Bitcoin Prices and Electricity Consumption

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    Contents

    Guide Author

    James Longley

    Managing Director

    min read
    Last Updated February 29, 2024

    Introduced in 2009, Bitcoin is a digital currency that operates on a decentralised network called a blockchain. It’s the most famous cryptocurrency and it’s used as an alternative to traditional fiat currencies like the British pound. It’s estimated that Bitcoin accounts for around 47% of all cryptocurrency ownership in the United Kingdom.

    The biggest downside of Bitcoin is the amount of electricity it takes to produce or “mine”. This is largely because of the proof of work (PoW) consensus mechanism which is used to validate and confirm transactions.

    During the process, miners compete with each other to solve complicated mathematical puzzles which require a high volume of computational effort. As a result, a lot of electricity is required.

    In this guide, we’ll cover how rising Bitcoin prices lead to increased energy consumption, how mining for Bitcoin can be more sustainable, and much more.

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    How Rising Bitcoin Prices Contribute to Energy Consumption

    Let’s take a look at how rising prices contribute to Bitcoin’s energy consumption.

    Rising prices fuel mining competition

    The reward system of Bitcoin mining creates a direct link between higher Bitcoin cryptocurrency prices and increased profitability for miners. As Bitcoin prices rise, the value of the transaction fees and block rewards also increase. Therefore, mining becomes more profitable.

    This leads to an increase in Bitcoin miners joining the network which creates more competition and, ultimately, the need for more computing power to mine new blocks.

    A mechanism called Bitcoin mining difficulty adjustment also increases the energy consumption of the Bitcoin network. It’s primarily designed to maintain a consistent rate of block production by making it harder to add blocks to the blockchain. This means more computational power is required which increases Bitcoin mining energy consumption.

    Environmental impact of Bitcoin

    The Bitcoin Energy Consumption Index estimates that the total global energy consumption of the Bitcoin network is 137.68 TWh. In the UK, it’s estimated that the energy used in Bitcoin mining could power around 24.8% of the households in the country.

    The Bitcoin carbon footprint of mining is further increased by the fact that miners primarily source the energy they use from fossil fuels.

    This has led to plenty of criticism of the potential long-term environmental impacts of Bitcoin. Particularly, its reliance on non-renewable energy sources has been criticised for hindering a transition towards more sustainable energy practices.

    Renewable power for sustainable mining

    Fortunately, many of those involved in mining for Bitcoin are starting to transition to using renewable energy sources. This has many benefits, including:

    • Reduced carbon footprint: Using renewables greatly reduces the impact of mining operations on the global climate.
    • Funding nuclear power: By purchasing excess electricity from the nuclear power industry, Bitcoin miners can strengthen the case for nuclear power generators.
    • Balancing loads on the grid: Miners can consume excess capacity from renewable generators which helps to balance loads on the grid. This contributes to a more sustainable energy system.
    • Empowering energy transition: The mining industry can invest its profits in renewable energy projects to empower other industries to transition to other energy sources.

    A Crypto For Innovation report discusses five case studies of companies involved in crypto mining that are transitioning or have transitioned to renewable power. These include:

    • CleanSpark: This company has been focused on mining Bitcoin since 2020, and it now uses 94% clean energy in its mining operations. It’s currently addressing grid stability, energy transfer and storage, and data center cooling typically associated with the Bitcoin network, and is aiming to achieve 100% clean energy usage.
    • Crusoe Energy: Founded in 2018, Crusoe Energy gets its energy for mining from 100% carbon-negative sources. It’s also working to reduce the number of harmful byproducts produced during its operations.
    • TeraWulf: This sustainable Bitcoin mining company uses a mix of hydroelectric power, solar, and nuclear energy to fuel its mining operations. It means that its energy mix is now 91% zero carbon.

    There are also now several industry collaborations and government initiatives that promote sustainable mining practices, such as:

    • The Future of Mining Association
    • Global Blockchain Mining Corp
    • The Energy Web Foundation

    Policy and regulation

    The regulatory approaches to reducing the energy consumed by Bitcoin mining include the promotion of renewable energy usage and the implementation of energy efficiency standards and carbon taxes.

    However, there are many debates around the regulation of mining for Bitcoin. While there’s a general consensus around the environmental impact of mining operations, there’s also a recognition of how complex it is to regulate the industry. These complexities mean it’s unlikely for there to be a perfect outcome for all involved.

    Due to this, it’s important to find a balanced approach that considers both environmental responsibility and innovation within the industry. Industry-led innovations and collaborative initiatives are usually the most effective way of tackling energy consumption, rather than policy and regulation.

    Conclusion

    Although the relationship between Bitcoin prices, the consumption of energy, and the environment is complex, there are plenty of reasons to be hopeful for a more sustainable future.

    Alternative consensus mechanisms like PoA and PoS are reducing the amount of computational power required for the mining process. Plus, companies like CleanSpark are leading the way in transitioning towards renewables.

    The search for sustainable solutions is ongoing and it looks highly likely that mining for Bitcoin will have less impact on the environment in years to come.

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