Ever since bitcoin rose from the muddy bottom of the World Wide Web to the global phenomenon that it is today, many attempts have been made to understand exactly what this computation-based currency is about and how it may affect the world. The general public is pretty much divided in its opinion on bitcoin with advocates claiming it to be “the most disruptive tech in decades” and the detractors saying it is “the biggest bubble in human history”.
But a profile of East Wenatchee, a town in Washington, by Paul Roberts in Politico Magazine, provides us with a wonderful insight on the physical reality of bitcoin mining. Regardless of what bitcoin is, it is above everything else a way of transforming electricity into money.
Bitcoin mining is technically the act of programming computers to solve very complicated math problems in a puzzle competition that gets more and more complicated as time goes on. The hardware and software needed to achieve this are, more or less, commoditized. Bitcoin miners are basically mining electricity.
In order to make money as a bitcoin miner, you need two very important things: scale and access to cheap electricity. This is the very reason why a lot of bitcoin miners are now scurrying all over the world to look for low-cost electricity. Cheap electricity is normally found in areas near big dams. In the right geographical conditions, hydroelectric power can be used to produce the cheapest power on earth. East Wenatchee one of the perfect locations for generating cheap electricity for bitcoin mining.
Before crypto mining came into the region, East Wenatchee locals enjoyed cheap electricity prices because the local utility sold power at higher pries to other states. East Wenatchee’s five huge hydroelectric dams, all owned by public utility districts, produce approximately six times as much as the state’s residents and businesses can use. Most of the surplus electricity is then exported, at higher prices, to markets like Los Angeles and Seattle. By doing so, the public utility district is ale to sell power locally well below its production cost.
Bitcoin miners then, seized on the opportunity to capitalize on this subsidized electricity. According to Roberts, this was an investment that initially paid off. “By the end of 2018, according to estimates, miners here could account for anywhere from 15 to 30% of all bitcoin mining in the world”, he writes.
Five years ago, the number miners setting camp in East Wenatchee might have caused a decent bump in electricity consumption, but keep in mind that bitcoin mining is basically designed to use more resources over time. In order to keep up, miners have to make huge leaps in scale. In 2012, a bitcoin mining company might have measured its consumption in kilowatts, but now these mining outfits are scaling up so fast that we’re basically talking about consumption in gigawatts!
“Over the past 12 months or so, the three public utilities reportedly have received applications and inquiries for future power contracts that, were they all to be approved, could approach 2,000 megawatts—enough to consume two-thirds of the basin’s power output” Robert stresses.
New infrastructure will be needed in East Wenatchee in order to keep feeding the mining rigs. Obviously, the costs for the substations and distribution lines will fall, in part, on the public utilities. It’s a lot of work. And what if the mining industry collapses? What will happen to the locals? They will be left with overbuilt and costly electrical infrastructures and empty warehouses.
Another point we also need to consider is that the scaling process for bitcoin mining cannot stop. This is simply how the system was built. Even if bitcoin mining’s power needs are still negligible, the electrical consumption would have to keep growing at breakneck pace in order to realize the technology’s backer’s visions.
In this age where climate change requires full attention and demands that energy needs be bent downward, bitcoin miners sucking up humungous supplies of cheap and carbon-free hydroelectricity is a massive problem. It’s an even bigger problem in China where most mining is done with electricity subsidized from coal-fired power plants.
This issue alone could be detrimental and discount the wide range of benefits we could get from cryptocurrencies. Let’s say that blockchains are useful but are they worth the energy they require for completing complicated computations?
In the end, we all can agree that access to electricity is one of the keys to economic development. However, it also stands as another reason to push for the regulation of bitcoin and other cryptocurrencies.