. Advances in technology also may make operations more energy efficient.
Still, it’s getting more expensive to produce cryptocurrency as the energy use of the process rises. Miners -- especially the big ones -- will look for the cheapest power to better weather price volatility, according to the Cambridge study. Electricity costs in China, which has surplus capacity of coal-fired generators and vast reserves of the fuel, is well below what consumers pay in the U.S. or Europe.
Harder Puzzles
Bitcoin’s algorithm dictates that after a certain number of tokens are created, more work is required for the next batch, said James Butterfill, the head of research and investment strategy at ETF Securities Ltd. in London who has been studying cryptocurrency markets.
Using estimates of electricity prices and the rising speed with which calculations must occur, Butterfill estimates the marginal costs of each bitcoin will more than double from $6,611 in the fourth quarter to $14,175 in the second quarter of 2018. At the start of 2017, the cost was $2,856. With costs rising, there’s a greater risk for miners should prices tumble.
“You’d be hard-pressed to find anywhere where it isn’t profitable to mine,” said Butterfill, who set up computers at his home in England to mine tokens in his spare time and joined a network of 120,000 others to boost processing capacity and returns. “But if you’re investing in a bitcoin rig, you have to look at the long term, and with the volatility as high as it is, it’s probably still doesn’t make sense to mine bitcoin in Europe.”
Not all cryptocurrency mining is dirty. Computers in Iceland get power from geothermal plants. Even in China, some are clustered around hydroelectric facilities in Sichuan and Yunnan.