The Energy Consumption of Cryptocurrency Mining Algorithms
Cryptocurrencies rely heavily on powerful hardware to validate transactions and generate additional “blocks”, which then become immutably logged on the transaction ledger. The transaction validation process is called mining and is conducted for all Proof-of-Work (PoW) based systems, which still dominate the cryptocurrency market despite a rising migration to other consensus mechanisms, like Proof-of-Stake (PoS). The migration is partially motivated by the fact that PoW networks consume substantial amounts of power, by way of the requiring powerful hardware to maintain network consensus.
This study takes a look at the (still sparse) research into the exact consumption rate of major cryptocurrencies and their carbon emission.
Cryptocurrencies continue to develop and gain recognition, as a rising number of public and private entities consider the technology and its implementation. The growth of bitcoin and most other digital assets, however, is dependent on the capacity to mine new blocks which requires considerable amounts of power — a topic that has created considerable controversy.
Researchers have attempted to estimate the energy consumption rate of cryptocurrencies, with questionable success, given the existence of many unknowable factors, like the specific geolocation (power costs) of miners, the variance in mining equipment used and the introduction of new PoW-based based networks into the market.
Initial research indicates (unsurprisingly) that the specific mining algorithm plays a significant role in determining the extent of power consumption and that the use of renewable energy is more prevalent than popularly believed.
One research paper from the Hunan University analyzed the performance of some well-known tokens, including Monero (XMR) and Verge (XVG), showing that the latter’s five available mining algorithms had great variance in terms of efficiency and consequently power consumption. We will see how power consumption is largely determined by the hashing algorithm employed by the PoW networks — SHA256 in the case of Bitcoin — and what other steps the industry is taking to reduce energy consumption.
PoW Protocols and Current Consumption Rates
PoW has drawn criticism for its high rate of energy consumption; the generation of new blocks on the blockchain requires increasingly difficult and time-consuming mathematical problems to be solved. As the original and most established of the consensus protocols, it dominates the cryptocurrency market and is the go-to mechanism for block generation. Five of the top ten cryptocurrencies (by market capitalization) are PoW-based, as are many more in top 100. Mining is also an attractive mechanism, given that anyone with a minimally viable system could potentially mine bitcoin or any other token.
However, there is conflicting data on precisely how much power is associated with mining, as evidenced by the sheer number of reports, media outlets and blogs that have spoken with contradicting views about it.
The energy cost required to mine one BTC has been useful in determining the inherent value of bitcoin, so market enthusiasts have used it to judge the potential in society. Digiconimist, which published a widely distributed report on bitcoin’s power consumption, shows that the estimated annual electricity consumption of bitcoin is roughly 68 TWh, with a minimum annual consumption rate of 37.36 TWh. The total dollar cost of mining Bitcoin is estimated to be $3.4 billion. To put into perspective, if the average American household, is estimated to be consuming 10,399 KWh annually, this means that over 6.5 million US households could be powered with the energy used to mine bitcoin annually.
Of course, power costs vary by geographic location — mining in China is popular because electricity costs are typically lower than in Europe or North America. Mining bitcoin in Venezuela, for example, would only cost somewhere in the region of $500, as a study released by US hardware supplier Crescent Electric Supply Company shows. The study looked into how much it would cost to mine one bitcoin on standard mining rigs.
Bitcoin Power Consumption Rates
Bitcoin is the most mined and energy-consumptive token in the crypto market. Other tokens, however, consume far less power given their relative newness. Ethereum, which plans to move to PoS in the near future, consumes far less at 7.01 TWh with dollar costs predicted to be just over $700 million. Data on other tokens is limited, and even more prone to inaccuracy than those conducted on bitcoin, but consumptions fairly stated as far less than the two major players.
The aforementioned study from Hunan University closely examined the power consumption associated with mining the Monero token, as well as the five algorithms used in mining the token Verge (XVG). The researchers noted that the mining algorithm greatly determines how efficient the process was, and in turn, how much electricity was consumed. For Monero, the mining costs amounted to a total of 645 GWh after the April 2018 hard fork.
These figures do not take into account the indirect power consumed to keep mining farms running, such as cooling costs. It is also difficult to estimate the power costs as the locations of miners are not easily discovered, as the pseudonymous nature of Bitcoin makes identification difficult. Most figures in what (limited) studies exist should be taken to be conservative.
Increasing Consumption Rates and Silver Linings
Energy consumption is only expected to increase, should PoW remain the consensus mechanism of choice. The implications are significant as bitcoin’s power consumption already rivals that of entire nations. It will only get more expensive to mine cryptocurrencies as time passes, making the motivation for finding cost-effective and environmentally friendly solutions imperative, both to reduce costs and make the process more inclusive.
The pure dependence on hashing power in PoW protocols, as well as its tendency to establish exclusivity based on whether one possesses sufficient hardware, has encouraged developers to consider other protocols that tackle both of these problems, including Proof-of-Stake (PoS), Proof-of-Authority (PoA) and Proof-of-Existence (PoE), among many other developments.
Currently, the vast majority of bitcoin’s power requirements are coming from non-renewable sources. Fortunately, there is a silver lining: the trend in the mining industry is to slowly migrate towards sustainable sources of energy, as mining entities make use of hydroelectric power in countries with excess renewable energy, as reported by the University of Cambridge. The report states that an increasing number of mining facilities are moving to low-cost hydroelectric power.
In China, it is counterintuitively reported that 12% of wind power was wasted based on a lack of demand. This is where the crypto market plays a productive role, seizing on the additional energy that would have otherwise gone wasted. One study by cryptocurrency asset management and analysis firm Coinshares showed that regions in China where the largest mining pools are located are also those that heavily use renewable energy. It goes on to say that 43.2% of global Bitcoin mining is powered by renewable energy, originating from Sichuan province.
However, this figure has had doubt cast on it; Digiconomist founder Alex de Vries has said that the figure seems too high. The University of Cambridge report says that 28% was the average renewable energy share of mining facilities. This shows that while a majority of mining is still powered by non-renewable sources, when available, non-renewable sources are being utilized, and the trend may grow in the near future.
Concluding Remarks
Those who study it make it clear that there is a lot left to be desired in documenting the relationship between mining cryptocurrencies and power consumption. Several factors make it difficult to accurately estimate factors like quantity and the origin of consumed energy. Many cryptocurrencies pseudonymous nature make issues like this challenging to study.
The precise electricity usage and level of carbon emission are difficult to calculate with accuracy as miners may join pools in different regions while consuming power at local rates. Furthermore, studies do not account for mining taking place through non-consensual and malicious means, such as cryptojacking malware.
Even if some studies offer a seemingly inflated report, corroborated by third parties, about the precise power consumption rate of mining, the need to develop more efficient mining algorithms, if not new consensus protocols entirely, is readily apparent. Though even as the power required to record future blocks grows, miners can turn to renewable sources of energy, which can help develop the renewable energy industry and push the world towards cleaner energy.
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