Bitcoin mining is a process that allows you to receive this cryptocurrency through mathematical calculations. In the beginning, a desktop computer could do these computations. But time has changed and machines with enormous computing power and high energy consumption are now necessary to mine crypto coins. Bitcoin mining’s workload is dictated by the market: if prices for the product fall, mining profitability decreases as well.
The shrinking of the crypto market has a huge effect on miners. Cryptocurrencies cost less than fiat money and are more expensive to mine because energy is becoming increasingly expensive. As a result, less efficient miners turn off their machines or settle in areas where electricity is more costly. The latest findings from data published by the International Renewable Energy Agency (IRENA) say that cumulative hash power for Bitcoin mining will reach 47 exa-hashes per second (EH/s). Machines that consume an estimated 70 terawatt hours of electricity point toward all indicators measuring the industry’s energy consumption levels.
This reduction in consumption is equivalent to stopping the daily emission of thousands of tons of CO2 into the atmosphere. According to Digiconomist, which analyzes the energy used by Bitcoin and Ethereum networks, their combined decline means that we are shutting down a country like Austria. “The reduction in global carbon emissions could amount to 110,000 metric tons of CO2 per day, almost the same as the global reduction in CO2 emissions from electric vehicles,” they stress.
The network power required to mine the Bitcoin/Ethereum blockchain is now equal to that of a country like Austria.
Ethereum is a highly noteworthy cryptocurrency, and its network is the one on which developments such as non-fungible tokens are based. Miners also receive coins as a reward for having their machines connected to the network to perform operations. Bitcoin is still just as prevalent in the crypto world, though.
Bitcoin is currently only at $18,000 which would make the trend-setting cryptocurrency wiped clean of its value when it soared from $15,000 to $60,000. What started as a simple publicity stunt in the fall of 2020 turned into a self-fulfilling prophecy; this key moment multiplied the popularity of bitcoin and made millions of people jump on the bandwagon.
As a result of the fall of bitcoin, combined with high energy prices, miners of all cryptocurrencies face a tough economic situation and their profits have plummeted. This means that some are shutting down entire crypto farms, as the industrial buildings where their computers are known to start to show lower utility bills. A study from the University of Cambridge estimates that over 30 TWh has been cut from the power grid in recent weeks – about enough electricity to shut down Denmark for a month.
Data from Blockchain.com shows that miner activity is slowing for the first time in years, with the hash rate dropping 5% in just a few days. Currencies such as bitcoin are notorious for their high levels of volatility, but recent changes in hash power suggest unusual market behavior.
There is also the Digiconomist, which calculates the power consumption of the entire network supporting this digital currency. The University of Cambridge estimates that Bitcoin’s power consumption has fallen by 60 TWh over the past month.
Digiconomist shows the carbon footprint of Bitcoin and Ethereum networks. Some sources say that this type of analysis can be controversial because it has many complex aspects. This article from elDiario.es explains the carbon footprint of virtual assets like non-fungible tokens (NFTs). The CO2 emitted by Bitcoin exceeds 80 million tons per year and mining one bitcoin yields 240 tons of CO2 as well. Extracting the gold equivalent of a bitcoin value produces 9 tons of CO2.
One transaction with this network provides 30 million tons of carbon per year. That’s the equivalent of 173,762 credit card payments or 13,067 hours of YouTube viewing.
The Canary is Already Dead
Major cryptocurrency exchange platforms have warned that the situation is getting worse, warning of tough times ahead. One company, Gemini, and its creators, the Winklevoss twins (who are founders), have warned about a “crypto winter” coming.
One reason for the price of cryptocurrencies over the past two years may be that “cheap money” is coming to an end. Cryptocurrency prices have already started dropping after the Federal Reserve hinted at increasing interest rates and withdrawing liquidity from markets. It also suggests that the market may have been a bit addicted to “cheap money” and inflated prices.
Simon Peters, a seasoned cryptographer from eToro, comments: “We are seeing a significant drop in the price of crypto-assets after Federal Reserve started talking about raising interest rates and withdrawing liquidity from markets. This also means that the market may have been fixated on cheap money and pricing has been inflated.”
“Adding to these macroeconomic conditions, there’s the news that some cryptocurrency companies are in serious financial trouble,” he continues. “This has caused panic among crypto asset investors.”
Mining has been a controversial activity because of the high energy costs that have often been the primary concern of various countries, with China being one of those. However, they’ve recently had to reinstate mining after there was a sharp decline in cryptocurrency prices.
Large mining companies recognize the evidence that energy prices—high costs, in combination with lower returns per bitcoin generated—are forcing miners to close. “There are many miners in the industry that are exposed to fluctuating energy prices. So they are feeling pressure from two different directions: high costs along with lower returns per bitcoin generated,” Charlie Schumacher, a spokesman for Marathon Digital, one of the largest bitcoin miners in the world says.
“Companies that have been carefully planning the crisis for some time are likely to survive this period, but many acted impulsively in the midst of the market and could face difficulties and lack of funding in the coming months,” says Hut 8 CEO Sean Clark.