LIONEL LAURENT: Power-hungry bitcoin miners feel the heat amid energy crisis
Nations fight over limited natural gas supplies to fuel the postpandemic recovery and refill depleted stocks before winter
Bitcoin is a virtual currency with a very physical footprint in the form of the big, power-hungry facilities that have sprouted up to mine it.
The size of this footprint and its affect on the environment have become a hotly contested issue: the network’s power consumption this year is likely to be 91 terawatt-hours, about equivalent to Pakistan’s.
Microsoft cofounder Bill Gates and Tesla CEO Elon Musk have criticised the industry for its addiction to cheap power, which is often derived from fossil fuels. Not exactly in tune with our net-zero times.
The pushback from cryptocurrency miners is that they are shifting to renewable energy sources and moving out of coal-heavy countries such as China, which has introduced a blanket crypto ban. They also say they will do the world a favour by encouraging new solar and wind farms centred on bitcoin.
That is all well and good in theory, but in practice there is a far more urgent problem crypto miners have to face: a worldwide energy crisis as nations fight over limited natural gas supplies to fuel the postpandemic recovery and refill depleted stocks before the northern winter. While countries are pointing the finger at each other and panicking over heating bills, who wants a bitcoin mine in their town?
The problem is not just bitcoin’s global effect but how it is felt locally. Its network represents an estimated 0.5% of worldwide energy consumption, meaning crypto fans can always point to bigger drains on the system. Yet at the level of a local power grid, while supply is low and demand high, having an outsize buyer can raise costs for everyone else.
Media reports suggest that is what is happening in Kyrgyzstan. The central Asian nation is raising electricity tariffs for crypto miners — and other sectors such as gold mining — to account for “energy intensity”.
The estimated burden for the community of a crypto miner coming to upstate New York was the subject of an academic study co-authored by Matteo Benetton of the Berkeley Haas School of Business. He says the estimated benefits of more taxes and jobs pale in comparison to extra power costs, adding up to an estimated $165m for small businesses and $79m for individuals annually. The study used surges in bitcoin prices and electricity demand curves to estimate implied extra costs. Scaled up nationally for the US, they reach $1bn.
He says the estimated benefits of more taxes and jobs paled in comparison to extra power costs, adding up to an estimated $165m for small businesses and $79m for individuals annually
It may well be that the US dodges the worst of the gas shortage seen elsewhere. But the crypto diaspora should not rest easy given the frustration already on display.
Colin Read, the former mayor of Plattsburgh, New York, told CNBC in July that welcoming bitcoin miners during his tenure had generated “a handful” of jobs — versus an uproar from residents over spiking electricity prices. The city was diverting 10% to 15% of its supply to miners, putting pressure on the grid and everyone else. In 2018, the city passed a moratorium on new crypto mining for one year.
Texas is one state that has touted the economic opportunity of attracting crypto mining firms, which are keen to take advantage of the state’s cheap power. But we have already seen the effect that last year’s winter crisis had on its fragile grid, pushing costs up and triggering outages. This knocked out many crypto-mining facilities.
It is unclear whether the state is ready to cater for a new influx of former China miners — or if the trend of renewable crypto farms selling energy back to the grid will be sustainable.
No-one is suggesting that bitcoin is the cause of the current global supply crisis, any more than hedge funds trading commodities are to blame for gas shortages.
But with one bitcoin trading for more than $50,000, and miners in some cases reporting a margin of 67.5% and $7.5m in quarterly profit, they will have little incentive to slow down even if they find themselves exposed to rising power prices.
Elsewhere, the pain is on display: European industrial giants are shutting plants or curtailing output, UK energy suppliers are going bust and Americans are being warned of a heating “sticker shock”.
It will be a cold northern winter for the mining lobbyists at this rate.
Bloomberg Opinion. More stories like this are available on bloomberg.com/opinion
Would you like to comment on this article or view other readers' comments?
Register (it’s quick and free) or sign in now.
Please read our Comment Policy before commenting.