Bitcoin Mining Turns Electricity Into Money
“Bitcoin Mining Turns Electricity Into Money”: Once the bitcoin has emerged from the muddy bottom of the Internet in a global asset class, there have been many attempts to understand what this coin-based computing can mean for the world. No claim to bitcoin, or “the blockchain,” as the general category of technology is known, is too great for defenders (“the most disruptive technology in decades”) or detractors (the “greatest bubble of human history”).
But a profile of the city of East Wenatchee, Washington, by Paul Roberts in Politico Magazine, is an essential revelation about the physical reality of bitcoin mining. Whatever the bitcoin, it is – first and foremost – a way to convert electricity into cash.
Bitcoin mining is what we call programming computers to do arbitrarily complicated calculations in a puzzle competition that becomes more difficult as time goes by. The hardware and software required to do this are more or less commoditized. Mining has always been a name for aspiration, but if we accept the metaphor, the miners are mining electricity.
So to make money as a bitcoin miner, the only things that really matter are the scale and access to cheap electricity. This has sent bitcoin miners running all over the earth seeking low electricity prices. They tend to find it near large dams, which corral river water through massive turbines. In the privilege geological conditions, this can produce the least expensive power on earth. What’s more, East Wenatchee is one such place, on account of the Columbia River and the Rocky Mountains that give water its energy.
Before cryptography mining came from the region, local people had very low energy prices because local utility sold energy at higher prices to other regions. “The five major hydroelectric dams in the region, all in public utility districts, generate nearly six times more power than residents and businesses in the region can use,” Roberts writes. “Most of the surplus is exported at high prices to markets like Seattle or Los Angeles, which allows utilities to sell energy locally well below cost of production.”
This subsidized electricity is what bitcoin miners took advantage of. This was an arbitration that worked. “By the end of 2018, according to some estimates, miners here can account for between 15 and 30 percent of all bitcoin mining in the world,” writes Roberts, and impressive parts of other cryptography such as Ethereum and Litecoin. ”
Five years back, this may have created a not too bad stock in power utilization, yet recall, bitcoin mining is intended to utilize more assets after some time. To proceed with, the bitcoin diggers needed to make huge jumps in scale. In 2012, bitcoin mining gear may have estimated its utilization in kilowatts.
Now the sites are increasing so fast that we are talking about gigawatts, which are thousands of megawatts, which are thousands of kilowatts.
“Over the past 12 months, the three utilities have received requests and requests for future energy contracts that, if all were approved, could reach 2,000 megawatts – enough to consume two-thirds of the basin’s energy output,” writes Roberts.
An estimate of the total energy consumption of the bitcoin network, the Bitcoin Energy Consumption Index, is up to 55 terawatt hours. A terawatt hour would be 1,000 gigawatt hours. Orders of greatness keep piling up.
And that is after taking into account the substantial energy efficiency improvements that the miners have made.
Back in East Wenatchee, new infrastructures will be needed to maintain power to the mining platforms. And, of course, the costs for these substations and distribution lines will fall, in part, into public services. It is a remarkable foray. What if the industry implodes? Then the sites will be left with an overloaded (and therefore more expensive) electrical infrastructure and a lot of empty warehouses.
The point, too, is that the expansion process cannot stop. That’s how the system was built. Even though Bitcoin’s mining power needs, in the global energy picture, it is still insignificant. To realize the views of technology supporters, electric consumption would have to keep growing at a dizzying pace. At a time when climate change requires energy demand to be doubled, bitcoin miners who suck urban-sized materials from cheap, carbon-free hydroelectric dams are a big problem. And in China, where most of the mining is done with subsidized electricity from coal-fired power plants, it’s an even bigger problem.
This outsourcing by itself could do away with a number of benefits that bitcoin advocates imagine could result from the use of encryption. We will stipulate that blockchains are useful and interesting. But are they worth the energy to do all this computing?
“Bitcoin Mining Turns Electricity Into Money”: Bitcoin was incubated in libertarian circles, but it depends in part on the generosity of the government. As in Washington, electricity production often involves government subsidies of one kind or another. This makes sense: access to electricity is one of the keys to economic development and virtually any definition of a good life. But it is also one more reason why bitcoin should be regulated, just like the rest of the banking industry.