Bitcoin, the cryptocurrency designed in 2009, could have a significant affect on energy prices. How can a cryptocurrency affect how much you pay for your energy? And how does bitcoin relate to energy in the first place? All good questions.
Bitcoin, for those not in-the-know, is a cryptocurrency created in 2009. Its design means it cannot be controlled by any one party and its managed through a system called a blockchain which records its transactions. Still with us?
Bitcoin, the currency, is created through computers solving mathematical puzzles and this process is called ‘mining’. When a computer solves a puzzle, it successfully ‘mines’ bitcoin.
How does Bitcoin use energy – and how does this affect energy prices?
Thousands of computers around the world are mining Bitcoins at any one time. They are all competing to solve the same mathematical puzzles. Around every 10 minutes, a computer solves a puzzle and generates one. Then a new puzzle is generated by the system and those thousands of computers get to work solving it once again.
This system means thousands of computers around the world are mining for Bitcoin at any one time. This is being done on an industrial level – not just at home with a laptop – with high tech equipment and using huge amounts of computing power. So, as more people join the network, and more complex puzzles are produced, more energy is used.
As popularity grows, so has the number of people mining it. The more people that join the network the more difficult the puzzles become. This means, we are using more computers which use increasingly high-tech and energy consuming processing power, per every bitcoin that’s mined.
When Bitcoin launched, you could use a regular laptop to mine competitively. These days you’ll need special hardware to compete with the processing power of those doing it on an industrial level. Take a step back and imagine how much energy is needed to power this whole system. It’s a lot.
So, how much energy does it take to mine a Bitcoin?
Given the increasing interest, it’s no wonder its energy usage is coming in for some scrutiny. The Bitcoin system rockets through energy – think of all that processing power – but exactly how much is used in total, is up for debate.
According to Digiconomist’s Bitcoin Energy Consumption Index, the network of computers that verify bitcoin transactions uses 3.4 Gigawatts (GW) — versus your average laptop’s 60W. According to Wired, that 3.4GW adds up to 30.1 terrawatt hours (TWh) per year of energy. The 30.1TWh is equivalent to the energy used by the entire nation of Morocco annually. By this calculation, Bitcoin is using as much energy as a whole country. Crazy? Yes. True? Maybe.
Other sources say, the amount of energy that’s used to mine bitcoin has already bypassed the amount used on average by Ireland and most African nations. But the amount is heavily debated and many experts say it is anywhere between 100MW and 3.4GW and everything in between.
It’s almost easier to comprehend if you compare it to the energy usage of an existing form of currency or financial transaction. According to Digiconomist, Visa’s payment systems uses the energy equivalent of 50,000 US households to run 350 million transactions, while bitcoin uses the energy equivalent of 2.8 million US households to run 350,000 transactions on a good day.
The difference is pretty stark! However, it’s important to note that calculating Bitcoin’s energy usage is notoriously difficult because it’s subject to so many variable factors including, but not limited to the pace at which the bitcoin network changes, the frequency with which bitcoin value changes, the bias of the expert doing the calculation, the methodology of the calculation… We could go on. Suffice to say bitcoin is a big energy user, but the question is whether this is too big a cost to the environment?
What is the cost to the environment?
The majority of bitcoin mining is done in China, where energy costs are cheaper, but much of China’s energy is produced by fossil fuels and is not environmentally friendly.
So, if bitcoin is going to succeed in the long run as a viable financial alternative it needs to take a look at its environmental impact.
But what does this mean for energy prices?
What impact does Bitcoin have on the energy market?
There’s a concern in the energy sector that substantial growth in Bitcoin and blockchain could have a huge effect on energy markets – and therefore energy costs. To support a Bitcoin system effectively, electricity providers would have to up capacity and heavily reduce emissions. No bad, thing but certainly a big change for suppliers. But could it mean cheap energy? Well, maybe.
However, there is a thought that a blockchain peer-to-peer system could actually work well in the energy sector. At the moment, if you have solar panels or generate any energy at home, you cannot sell this to your neighbour or anyone else, despite the fact they, most likely, do need to buy energy. In the current system, the energy suppliers hold all the cards – you have to sell your energy to them and buy any energy you need from them. It’s frustrating to effectively be the energy generator, but not benefit from particularly cheap energy.
But in a block chain system you could cut out the energy provider altogether. A blockchain system would allow you sell your energy to your neighbour, the whole town or anyone that needs it. This works in a similar way to the way bitcoin avoids the banks and helps to make the energy market more transparent.
So, rather than just being a consumer you could also become a generator. This would, in theory save you money on your bills as you could have more control over your energy and energy prices – and hopefully end up enjoying cheap energy. The best bit is, you could choose how you generate your power – and with elements like solar panels this could mean our energy could also get a lot greener.
Switch your energy supplier
We believe that everyone deserves a fairer deal on energy. Switchcraft is a free auto switching service that continually scours the market for better energy deals. Sign up in 3 minutes, and after that, we’ll automatically switch you to a better deal every year.