Why You’re Paying Bitcoin’s Energy Bill (2024)

Why You’re Paying Bitcoin’s Energy Bill (1)

Sébastien Thibault

The vast computing power needed to create new bitcoins has driven up energy bills for residents and businesses.

  • By Michael Maiello
  • September 13, 2021
  • CBR - Finance

Millions of people who have neither mined nor traded a bitcoin are nevertheless paying for bitcoins to exist. That’s because the vast computing power needed to create new bitcoins consumes enormous amounts of electricity and has driven up energy bills for residents and businesses, according to University of California at Berkeley’s Matteo Benettonand Adair Morseand Chicago Booth’s Giovanni Compiani.

In the United States, crypto mining could cost residential and business ratepayers $1 billion a year, the researchers estimate. Bitcoin miners have been draining so much electricity in parts of China that the authorities are kicking them out of the country, in part to reduce coal consumption and help meet the nation’s carbon-reduction targets. Cheap electricity in places such as Texas is expected to make the US a leading refuge for crypto miners.

Bitcoin mining, or crypto mining, is the process of generating new bitcoins by solving ever more complicated puzzles. It’s much like using computers to crack complex codes. As more of the tokens are mined, the puzzles get harder, so people engaged in the activity need more powerful computers. Bitcoin mining now consumes 0.5 percent of the world’s electricity, and usage is rising, according to the researchers.

Benetton, Compiani, and Morse focused on Upstate New York and China as two of the world’s major bitcoin-mining locations. They analyzed public records of electricity prices and usage, as well as Bitcoin prices, starting with 2007 in China (just before Bitcoin debuted there) and 2016 in New York (shortly before it became a mining center). Benetton and Compiani received financial support from Ripple’s University Blockchain Research Initiative. Ripple Labs supports the cryptocurrency XRP.

In Upstate New York, where a quarter of US crypto mining takes place, the researchers find that electricity rates have gone up in response to rising demand. Their study demonstrates that because of bitcoin mining’s power usage, households paid an additional $165 million a year in energy costs, while businesses paid an extra $79 million. In China, where more than two-thirds of the world’s crypto mining took place over the past decade, electricity rates are set by the government and inflexible to demand. Crypto miners there were crowding other industries out of the market and forcing electricity to be rationed, the research suggests.

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When Bitcoin prices were high, the effects were magnified, Benetton, Compiani, and Morse find in their analysis of bitcoin exchange rates relative to the US dollar. Crypto miners are compensated in bitcoins, “so the higher the price of Bitcoin, the higher the reward, and the more there is incentive for miners to mine intensively,” Compiani says.

When crypto miners entered a local economy in China, fixed asset investment dropped by 0.36 percent annually and wages fell by 0.68 percent, the researchers find. A potential solution would be for governments to levy additional taxes, but most governments already view bitcoin miners as a solid source of revenue because their taxable profit margins can be high. Local governments relying on bitcoin miners for tax revenue will be hesitant to drive them to other towns by applying local levies.

At the same time, the researchers calculate that in Upstate New York, crypto mining was associated with an increase in tax revenue of just $40 million, while the local welfare cost including higher electricity bills came to more than $240 million.

That’s not to say bitcoin mining is all bad. The researchers point to potential benefits—for example, of the taxes the industry does pay—and suggest future research might focus on other societal goods, such as the democratization of payment systems. Still, their conclusions about the total social costs of crypto mining might be generous, as they did not account for the environmental effects.

One other wrinkle—the supply of bitcoins is capped at 21 million. Since 2010, nearly 19 million coins have been mined. While it may seem that the bitcoin supply limit will cause the energy drain to go away, it’s not going to happen soon. The puzzles are becoming so complex that mining the last bitcoins will take longer and will be even more energy intensive, like trying to draw the last drops of oil from a once-flourishing well.

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Why You’re Paying Bitcoin’s Energy Bill (2024)

FAQs

Why does it take so much energy for Bitcoin? ›

Miners use specialized computers to solve puzzles around the clock to validate transactions and earn Bitcoin in return. All that computing power burns through a lot of energy.

What does Bitcoin have to do with electricity? ›

The U.S. Energy Information Administration estimates that mining for bitcoin and other digital currencies accounts for 0.6 to 2.3 percent of the nation's electricity use.

Does bitcoin mining increase the electric bill? ›

Energy-intensive crypto mining has strained local electric grids, raised electricity rates for residents, increased local air and water pollution, and prompted noise complaints from neighbors across the U.S.

What is the energy cost of a Bitcoin transaction? ›

A single bitcoin transaction using the "proof-of-work" process today requires 705 kWh of electricity, according to Digiconomist. By comparison, Ethereum uses 0.02 kWh after switching to a new approach in September 2022 known as "proof of stake," cutting energy use 99%.

Is Bitcoin backed by energy? ›

In contrast, Bitcoin leverages energy from any source available. The decentralized nature of computing power creates a resilient and robust system. It is through this energy itself that the Bitcoin network secures this new component of trust — cryptographic proof.

How much electricity does it take to make one Bitcoin? ›

The fact is that even the most efficient Bitcoin mining operation takes roughly 155,000 kWh to mine one Bitcoin. By way of comparison, the average US household consumes about 900 kWh per month.

Does Bitcoin have utilities? ›

What Drives the Price of Bitcoin? Bitcoin's price is primarily driven by supply, demand, fear, and greed. Some people argue that its price is correlated to its cost of production, its utility as a store of value, or its intrinsic value—but if these were true, it would not be as volatile and reactive as it is.

How does Bitcoin waste energy? ›

The environmental effects of bitcoin are significant. Bitcoin mining, the process by which bitcoins are created and transactions are finalized, is energy-consuming and results in carbon emissions as about half of the electricity used is generated through fossil fuels.

Where is bitcoin mined in the US? ›

The EIA has now identified at least 137 commercial-scale cryptocurrency mining facilities across 21 states, largely clustered in Texas, Georgia and New York. Expanding crypto operations also appear to be raising the cost of energy in some states.

What country mines the most bitcoin? ›

The biggest bitcoin mining countries are: 1) The United States (40%) 2) China (15%) 3) Russia (12%) This map will look very different in 1-2 years as miners in Africa and Latin America expand operations. A massive trend in the industry will be miners migrating toward these regions.

Where is bitcoin used the most? ›

The 2023 Global Crypto Adoption Index Top 20
CountryRegionOverall index ranking
IndiaCentral & Southern Asia and Oceania1
NigeriaSub-Saharan Africa2
VietnamCentral & Southern Asia and Oceania3
United StatesNorth America4
16 more rows
Sep 12, 2023

How many bitcoins are left? ›

How Many Bitcoins Have Been Mined as of the First-Half 2022? The majority of bitcoins have already been mined. As of June 2022, 19.07 million bitcoins were mined, leaving only 1.93 million left to be mined.

How much does 25 watts cost? ›

At US national average energy prices (11.3 cents per kWh), it costs 3 cents to run a 25-watt appliance for 12 hours. For 30 days (360 hours), this would cost $1.02.

How long does it take to mine 1 Bitcoin? ›

How Long Does It Take to Mine 1 Bitcoin? The reward for mining is 3.125 bitcoins. It takes the network about 10 minutes to mine one block, so it takes about 10 minutes to mine 3.125 bitcoins.

Does Bitcoin use more energy than banks? ›

“Bitcoin uses 0.5% of world energy consumption. Banking uses 56 times more energy than Bitcoin,” Michel Khazzaka, a cybersecurity engineer and cryptographer, told Cointelegraph.

Why does Bitcoin use so much water? ›

Miners use water directly to cool their computer servers and indirectly by running both computers and air conditioning systems powered by gas- and coal-fired power plants that require cooling water. Some of the cooling water used by power plants evaporates and is no longer available for anything else.

Why does cryptocurrency use electricity? ›

Bitcoin, the industry's standard bearer, requires vast amounts of electricity for its proof-of-work systems, which guarantee accountability, to function. The industry is looking at more efficient proof-of-stake systems to reduce its carbon footprint.

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