Hundreds of megawatts of power are used in the global production of Bitcoin today. Here we discuss how much electricity is required for the Bitcoin network.
Bitcoins are mined by getting lots of computers around the world to try and solve the same mathematical puzzle. Electricity can make up more than ninety percent of total ongoing mining costs. For this reason, Bitcoin mining operations are large, powerful data-centres usually concentrated in areas where the cost of electricity is cheapest.
Whilst more people have become involved in mining, and the Bitcoin price has increased, the time taken to produce a Bitcoin does not vary due to protocols in the Bitcoin mining structure. The additional computing power required for each Bitcoin to be produced, requires more power than before.
To calculate the electrical energy used to power the Bitcoin network you need to know how much electrical energy it takes to do each sum. These individual sums are called hashes, and there are millions of hashes (known as mega-hashes) or billions of hashes (giga-hashes) to consider.
Miners have to make several million attempts to ‘win’ a Bitcoin. Speed is essential to get the ‘win’ before a competitor. Since 2014, specialised computers can run in the tera-hash range (trillion inputs every second) forcing out individuals, and leaving mining to dedicated data-centres that may consume tens of megawatts of power.
In 2016, Reuters reported an estimate that the computer network dedicated to Bitcoin is 43,000 times more powerful than that of the world's top 500 supercomputers combined. This in turn means more and more electricity consumption. One mine in western Sichuan, China, was reportedly aiming for 12 peta-hashes (12 quadrillion hashes per second) using cheap hydro-power, with an estimated daily profit of USD30,000 net of costs.
Some estimates suggest that by 2020, Bitcoin mining could be using 14,000 megawatts (MW) of power. In this case, if no changes are made to the system, the viability of the currency itself might be challenged because the electricity costs could outstrip the value of the newly minted Bitcoin.
More recently, various estimates of Bitcoin’s electrical energy use have been published that show that the estimate of 14,000 MW is a worst-case estimate, based on relatively inefficient technologies. An anonymous senior executive at one of the mining firms suggested 600 MW of power is used for Bitcoin mining globally today. This estimate is based on the hash rate (number of calculations being performed) and today’s average energy efficiency in performing the hash calculations, a number that is constantly improving.
A more optimistic future estimate is 417 megawatts based on the belief that less efficient machines will be replaced by more energy efficient equipment. This optimistic analysis would suggest that to create one Bitcoin would still require 5,500 kilowatt-hours, which is double the annual electric consumption of an average Italian household.
BitFury, one of the larger and best-funded mining hardware companies, announced construction of a USD100 million, 100 MW data mining centre to add to its existing 20 MW data-centre in Georgia. Bit Fury also has two data-centres pursuing the creation of Bitcoins in Iceland’s cheap electricity market. DigitalBTC Bitmine, and Cloudhashing also have multi-megawatt Bitcoin mining operations in Iceland.
The growth potential for Bitcoin is enormous. The number of Bitcoin transactions is estimated to be approximately 90 million annual transactions, with the potential for significant expansion. Yet Bitcoin hashing is currently structured to make the creation of each additional unit of currency mathematically more difficult, thereby requiring more computing power and energy than the previous process.
Power can be reduced with the introduction of efficient new mining chips soon to enter the market that are three times faster than today’s chips. With tight industry margins there is intense focus on energy efficiency improvements. It has been estimated that the industry currently spends approximately USD250 million annually on electricity. With additional costs, including capital costs, the current annual price tag to run the Bitcoin network is between USD400 and 500 million, against a revenue of approximately USD525 million. Continued growth without gains in efficiency is therefore unlikely.
The problem with estimating Bitcoin’s energy consumption, is that it will change over time as we see the hash rate grow drastically. Also, since Bitcoin has impressive transactional efficiencies, it is likely that it and other crypto-currencies are here to stay. The Bitcoin network itself has inherent value as a secure payment mechanism without the need for future investment. The value of Bitcoin will depend on how useful Bitcoin or any other crypto-currency is considered to be to society, and the amount of power the Bitcoin network uses may be of secondary importance.