While bitcoin and other cryptocurrency’s value has fallen in recent weeks however, the amount of computer power dedicated to the industry is still rising
Despite a drop in global prices, cryptocurrency mining continues using increasing amounts of computer power. This makes it less attractive economically.
Bitcoin and Ethereum miners are paid with cryptocurrency that fluctuates in value relative to traditional currencies. This means that although mining costs can be predicted, income is unpredictable. The price of bitcoin reached PS50,000 on 8 November 2013 and was just below half its current value at PS24,244. On 15 May 2014, it was barely lower than half of that at PS24.244. Over the same time, Ethereum’s price has fallen from PS3567 down to PS1647.
Miners are resilient, despite these drops. They acquire cryptocurrency through intensive computing operations. The total hashrate of bitcoin’s network, which measures the amount of computing power used to mine the cryptocurrency, is at an all-time high. According to the latest data from the Cambridge Centre for Alternative Finance, it was 248 exahashes per seconds in February. More recent data shows that it has been increasing over the past months. The drop in Ethereum prices has also proved resilient for Ethereum miners. According to data from YCharts on 15 May, the Ethereum hashrate was at 1103 terahashes/second, compared to 613 terahashes a year ago.
Concerns about the carbon footprint of cryptocurrency sector raises with an increase in hashrate. More intensive computation generally requires higher electricity consumption. This could be offset by a shift to more efficient computing hardware, according to Alexander Neumueller from the CCAF. Its most recent model estimates that bitcoin’s current annual electricity consumption is 141 terawatt hours, which is comparable to Egypt’s.
While the network hashrate is a significant variable, the answer is more complicated. Neumueller says that the sustainability of the electricity generated by bitcoin miners and the efficiency in using the hardware play crucial roles. In our model, miners are assumed to be rational economic agents. They operate only profitable hardware. As profitability declines, it is assumed that older, less efficient hardware will be turned off.
The impact of the Chinese ban on cryptocurrency mining, which was in effect last May, is still a problem for the cryptocurrency industry. In a blog post, the CCAF states that the ban has actually made cryptocurrency more environmentally-friendly than it has helped. Miners have been looking for cheaper and greener energy.
Kyle McDonald, an artist who uses cryptocurrency in his work, has published research about the energy use Ethereum. He believes that a decrease in the price of a coin should result in a decrease in mining but that this could happen over longer periods of time. He says that despite the price drop, there is no unusual dip in hashrate at this time. “There is a slight downtrend in bitcoin right now, but it is not beyond the normal variability. We may see if miners are turning off their rigs more often in the next week, which could indicate that they have narrow profit margins.
Anecdotal evidence suggests that an Ethereum slowdown may be imminent. According to New Scientist, an Australian Ethereum miner named Josh Ward said that the economics and benefits of mining are less appealing now that the price has dropped. He says that the drop in profits was disappointing. “It has made me rethink how I see the opportunity cost of mining. There are many people selling their rigs and backing out of mining due to market crashes.