Back in November, we posed the following question with regard to whether, given how critical Bitcoin most assuredly is to the future of humanity, it might make sense to simply leave entire countries in the dark in service of mining more make-believe internet money:
It might make sense to just cut off Ireland, Oman, Bahrain, and the host of other “superfluous” countries highlighted in orange below:
The countries highlighted in orange use less electricity than Bitcoin’s mining network.
One “important” thing to note about that map is that if you compare it to a rough approximation of how we now know Donald Trump views the world, it’s readily apparent that Bitcoin miners are now using more electricity than a lot of global “shitholes“:
Basically, Trump has confirmed what we said a couple of months ago. These are “shithole” countries anyway and obviously, Bitcoin is something the world needs, so why not just tell all the countries in orange in the first map above that they can’t have any electricity, because we need it to mine Bitcoin? Makes sense, right? Of course it does…
All jokes aside, Bitcoin’s power consumption is becoming a big deal.
“Bitcoin’s mining network uses more electricity in a year than the whole of Ireland,” The Guardian exclaimed last year before continuing, incredulous:
… the estimated power use of the bitcoin network, which is responsible for verifying transactions made with the cryptocurrency, is 30.14TWh a year, which exceeds that of 19 other European countries. At a continual power drain of 3.4GW, it means the network consumes five times more electricity than is produced by the largest wind farm in Europe, the London Array in the outer Thames Estuary, at 630MW.
Digieconomist has more details on this. To wit:
The continuous block mining cycle incentivizes people all over the world to mine Bitcoin. As mining can provide a solid stream of revenue, people are very willing to run power-hungry machines to get a piece of it. Over the years this has caused the total energy consumption of the Bitcoin network to grow to epic proportions, as the price of the currency reached new highs. The entire Bitcoin network now consumes more energy than a number of countries. If Bitcoin was a country, it would rank as shown below.
Apart from the previous comparison, it also possible to compare Bitcoin’s energy consumption to some of the world’s biggest energy consuming nations. The result is shown hereafter.
Well this recently grabbed Morgan Stanley’s attention and they were out with a piece earlier this week that predicts the energy required for cryptocurrency mining will overtake Electric Vehicle demand in 2018.
“Electricity consumption from bitcoin in 2018 (c.120-140TWh) could be as great as we forecast for global EVs in 2025 (c.125TWh),” the bank writes, adding that “whilst EVs were a hot topic in 2017, we see Bitcoin and other cryptocurrencies taking the headlines in 2018 – particularly if the surge in energy consumption from this continues in to 2019 and beyond.”
This energy usage is only likely to increase in the near term. As our US payments team wrote last week, they could envisage electricity usage for bitcoin annualising c.120-140TWh,a big step up from current levels (0.6% of total world electricity consumption,according to the IEA). This 120-140TWh would equate to the electricity consumption of Argentina (or 20-25% of Germany).Further appreciation of Bitcoin and other cryptocurrency prices could accelerate demand for mining hardware, until miners compete away excess profits from each other by growing global processing power and diluting each miner’s individual revenue (the reverse should hold true, with lower Bitcoin pricing leading to a fall in mining capacity and electricity consumption). Needless to say there are plenty of uncertainties which means energy consumption could inflect in either direction.
How much does it actually cost to mine a Bitcoin? Well, Morgan has done the math on that (or at least their version of the math) for both the U.S. and China. Here’s the table:
So if you wanted to get into this business in the U.S. or in China, where are the ideal locales? Morgan has you covered on that too:
Of course if everyone is being honest, none of that really matters right now because the main input into someone’s decision calculus when it comes to mining Bitcoin is not the cost of electricity. It’s that person’s prediction with regard to whether the price of Bitcoin can continue to rise exponentially. If I’m growing weed, the cost of running my HPS and HID lights doesn’t really matter if ounce prices just went from say $350 to $20,000.
Morgan readily acknowledges this reality although without the grow reference. To wit:
Note that given the Bitcoin price as an input, mining capacity should theoretically rise in a falling $/kWh environment such that each miner’s costs fall, but so does its revenue as more miners come online to take advantage of the lower input costs (electricity) and each miner’s share of mined coins falls. Near term we expect cryptocurrency prices to drive energy consumption. However we do not see cryptocurrency values being driven by electricity costs in the near term. 2017 shows that cryptocurrency pricing appears not to be fully based on fundamentals. We see it more likely that if crypto prices fall in 2018, it becomes less profitable to mine, and energy usage could fall.
Take away from the above what you will, but the headline grabbers from Morgan’s note are:
- Bitcoin power demand in 2018 equates to 0.6% of world consumption, or the consumption of Argentina
- Bitcoin power demand in 2018 will be bigger than the projected global EV demand in 2025 (c.125TWh)