First Bitcoin Mining Conference Hashes Over the High Cost of Energy
Bitcoin mining uses as much electricity as Ireland, and by the end of 2018, the Bitcoin network will be using as much energy as Austria, according to a new report by Alex de Vries of the Experience Center of PwC in the Netherlands.
Billed as the first serious, peer-reviewed study of energy use in crypto mining, the report has set off alarm bells, adding to current concerns about the impact of future mining energy consumption on environmental issues like climate change.
At the first-ever conference for crypto mining, held on May 17, 2018, in New York City, an expert panel hashed out the implications of rapidly growing energy consumption among miners worldwide.
Amber D. Scott, CEO of Outlier Solutions, moderated a panel of experts that spoke about the energy issue as part of a discussion on the topic of proof of work (PoW) vs. proof of stake (PoS).
Scott told Bitcoin Magazine that there was a lot of discussion at the conference about the new energy report in part due to the attention it’s currently receiving in the press.
“This is an area where there is a spectacular amount of FUD [fear, uncertainty and doubt],” she noted. “This is in part because it’s a nuanced issue that can’t be summed up in simple statements about net energy consumption.
“I think that part of the reason that Bitcoin has been a ‘target’ in this respect is that there are relatively straightforward calculations in terms of power consumption in conjunction with the underlying value not being well understood or widely accepted. For instance, few people question the utility costs of a bank or ATM, and the energy consumption cannot be calculated in a straightforward way,” she added.
Scott Howard, CEO and co-founder of Toronto-based ePIC Blockchain Technologies, told the conference audience what many there were already saying: that the energy consumption issue is “fake news” and has been oversimplified to suit Bitcoin opponents.
High Energy and Environmental Costs of Traditional Fiat and Banking
Traditional banking and fiat creation have their own high energy costs, noted a number of conference panelists, including Alex Petrov, CIO of Bitfury; Jan Čapek, CEO of Slush Pool; Samson Mow, CSO of Blockstream; and Howard.
They talked about the high infrastructure costs, in terms of both energy and the environment, associated with traditional banking systems, including ATMs, security and servers.
“There are 3.6 million ATMs deployed in the U.S. Each of them are using 7 to 800 watts just in standby mode,” said Petrov. “This alone generates huge numbers of electricity usage, slightly higher than the Bitcoin network.
“If you add … internal banking systems, CTVs, communicating with other banks, additional protection … you get higher costs than the cost of Bitcoin,” he added.
“Gold mining consumes enormous energy. Portions of the electricity crypto mining consumes come from power generation and distribution originally built to supply ore and precious metals extraction or processing,” said Howard.
“Where traditional energy consumers like gold mines really fall down is all the other negative externalities of the ‘wealth’ they create. Gold mining during and after is one of the most toxic and destructive operations on the planet.”
Howard talked about the use of abandoned industrial sites for Bitcoin mining, like pulp and paper mills that had been closed due to dwindling forestry supplies and increased concerns about energy use and toxic waste pollution.
“Lots of crypto mines are sitting in old industrial sites with a 100-megawatt transformer sitting next to them,” he said.
By way of example, in the Q&A session that followed the panel, one conference participant talked about his mining operation in British Columbia in a partly abandoned manufacturing site where water is pumped through his mine for cooling and then recycled into a warm-water fish farm.
Mining Doesn’t Create New Hydro Infrastructure: Power Is Produced Even If Unused
After the panel, Howard reiterated to Bitcoin Magazine what other conference panelists had said: that large energy mega-projects like hydro dams produce electricity whether they’re used or not.
“To my knowledge, no one has built out any net-new power generation to supply a crypto mine. Power generation stations are major pieces of infrastructure that take years to put in place and in the range of a decade to pay off. Most power generation is done, certainly in the western world, by publicly owned and/or regulated utilities. Those stations run 24/7, 365 for decades. The energy goes onto the grid no matter what and, until we figure out storage, is a perishable commodity.
“Crypto mining takes full advantage of this, typically sucking up energy at very low prices. The prices are low because the energy can’t find more productive use, often taking over abandoned industrial sites far away from urban centers,” he added.
Čapek told the conference that “China has been overinvesting in hydro power and has large amounts of power that is not being used” as a result of overbuilding hydro dams in anticipation of industrial needs (principally aluminum manufacturing) that never materialized.
“Cheap hydro power has helped China dominate the world’s Bitcoin mining business, and this power would be generated with or without Bitcoin mining,” said Čapek, who recommended a recently released study on the energy costs of mining in China.
Čapek said a rough estimate of global Bitcoin mining energy use is 25 terawatt hours per year, only a fraction of the amount of energy used in manufacturing aluminum globally.
PoW vs. PoS
The panelists mostly agreed that proof of work’s higher energy use is necessary for real security and that proof of stake is not likely to happen soon. They noted that PoS would not give the Bitcoin network the security it needs, even if it was more energy efficient.
“The more energy that’s expended, the more security you have,” noted Mow. “The system has to be nuclear-proof.”
Petrov defended the possibility of a hybrid model of both PoW and PoS, saying, “Proof of stake may work for some specific purposes, not necessarily in the financial area but inside private blockchains.”
Mow responded that using both PoS and PoW “brings out the worst of both worlds,” while Howard noted that Dash is using a hybrid model with some success, though it’s very expensive to use.
Howard concluded: “It [Bitcoin mining] is a positive economic activity, typically in places where it is needed, as well as meaningful revenue to the utilities which are major employers and usually profit centers for governments. The ‘waste of energy’ argument, like most establishment arguments against blockchains, does not pass the test of science.”