Why is electricity shortage a major concern for crypto mining?
Many countries, including Sweden, China, Russia, Kazakhstan, Kosovo and Iceland, have cracked down on crypto mining as countries face pressure on power supplies.
Recently, Kosovo police seized 300 cryptocurrency mining machines in raids after a blanket ban was imposed on cryptocurrency mining on January 5, according to various media outlets.
Iran suspended operations of crypto miners in December 2021 due to high electricity consumption, which could have affected supply during harsh winters, Aljazeera reported.
Kazakhstan is going through violent political unrest as people protest against rising LPG prices. In Kazakhstan, electricity is mainly produced from natural gas and oil. In 2021, Kazakhstan became the world’s second-largest Bitcoin mining center after the United States, according to the Cambridge Center for Alternative Finance, Reuters reported. As of August 2021, miners in Kazakhstan alone were responsible for 18.1% of the total Bitcoin blockchain hash rate contribution, according to the Cambridge Bitcoin Electricity Consumption Index. “Hashrate is a measure of the computing power per second used when mining. This is the mining speed. It is measured in hash units/second, which means how many calculations per second can be performed,” said Kapil Rathi, co-founder and CEO of CrossTower.
In November 2021, Sweden proposed to ban crypto-mining activities in the country to meet its environmental obligations under the Paris Agreement.
In mid-2021, China banned crypto trading and mining activities. Due to crypto-mining industries drawing too much energy from the national grid, other industries suffered.
Russia accounts for 6.84% of the global bitcoin hashrate contribution. The Irkutsk region, often dubbed by the community as the crypto-mining capital of Russia; has faced widespread power outages due to huge demand from local crypto miners. The Irkutsk regional electricity company, IESC, said in a message: “High loads on the power grids and the increasing number of outages are associated with the activities of miners,” bitcoin.com reported.
Recently, in November 2021, Landsvirkjun, the national hydroelectric power company of Iceland, rejected requests from several crypto miners for more electricity supply.
Why Crypto Mining Consumes So Much Energy
Old crypto blockchains are designed in such a way that to be rewarded for their work, users must compete against other users by solving a series of computer cryptographic math problems. This is the only way to create new crypto tokens in older blockchains like Bitcoin (BTC) and others. This is called the Proof of Work (PoW) consensus mechanism. This whole process is called crypto mining.
“First-generation blockchains (Bitcoin, Ethereum, etc.) were based on the Proof-of-Work consensus algorithm, where nodes in a network are required to provide proof that they have expended computing power (work) in order to reach consensus in a decentralized way. This means that all nodes are always actively solving mathematical problems to create a block and reach consensus for a transaction,” Rathi explained.
Notably, new crypto blockchains do not rely on this consensus mechanism and consume relatively less power.
The nodes that validate and relay transactions are directly responsible for 99.8% of the total energy consumed due to bitcoin mining, according to a May 2021 Galaxy Digital Mining report.
The report states that the Bitcoin network consumes about 113.89 TWh (terawatt hour) per year in total. Annual global electricity production is around 26,730 TWh/year, almost 235 times that of the Bitcoin network
Comparison of energy consumption of Bitcoin, gold and the banking system
The Galaxy report estimated that the gold industry elements use about 240.61 TWh/year and the global banking system electricity consumption is estimated at 238.92 TWh/year, which includes the centers of banking data, bank branches, ATMs and card network data. centers.
Since Bitcoin is the oldest and most valuable cryptocurrency in the world, many miners are in this race to mine as many Bitcoins as quickly as possible. Thus, venture capitalists and several other investors poured in billions of dollars and set up their infrastructure. Traditional CPUs cannot solve complex cryptographic problems as quickly as a dedicated GPU. According to a BBC report, the Bitcoin mining industry alone consumed 121.36 TWh in 2020, placing it among the top 30 consumers of electricity in the world.
Is India ready for crypto mining?
India has over 100 million crypto users and enthusiasts, with such a high number, the crypto mining craze has also increased. “But India also lacks the basic infrastructure to support crypto mining and setting up blockchain pools in India can be tedious and expensive,” says Master Partner Varun Singhi. Mentors Advisory, a blockchain consulting firm. One way out could be increased adoption of renewable energy sources, he added.