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Bit by Bitcoin mining

“You load sixteen [terawatts], what do you get?
Another day older and deeper in debt
Saint Peter, don't you call me 'cause I can't go
I owe my soul to the [electrical] store” — Merle Travis, with updates by Gary Goodwin

As you already know, Bitcoin is all the rage. If I wrote this in 2017, then it would be true. In 2018, not so much. Bitcoin was valued at more than $19,000 on some exchanges several months ago. The spectre of government regulation has knocked this down somewhat. Bitcoin used to appear on the head banner for The Globe and Mail alongside the S&P 500 index. Now you have to do a google search to find that the value of Bitcoin has dropped below $9,000 [$8,353.46 on June 22].

Notwithstanding the price volatility, the benefits of mining Bitcoin remain attractive for those that know where to look. And by look, I mean look for cheap electricity.

Back in the heyday, you could use a simple laptop to mine Bitcoin. Now, for any chance of success, you have to run a server farm. Perhaps we can change the metaphor from mining, which suggests gold, to farming, which suggests easily washable boots.

Countless computers across the globe attempt to mine Bitcoin by solving an algorithm. This proves and validates the correctness of a new transaction. Every 10 minutes or so, some lucky miner solves the algorithm and receives a reward of 12.5 bitcoins. All the other computers verify this and then stop what they are doing and start at the beginning again.

If you consider the process wasteful, you would be correct. The Bitcoin mining process now takes up more electricity than the majority of countries use. Current estimated consumption is 61 terawatts per hour. Bitcoin mining needs the equivalent of the yearly electrical requirement of Switzerland and just a bit more than that of Colombia. This power could sustain more than five million households. Just a short while ago, some pundits were claiming that mining Bitcoin would be the major user of power by 2020. But projecting exponential growth from the past into the future never really pans out.

They refer to aluminum as electricity in solid form. Now they can refer to Bitcoin in the same sense as converting electricity into something else marketable, but Bitcoin still remains ethereal.

Mining produces revenues of $6.3 billion and costs of $3 billion, providing a substantial margin of 48% plus other costs. Needless to say, the carbon footprint of this type of mining is quite extensive since a number of countries rely on coal. China plans to limit the amount of electricity to miners, which are estimated to be using up to four gigawatts of electricity — or about three nuclear reactors’ worth of energy. Plattsburg in the United States placed an 18-month moratorium on crypto-mining owing to the extensive electrical use.

Debate rages as to the actual electrical usage, but no one really knows what happens in the black box. Suffice it to say that a lot of energy is being wasted on chasing an algorithm that someone else will likely solve.

There are only a limited number of bitcoins and more people are chasing them with increasing levels of computing power. The electrical requirements today are quite substantial since everyone has to obtain this “proof-of-work” standard to qualify their bitcoins. Think along the lines of “will-the-sun-rise-tomorrow?” probability. A lower standard such as a “proof of stake” may qualify, but the security standard would be lacking. Think along the lines of “will-I-rise-tomorrow?” probability. I’m usually pretty good, but I might be wrong some day.

A single Bitcoin transaction takes the energy equivalent of thousands of credit card transactions. So, actually, the cost of a Bitcoin transaction is more akin to being “priceless.”

The security of bitcoins do come into question since there has been substantial hacking in some countries. Bitcoin can be like the canary in the crypto-currency mining process. But instead of the canary dying, we are talking about the crypto-canary disappearing completely and instantly.

The disappearance of all remaining Bitcoin to be mined would be the signal that someone successfully created a quantum computer. The first use of such a computer would likely not be to solve the mysteries of the universe but, rather, to solve the algorithm to grab the balance of the bitcoins to be mined.

This may take 10 years, or perhaps less. As Yogi Berra opined, it’s tough to make predictions, especially about the future.