Why 98% of Mining Rigs fail to verify transactions
Alex de Vries, founder of the digiconomist, gave a damn estimate of Bitcoin Mining (BTC) electricity consumption in an interview with British media company The Telegraph.
According to de Vries, a single Bitcoin transaction consumes the same amount of electricity needed to supply a UK household for 59 days, 780,650 Visa transactions, or 52,043 hours of video streaming on Youtube.
The article claims that annual Bitcoin mining earnings are close to $ 5.9 billion — with approximately 4 billion mining units competing for a share of the premium worldwide. At the end of August 2019, Bitcoin miners have made an estimated $ 14 billion in profit since the technology was introduced.
De Vries claims that 98% of mining equipment will never verify a transaction, which leads to enormous and unproductive power consumption.
“They take part in a big lottery, so to speak, and every 10 minutes you’re lucky enough to be able to produce the next block,” he explains.
The shocking thing is that the average lifespan of a Bitcoin mining machine is one and a half years since we have a new generation of machines that can do these calculations better. This means that 98 percent of the devices cannot perform a calculation during their lifespan that actually leads to a reward. So the rest of it only runs for a few years, uses energy and generates heat. Then they are simply thrown away because they cannot be reused. It’s crazy.
There are a number of factual problems with de Vries’ statements. He cannot substantiate his claim that there are 4 billion active mining devices on the Bitcoin network. Internal calculations show that this figure is closer to 2.5 million.
De Vries also claims that miners who fail to release new blocks are wasting energy senselessly. However, this does not take into account the dynamics of mining pools and ignores the benefits that large hash performance has for the security of the Bitcoin network.
Criticism of Digitconomist’s estimated power consumption in mining
De Vries’ calculations are based on Digiconomist’s Bitcoin Electricity Consumption Index (BECI), which shows that Bitcoin’s electricity consumption has recently reached record highs.
According to BECI, Bitcoin mining currently consumes around 77.78 terawatt hours per year — roughly equivalent to that of the entire country of Chile and 13.9% more than the Czech Republic. However, the index also provides a minimum estimate of approximately 50 terawatt hours per year — this corresponds to that of Romania.
BECI estimates that the BTC mining will lead to electronic waste generation comparable to Luxembourg and a CO2 footprint at New Zealand level.
In 2018, crypto investment company Coinshares published a report that contradicted BECI’s numbers. The company’s data estimated miners’ electricity consumption to be about half that of Digiconomist.
Coinshares claimed that its results “strictly contradicted” BECI’s estimates and accused the index of being based on “false assumptions due to insufficient research”.
Bitcoin mining and renewable energy
The 2018 Coinshares report found that Bitcoin mining is largely done with cheap renewable energy, especially hydropower, with fossil fuels accounting for a minority share of the network’s total electricity needs.
The company’s December 2019 report estimates that 73% of the electricity used to power the Bitcoin network comes from renewable sources — two-thirds of which is in China.
In addition, BECI does not take into account the nuances of the electricity markets Bitcoin miners want to operate in — with cryptocurrency author and proponent Andreas Antonopolous, who argues that cryptocurrency enables a new form of arbitrage that uses excess renewable energy that would otherwise be wasted.
“What happens if you build a 50 megawatt plant in a place that only needs 15 megawatts? In some cases, you cannot turn off or turn off alternative energy sources such as wind, sun, or hydropower. You built it and it will produce, and then what? You are essentially wasting energy. What if, in this environment, you could find a way to convert that energy into an alternative store of value using electricity that would otherwise be wasted. Now Bitcoin is an environmental subsidy for alternative energies around the world. “
Miners move flagship facilities from Sichuan to Texas
Many top mining companies have recently taken steps to build flagship plants in Texas, United States, shifting their focus from the plentiful hydropower in the Chinese province of Sichuan. Texas would be the fifth largest wind power producer in the world if it were an independent nation in which the state regularly generates large surpluses of electricity.
Bitmain’s Texas-based facility is currently considered the largest in the world, with an output of 100 megawatts. Northern Bitcoin, based in Frankfurt, plans to build three times the capacity in Texas by the end of the year.
Alex Liegl, the CEO of Layer1 Technologies, recently said that Texas offers “the cheapest energy in the world” to large miners. Layer1 Technologies is a US-based mining company that started operations in Texas in January.
Given the ever-changing technology and geography of the crypto mining industry, assessments like de Vries’ are often seen as reductionist. A comment on the Bitcoin network’s power consumption rarely articulates the nuanced dynamics of the market. While the sheer amount of electricity consumed in BTC mining appears large, three-quarters of the electricity consumed by the grid comes from renewable sources — much of which may not have been used for anything else.