How Energy Investors Are Getting In On The Bitcoin Boom
I have never subscribed to the Bitcoin craze.
In my opinion, it is a massive pyramid scheme that is rapidly creating a dangerous bubble.
The kind of dangerous bubble we haven’t seen since the subprime mortgage implosion almost a decade ago.
However, I am not here to talk about the sustainability of Bitcoin.
I’m here to talk about the massive impact it has on energy.
Regardless of my personal feelings, Bitcoin is influencing the price of energy.
In fact, the connection between Bitcoin and energy costs is one of the main reasons China has become the world’s leading location for “mining” the currency.
At issue is how much each Bitcoin costs in energy terms.
This is something that cryptocurrency enthusiasts have only begun to consider.
Fact is, Bitcoin might be all the rage…
But most investors are still in the dark about how they are manufactured.
And the opportunities that’s creating for energy investors…
How the Bitcoin Boom Really Works
An English study published earlier this year estimated that there are as many as 5.8 million individual users using a cryptocurrency “wallet” for transactions.
Most of them are using Bitcoin, although there have been other cryptocurrencies established.
Bitcoins comprise a decentralized digital currency having no central bank releasing them or administrator overseeing their exchange.
Transactions occur between users directly through the use of cryptography, without an intermediary.
These transactions are verified by network nodes and recorded in an immutable public distributed ledger called a “blockchain.”
Individual cryptocurrency units, such as Bitcoins, are created as a reward for a process known as mining.
It is the mining, or creation, of a Bitcoin that provides the huge profits we’ve witnessed lately.
Bitcoin transactions are secured by computer miners, who are competing for rewards in the form of coins from the network.
New sets of transactions (blocks) are added to the blockchain roughly every 10 minutes by the “miners.”
While working on the blockchain, these miners aren’t required to trust each other.
The only thing miners have to trust is the code that runs the process.
The code includes several rules to validate new transactions. For example, a transaction can only be valid if the sender actually owns the sent amount. Every miner individually confirms whether transactions adhere to these rules, eliminating the need to trust other miners.
The trick is to get all miners to agree on the same history of transactions.
Every miner in the network is constantly tasked with preparing the next batch of transactions for the blockchain.
Only one of these blocks will be randomly selected to become the latest block on the chain.
Random selection in a distributed network isn’t easy, so this is where proof-of-work comes in.
Trial and Error
In proof-of-work, the next block comes from the first miner that produces a valid one.
This is easier said than done.
The difficulty is regularly adjusted by the protocol to ensure that all miners in the network will only produce one valid block every 10 minutes on average.
Once one of the miners finally manages to produce a valid block, it will inform the rest of the network.
Other miners will accept this block once they confirm it adheres to all rules, and then discard whatever block they had been working on themselves.
The lucky miner gets rewarded with a fixed amount of coins, along with the transaction fees belonging to the processed transactions in the new block.
The cycle then starts again.
The process of producing a valid block is largely based on trial and error, where miners are making numerous attempts every second trying to find the right value for a block component called the “nonce”, and hoping the resulting completed block will match the requirements (as there is no way to predict the outcome).
For this reason, mining is sometimes compared to a lottery where you can pick your own numbers.
The number of attempts (hashes) per second is given by your mining equipment’s hashrate.
This will typically be expressed in Gigahash per second (1 billion hashes per second).
It is at this point that the huge (and expanding) energy footprint of Bitcoin mining becomes an issue.
Bitcoin’s Alarming Energy Consumption Rate
The continuous block mining cycle entices Bitcoin mining globally.
As mining can provide a solid stream of revenue, people are very willing to run power-hungry machines to get a piece of it.
Over the years, this has caused the total energy consumption of the Bitcoin network to grow massively, as the price of the currency reached new highs.
The entire Bitcoin network now consumes more energy than a number of countries, based on a report published by the International Energy Agency.
If Bitcoin were a country, it would rank between Serbia and Denmark:
