Coinshares released a whitepaper detailing the remarks taken from research to understand the cost of mining bitcoin. The study took into account several factors to determine a monetary value while addressing the unsubstantiated misconceptions about the energy consumptions and climatic impact of bitcoin mining.
Research Sheds Light on Bitcoin Mining
According to a post by Christopher Bendiksen, who spearheaded the investigation, the constant allegations, and uncertainty over the total energy used to mine bitcoin, needed a comprehensive research paper to clarify any wrong assumptions.
The research studied the composition, efficiency, electricity consumption and electricity sources of the Bitcoin mining network, and additionally investigated trends in hashrate, hardware cost, and hardware efficiency.
The research is titled “The Bitcoin Mining Network – Trends, Marginal Cost, Electricity Consumption and Sources” and its conclusions are divided into several parts.
Bitcoin’s Energy Usage a Major Component of Network Security Model
While the decentralized Bitcoin network can cut the middleman, it needs to spend a lot of energy to keep its network safe using Proof of Work (PoW). In the Bitcoin network, any participant requesting transaction records has to prove an expenditure of energy and subsequently will be rewarded with bitcoins.
As the reward is paid in bitcoin, it ensures the incentives are aligned between maintaining truthfulness (security) of the network and confirming the transactions on the network. Any fraudulent attempt to override the network carries no incentives at all as it would require a massive amount of energy and therefore is unfeasible.
Past Energy Estimates Greatly Exaggerated
The research estimated energy usage of 35 TWh in May 2018, proving that prior estimates are greatly exaggerated and averaged at 65 TWh, almost double the actual values.
Hydroelectricity a Main Power Source for Bitcoin Mining
The research identified the primary source of power for the mining network to be hydroelectricity, as coal-generated electricity is costly. Besides, companies in the competitive Bitcoin mining industry search for areas with cheap energy, invariably setting up near renewable sources.
To keep mining activities profitable, miners tend to migrate to colder climates to take advantage of the cheaper maintenance costs. The study found that miners tapping into more remote regions “use bitcoin as a “synthetic battery” of sorts, converting otherwise unproductive or wasted electricity generation into spendable monetary assets.”
According to the research:
“Over the last 4.5 years, the network hashrate has grown by approximately 300% annually. Over the same time span, chip efficiency, measured in GH/J has increased by an average annual rate of nearly 80% while the chip cost per hash ($/TH/s) has fallen by an annual rate of nearly 50%.”
Increasing Geographical Distribution Among Miners
The growing animosity from governments and the regulatory pressure have pushed bitcoin miners to set up facilities in the Nordic countries, Canada and the north-western United States.
The study concluded the market-average marginal cost for creating a bitcoin was $6,400, as on May 11, 2018. It indicated over the last 4.5 years and on an annual basis, the hashrate has approximately tripled, mining hardware efficiency has doubled, and hardware costs halved.
Importantly, the study noted that contrary to many claims, bitcoin mining is mainly powered by renewable energy, with hydroelectricity being the dominant source.