Mining for Bitcoins
Bit-mining is amazingly energy intensive.
Bitcoins are one of the most exciting use of blockchain technology. If you’re not an avid investor in the fin-tech space, then all you need to know is that bitcoins are a cryptocurrency which don’t require a bank, a government or any regulatory body in order to make financial transactions. This might not sit so well with all those institutions, but that’s another story.
Basically, when you make a transaction with bitcoins, instead of being confirmed through the ledgers of a bank, the process is confirmed by a bunch of other 3rd parties, which are single computers looking for a matching entry. Thousands of computers can work on each transaction, until one finds a combination of transactions together with a changeable label that solves the puzzle to validate the transactions and is rewarded with some (guess what?) bitcoins. And all of this happens every time a single transaction occurs.
As cool as that might sound, as groundbreaking a global currency might be - it still takes a lot of very old school electricity.
All those computers running in the background all over the world, trying to match transactions to gain their bitcoin rewards, need a lot of power. And if you’ve ever been into the server room of your company, you might get an idea of what kinds of temperatures rows of computers can produce. So, not only do the computers themselves need power, but the gigantic housing for large data-mining facilities also need cooling - and lots of it.
Where in the worlds is...?
Some rather unexpected locations might come up for the homes of bitcoin data miners. Iceland is one of them. As reported by Spiegel Online, Iceland’s natural temperatures help with the cooling issues for so many running systems, and their amazing surplus of geothermal energy helps them to provide power for their miners at virtually no cost.
Other areas aren’t so obvious. Take the towns of Plattsburgh, NY, which saw an old paper mill converted into a bitcoin mine, or Magog, Québec. Both towns are beneficiaries of Canadian hydropower from the St Lawrence River.
The town of Plattsburgh has an old agreement with the hydro electric companies that allows them to sell power for prices much lower than the national average. This has been historically good for residents - but they now see a threat to these low prices, due to bitcoin miners coming in and using the cheap power for their servers. Additional power has to be purchased on the spot market, which can be expensive, depending on when that power is needed.
These towns have both decided against allowing additional bitcoin miners into their communities.
Is this good news for energy providers?
No one has a perfect number on how much energy is being used for bitcoin mining. But some sources say that it’s as much as the electricity usage of Ireland in any given year. Certainly, as bitcoin transactions increase, so will the amount of power used by the computers conducting ledger activities.
Until now not the numbers of transactions on the bitcoin chain is important but the computational power of the computers in the network. Bit coin has currently a fixed block size of 1 MB – directly correlated to number of transactions that can be bundled into the block – and predictable number of approximately 35.040 blocks per year (4 blocks per hour * 24 hours a day * 365 days a year = 35.040 blocks per year). However, the complexity of the puzzle needed to solve to mine block changes regularly in complexity in order to ensure the average block time of 15 min – the time between two consecutive blocks.
So, in a word, yes, these miners are creating a new market of electricity users. But so far, we can see that the best & cheapest locations are using excess energy - which is mainly abundant in areas with a surplus in natural, renewable resources.
What’s the downside?
If you haven’t been watching as many conspiracy theory documentaries on Netflix as I have, or if you haven’t been keeping a close eye on the developments in cryptocurrencies, then you might not know this: Despite Bitcoin’s seeming success, it’s also under a whole lot of scrutiny right now. As previously mentioned, the banks and even big governments have a lot at stake in the financial markets, and both of these types of institutions are looking at ways to both regulate & profit from cryptocurrencies. Part of this involves consumer protection, and the other part is a hope to integrate the technology into existing systems to keep up with innovation.
That innovation is still in its infancy. No one knows where Bitcoin, or some of the other available currencies will be in just a few years, but only time will allow the systems to mature and to fit their ways into the global economy.
And when it comes to mining, perhaps all the low cost providers will soon be tapped out, leveling out the playing field for new competitors in the market. Or perhaps, like the towns mentioned above, regulations will come from a different angle to thwart further development.
The trend towards crypto use cases is not going away. But who thought that something as old school as mining could make such a big comeback?