Bitcoin mining energy consumption

Digital currencies use a lot of energy each time a transaction takes place. This energy consumption has been credited with putting a strain on the power grid and triggering higher energy prices in Texas. But is crypto’s energy-hungry reputation deserved? We spoke with blockchain expert and podcast producer Matthew Diemer about the energy consumption of digital currency. Diemer manages The Decrypt Daily podcast, which discusses crypto news and information.

Bitcoin and digital currencies explained

Digital currencies are an alternative to the traditional monetary system involving fiat (i.e., government-issued) currency. The most well-known digital currency is Bitcoin, having been around for over a decade.

Besides Bitcoin, dozens of virtual currencies, or tokens, are available to purchase and trade. Other popular digital currencies include:

• Ethereum
• Dogecoin
• Litecoin
• Cardano

Each transaction must be certified with a process called Proof of Work (PoW) for a digital currency like Bitcoin. PoW uses algorithms to verify digital transactions and prevent fraud. These algorithms and the resulting mathematical processes are complex and use significant computing power. The computing power used for every transaction causes digital currencies to be energy burdens. People who use their computers to carry out these functions are called miners.

Proof of Work makes crypto function

Diemer explains that miners take each “transaction” in the data and put it into the decentralized database. Once it’s put in that decentralized database, that one person wins and gets the block reward because they are the first person to do that. Basically, that transaction is now locked within the blockchain. And we call it a blockchain because you can see the chain of transactions all the way back to the beginning, or the genesis, block of Bitcoin.”

Miners repeat these tasks as more crypto is bought and sold. Because this process involves repeatedly performing extremely complex algorithms, mining uses lots of energy.

Diemer says that Bitcoin mining “takes a lot of energy, around 170 Terawatts per block,” but he also says to be careful about how we frame energy use when it comes to blockchain management. 

“I don’t like the term energy usage because I think that’s disingenuous,” Diemer said. “We should be thinking about the word carbon emissions, or CO2 footprint…[we should] be concerned about the CO2 footprint of any kind of energy consumption.”

To his point, the laser focus on Bitcoin energy use leaves out several key factors. For example, Diemer explained that Bitcoin obtains “74% of electricity from renewable sources,” a statistic backed up by a 2019 CoinShares report. “Do we care about how much energy is consumed, if it’s renewable? No, because it’s renewable.”

On the other hand, that leaves 26% of Bitcoin’s electricity coming from non-renewable sources. 

Can Bitcoin miners decrease their energy use?

Diemer proposes that when it comes to energy management, crypto miners might be more concerned than most because it affects their bottom line. “Bitcoin mining is a business proposition. You want to get the cheapest energy to do this business because it takes a lot of energy to mine Bitcoin. Therefore, anything that is not the cheapest possible is a negative against your business.”

Miners try to lower energy costs by using energy that might otherwise be wasted. There is plenty of wasted energy to make use of. According to the U.S. Energy Information Administration, as much as 60% of the energy produced globally is lost. 

How miners use surplus energy

According to Diemer, “Bitcoin miners purposely set up next to renewable power sources and use their excess energy,” and they “actively search out the cheapest, most efficient ways to conduct this business.” Diemer gives the example of a recent podcast guest that “flew to Sichuan (China) and found one of the many dams that are there and nestled up next to it and started a partnership with them.”

Texas is an attractive hub for crypto miners because of its solar energy generation, which lags only behind California. Texas is also a leader in other types of renewable energy, such as wind power, which could be essential to low-cost and efficient mining operations. Here are the pros and cons of crypto mining in Texas.

If crypto miners are strategically optimizing energy, why is mining criticized for energy consumption? Diemer states, “I think that it’s an easy narrative, and I think that narrative always trumps research and due diligence. It’s easy to run with a narrative instead of actually digging down on the conversation and trying to understand what’s happening.”

Traditional monetary transactions involving fiat or government-issued currency also involve significant energy output. According to the Federal Reserve, over 174 billion debit and credit card transactions occurred globally in 2018, each using energy. However, each card transaction uses a considerably lower amount of energy per transaction than Bitcoin. According to Digiconomist, over 400,000 “VISA transactions…could be powered by the energy consumed for a single Bitcoin transaction on average.” 

But Diemer remains confident that crypto leaders can develop an energy solution. “The interesting thing about the free market is that sometimes they find solutions to problems…that aren’t thought of by the public or the government.”

The excess energy Bitcoin miners sell to the power grid may not translate into savings for Texas electricity customers. According to The New York Times and a simulation run by Wood Mackenzie, “10 Texas mines…use more than 1,800 megawatts of energy combined, forcing more expensive power generators to run,” and “[t]hat has increased power bills in the state by $1.8 billion a year.”

Ultimately, the benefits for Bitcoin operators are two-fold. They can avoid state-regulated fines by halting production during high energy demand while simultaneously profiting by selling energy to the grid. 

For example, during winter storm Uri, the Energy Reliability Council of Texas (ERCOT) paid “Bitcoin company, Bitdeer, an average of $175,000 an hour to keep the computers offline. Over the next four days, Bitdeer would make more than $18 million for not operating, from fees ultimately paid by Texans who had endured the storm.”