You have to mine the data to see the actual cost.
Many people, when they hear the term Bitcoin or crypto-currency, think “funny money”. They may hear from friends or read on the news about crypto as an investment or wonder how they would spend a Bitcoin if they bought one, but that is about as far as their thinking goes. Most people today lead very busy lives: many working two jobs, raising children and keeping a home life together in an age of rising expenses. They may take a few minutes to look at the cost of a Bitcoin and wonder if it could be part of their portfolio. Some people I have spoken to who are conservative investors take one look at crypto’s volatility and say no thanks.
The monetary cost of a Bitcoin at today’s date is USD$9,331. The cost of a Bitcoin back in December 2017 was close to USD$20,000, an all-time high. What happened to create the price difference between then and now? After the 2017 high, Bitcoin lost one-third of its value in just 24 hours, dropping below $14,000. Why? No one knows for sure but the rumor was the sudden Bitcoin sell-off was caused by a Bitcoin “whale”, therefore the selling off of a large block of Bitcoin currency, then buying it back after the market drop. This is not unlike shorting in the stock market. Sell high and buy back low, the difference being the profit. Bitcoin traders in the know earned millions of dollars in the process.
Climate Change, ESG and the Quest for Better Data | Data Driven Investor
After what feels like another incredibly hot summer across many parts of the planet, the latest findings from S&P…
“If you do a little math and follow the timeline, it’s not hard to see that someone dumped 25,000 Bitcoin for $215 million and bought it back shortly after for $200 million,” wrote Reddit user u/makoveli in a post to popular cryptocurrency forum. “In doing so, they pocketed $15 million and walked away with the same amount of Bitcoin as they started with.”
What was the cost to the Bitcoin buyers who bought in at the top of the market? Looking at today’s market price of $9,000, they have a long way to go to recover the original cost of their investment. And, that is not taking into account the carrying cost of the investment. This is money they are not getting a return on from some other investment. If they used a line of credit, they are also paying interest. A triple whammy!
Looking back briefly on the history of Bitcoin, between February 2011 and April 2011, it gained parity with the US dollar — one for one. By January 2017, it had broken through the $1,000 mark and by November 2017 reached the benchmark of $10,000. By the 17th of December, 2017 it peaked at $19,783. Five days later, it had lost $6,000 of its “value” and by the end of October 2018 had dropped down to almost its 17th October 2017 price of $6,200. This is not a good investment vehicle for the faint of heart.
So far, I have been dealing with the monetary cost of investing in Bitcoin. What are the other costs of investing in cryptocurrency? According to a report by CNN, the manner of mining Bitcoin and other digital currencies requires an enormous amount of energy. Up until 2018, it is estimated the amount of energy used in crypto mining could provide electricity to over 3 million homes in the United States.
Bitcoin requires far more energy than Visa uses for the billions of Visa card transactions each year, which is equivalent to the amount of electricity use of 50,000 homes.
A concern of environmentalists is that Bitcoin and other cryptocurrencies require more and more energy as they become more popular. In the case of Bitcoin, the mathematical puzzles crypto miners are required to solve in order to mine a crypto coin gets more difficult as the value of the currency goes up. This requires more computing power and, in turn, more energy.
Much of the Bitcoin mining taking place today is in China and researchers at the University of Cambridge say much of the electricity used in these mining operations comes from inefficient, high CO2 generating coal power plants. These plants were constructed in many rural areas of the country for large construction projects that never materialized. A recent report stated the energy demands of a single Bitcoin mining project in Inner Mongolia were the same as those required to fly a Boeing 747 on an annual basis. With many parts of the world attempting to reduce CO2 emissions by switching to renewable energy and planning more energy efficiency programs, the mining of cryptocurrencies runs counter to these initiatives.
Dutch bitcoin analyst Alex de Vries believes the numbers don’t bode well. As of January 2018, de Vries said even the most energy-efficient mining rigs possible would still use 13 terawatts (13,000,000 megawatts) hours of electricity.
To break down this power usage, 1 terawatt hour of electrical energy consumption is equivalent to a trillion watts consumed in one hour. The average North American home consumes on average, 7,200 kilowatts per year or 7,200,000 watts per year. Therefore, 13 terawatts would power 1.857,141 homes in a year.
This exercise provides some of the hidden costs involved in mining cryptocurrency, such costs being heightened when fossil fuel energy is used to create the power used for mining. Translated into greenhouse gas or CO2, a coal-burning power station with an efficiency of 34 percent emits 1.0 kg or over 2 pounds of carbon dioxide for every one kilowatt of electricity it generates.
In an average coal-fired power plant, only 40% of coal’s thermal energy is converted to electricity. There is 2,460 kWh of electricity generated per ton of coal. A standard 500-megawatt coal power plant produces 3.5 billion kWh per year, which is enough energy to power 4 million light bulbs all year. Using the 34 percent efficiency rate, 3.5 billion kWh generated by one coal plant creates 2 billion pounds or 890,000 tones of CO2 per year.
Coal generates nearly 40% of the world’s electricity, close to its highest share in decades. As of 2018, 78 countries were using coal power, up from 66 in 2000.