Rising electricity prices, energy-hungry crypto mining operations and falling cryptocurrency prices are considered to be behind a significant decrease in the amount of electricity used for crypto mining.
Crypto mining, such as Bitcoin mining, uses specialised computers constantly powered on and connected to the cryptocurrency network to verify transactions (sending and receiving of the Bitcoin cryptocurrency). This verification is achieved by the computers solving puzzles to prevent fraud and to win small amounts of Bitcoin. The whole process is extremely energy hungry.
In June last year, for example, researchers from Cambridge highlighted how Bitcoin mining was consuming a staggering 21.36 terawatt-hours (TWh) a year! This means that if Bitcoin were a country, its energy (electricity) consumption would be above Argentina’s, and the energy could power all the kettles in the UK for 27 years.
However, it has recently been reported that electricity consumption of the Bitcoin network has fallen by a third from its high of 11 June this year, although a single conventional Bitcoin transaction still uses the same amount of electricity that a typical US household would use over 50 days!
The electricity used for Ethereum, which has been boosting crypto projects of late, has also decreased from a peak of 94TWh a year to 46TWh a year.
Cryptocurrency commentators have also noted that the fall in energy consumption has been accompanied by a fall in cryptocurrency value. For example, Bitcoin’s value has fallen by two-thirds from its all-time high of $69,000 in November 2021. Also, CoinMarketCap figures show significant falls in the value of Ether, Solana, and Dogecoin. As a result, the market capitalisation of the whole crypto economy has fallen to $945 billion from $3 trillion in less than eight months.
The fall in energy consumption by the big cryptocurrencies is believed to have been the result of a combination of several key factors, which are:
– Rising energy prices cause higher costs for what is an extremely power-hungry business.
– The falling price of cryptocurrencies means reduced values of crypto mining rewards to miners. Those using suboptimal equipment or mining in suboptimal circumstances (e.g. inefficient cooling) have, therefore, seen a significant reduction in profits, with many of them going out of business.
– The inflexibility of Bitcoin mining equipment; i.e. it cannot be repurposed.
– The huge price collapse has negatively affected the wider cryptocurrency sector, e.g. failure of the ersatz crypto bank Celsius.
The fall in energy consumption, the fall in crypto values, plus the ripples across the whole cryptocurrency sector have prompted some cryptocurrency commentators to suggest that this is the beginning of a “crypto-winter” (a period of lower cryptocurrency prices), such as those seen in late 2017 to December 2020, and that it looks unlikely that there will be much growth in the cryptocurrency market this year as a result. Some commentators have even suggested a collapse of the cryptocurrency market rather than just a period of lower prices.
Many businesses now accept cryptocurrency as payment for goods and services, and there is an estimated 30+ million crypto traders around the world, so a further decline and even collapse of the market could cause significant repercussions. Those who have studied and invested in cryptocurrency for some time, however, recognise that the big cryptocurrencies tend to have a cyclical nature. Just as there have been ‘winters’ in recent years, this too may be the early stages of such a price winter. Some investors suggest that it presents an opportunity to buy while prices are low to make big profits when the market recovers. The failure of the ersatz crypto bank Celsius does appear to have affected the whole market, and the high energy prices are likely to thin the market out so that only those crypto-miners with the best equipment and in the best circumstances stand the best chance of continuing. Up to this point, there have been no guarantees with cryptocurrency anyway. Many see this as another period of volatility that has characterised the early growth of cryptocurrencies.
