A recently-published report suggests that more than three-quarters of Bitcoin (BTC) mining activity relies on cheap renewable energy in order to remain financially viable.
The report, issued by the cryptocurrency investment firm CoinShares, reprises the points which the company’s researchers made last May, and again in November: that a significant amount of mining activity is powered by renewables.
In China, where 60% of all mining operations appear to be based, heavy government subsidies have led to some provinces generating large surpluses in cheap green energy.Many of these regions also have high concentrations of mining operations.
In Sichuan, home to around 80% of China’s miners, and 48% of the global total, investment bank Morgan Stanley estimates that renewable energy counts for around 90% of the province’s electricity supply. The report concludes: “We can then reasonably estimate that 43.2% of global Bitcoin mining is powered by renewables in Sichuan.”
The same is true in some of the regions outside of China, which the researchers estimate is home to 40% of global mining. Canada, the northern states in the USA and Scandinavia all have high penetration rates for renewable energy, as high as 79%. The report argues, at the very least, for “77.6% total renewables in Bitcoin’s global electricity mix and an upper bound of 22.4% fossil/nuclear.”
The report even suggests that, based on the researchers’ estimates, global energy consumption from the video gaming industry may exceed that of the Bitcoin mining network by 0.2 GW, enough electricity to power 130,00 residential homes.
Bitcoin miners go green to stay black
Researchers at CoinShares highlighted that market conditions have changed considerably since the publication of their last report. The Bitcoin price has more than halved from around $8,500 to $4,000 at the same time that hashrate has increased from 30 EH/s to 40 EH/s.
Based on current assumptions on the cost of mining rigs and operational expenditure, the report argues that in the current market conditions, the “average miner” is either “running at a loss and unable to recover capex [capital expenditure]…or paying less for mining gear than our estimates.”
Mining makes a proof-of-work (PoW) network secure; the more miners there are, the more secure the network is and the better it performs.
As Crypto Briefing has previously reported, mining actually adds value to Bitcoin network because it makes the network more secure. But this feedback loop can also work in reverse when prices sink, as it disincentivizes miners to continue operating on the network.
As CryptoCompare bleakly reports, no one could ever hope to make a return on investment if they set up a small-scale Bitcoin mining operation today.
When the May report was published, researchers estimated that, at the current price of about $8,500 per bitcoin, miners could hope to make $1,100 for every block mined.
Now with prices more than 50% below their May levels, profits have evaporated. Combined with a significant increase in network difficulty, present market conditions will “certainly put pressure on many miners.”
The report highlights that it is still just possible to make mining profitable, but only with very low energy costs. If the average miner is running at a loss, cheap renewables aren’t just a good bit of PR, they could be all that’s keeping them financially afloat.
The author is invested in digital assets, including BTC which is mentioned in this article.