Blockchain technology is a method of using a network of decentralized computers to validate a transaction using common algorithms and creating a unique encrypted identifier or block, which is added to a string of records (a chain of blocks) associated with that transaction, thereby creating an incorruptible digital record. Blockchain technology was originally created to document cryptocurrency transactions, but it is recognized to have potentially unlimited potential for other uses. Those uses include supply chain records, stock transactions, financial transactions beyond cryptocurrencies, crowdsourcing, real estate records management and more. Major retailers, banks and software companies are closely monitoring the advancement of blockchain technology.
Of all the uses for blockchain technology, its application to cryptocurrencies is the most prevalent. Cryptocurrencies exist only in the Ethernet. They have no intrinsic value like the old U.S. currencies made of gold or redeemable for silver; supply is not controlled by a central bank or government; and they have no physical form. That is why the creation of unique and nearly impossible-to-fudge digital records for cryptocurrencies is so important. And it is not just an intellectual exercise. The estimated annual revenue associated with the creation of the most common cryptocurrency, bitcoin, is roughly $7 Billion. Plus, there are more than 1000 additional cryptocurrencies on the web.
So why are cryptocurrencies and blockchain technology of importance to the power industry? It’s simple. Creating and validating a cryptocurrency, say a bitcoin, requires significant computing power to run mathematical algorithms. Remote computer systems extensively involved in so called “mining” for bitcoin or solving the equations that document a new piece in the digital records of the currency require power to run and disperse heat. When cryptocurrencies were just a novelty, the computer power needed was insignificant. Today, data centers and even extensive server farms that draw 10’s of megawatts are required for large operations. Estimates of the energy use for bitcoin creation, likely the most common cryptocurrency, range from 14 to 57 TWh annually, worldwide. Operations develop where power is cheap and major mining operations may favor cooler regions where computer system cooling costs will be less.
Just a few years into the cryptocurrency revolution, bitcoin mining is already eating up an estimated 20,000 gigawatt hours of electricity per year. That’s roughly .1% of global generation, on par with the power demand of Ireland. The primary culprits are bitcoin mining appliances like the Antminer S9, which is a computer processor that does nothing but endlessly crunch algorithms to lengthen the blockchain. An Antminer draws a load of 1.5 kilowatts — enough to power two refrigerators and a flatscreen TV. If you run an Antminer 24/7 for a year it will produce about 0.85 bitcoins, at a cost of about 15,000 kilowatt hours. Depending on your power prices it will cost anywhere from $600 (at 3 cents per Kwh) to $1,800 (at 9 cents per Kwh) to mine one coin. Even with bitcoin having plunged to $11,600 this morning, there’s still money to be made, assuming you can get your machines cheap enough. Walmart sells the Antminer s9 for $8,200.
The electricity consumption needed to “mine” cryptocurrencies this year will outpace global electric vehicle demand according to some reports. This growing increase for power has brought energy usage to the forefront of the crypto conversation. Even a slight edge in terms of computational power can help miners win a larger share of the distributed rewards, which has prompted a race to build more powerful and more energy-consuming mining computers. At the same time, the Bitcoin network keeps making calculations harder to solve, necessitating more and more power to secure the same rewards.
It’s hard to make reliable calculations because mining facilities tend to keep their operations behind closed doors. But some research claims the entire Bitcoin network could consume as much as 7.7 gigawatts of electricity by the end of this year—enough to power a country the size of Austria.
Cryptocurrency mining’s massive energy consumption may be leaving a big carbon footprint too. The network is mostly fueled by power plants in China where coal-based electricity is available at very low rates. This results in an extreme carbon footprint for each unique Bitcoin transaction.
The Bitcoin network currently processes 200,000 transactions per day using at least 300 kWh per transaction. This could exceed 900 kWh per transaction by the end of this year. That doesn’t factor in the electricity needed to get rid of all the heat these machines produce which adds significantly to the energy load depending on factors such as climate and chosen cooling technology. (The Guardian, 1/17/2018, Propmodo, 5/17/2018, T&D World, 8/23/2018, Forbes, 1/16/2018, Paste, 5/18/2018))