Not interested in cryptocurrencies? Do you think that if you don't buy Bitcoin, everything will not affect you? Think again.
Globally, cryptocurrency mining uses as much electricity as the Netherlands. All of this energy use has serious impacts on the climate. And research shows that it may be driving up household electricity bills.
It's less clear how much energy is used to mine cryptocurrencies in the U.S., and what impact it has on the overall energy system. One U.S. government agency is trying to figure it out.
The Energy Information Administration, which tracks and reports energy usage, announced plans to begin collecting data on electricity usage by cryptocurrency miners in the United States. The agency plans to begin investigating cryptocurrency mining companies in February, and companies will be required to provide details of their energy usage.
“We will continue to analyze and write about the energy impacts of crypto mining activities in the United States,” EIA Director Joe De Carolis said in a January 2024 news release. “We specifically focused on how the energy demands of crypto mining are evolving, identifying high-growth geographic regions and determining the power sources used to meet the demand for crypto mining. Quantify it.”
Research shows that crypto mining operations can increase utility bills for people living around them, but this is a relatively new and rapidly changing problem. Here's what that means:
Cryptocurrency mining consumes large amounts of electricity
Anyone who writes about the energy use of cryptocurrencies is obliged to compare it with a country. According to the University of Cambridge's Bitcoin Energy Consumption Index, Bitcoin mining is estimated to have used 121.13 terawatt-hours of electricity worldwide in 2023. According to the International Energy Agency, the entire Netherlands, with a population of more than 17 million people, consumed 121.6 terawatt-hours of electricity in 2022. .
Why so much power? Basically, cryptographic tokens are generated by having a computer solve complex puzzles. This requires a lot of computing power and is usually done by a dedicated computer that performs calculations 24 hours a day. All of these computers generate a lot of heat, so these facilities typically have energy-intensive cooling systems installed.
Not all crypto tokens are as energy-intensive as Bitcoin. Ethereum underwent a major change (called a merge) in 2022 that significantly reduced its energy requirements.
In the case of Bitcoin in particular, energy demand tends to increase as miners produce more due to an increase in the price of the token itself. Bitcoin's price fell well below $20,000 at the end of 2022, but is now above $40,000, boosting demand. The Cambridge index estimates annual energy demand at current rates to be around 165 terawatt hours.
In a memo outlining the need for a new EIA study, De Carolis cited rising Bitcoin prices as a reason to further analyze the industry's energy usage. “As of this writing, much of the central United States is experiencing a deep freeze, resulting in increased demand for electricity,” he wrote. “The combined effects of increased cryptomining and a stressed power system will increase uncertainty in power markets, leading to demand peaks and system disruption, as occurred in Plattsburgh, New York, in 2018. and consumer prices. This situation could materialize or disappear” rapidly. “
Why energy consumption of cryptocurrencies is important
All this electricity demand has a ripple effect through the energy ecosystem. First, consider where the United States gets its electricity from. According to the EIA, the largest source of electricity is natural gas, accounting for about 39% of net electricity generation in 2022. Another 20% was derived from coal. Burning fossil fuels such as coal and natural gas for electricity is a major cause of climate change, and total electricity generation from renewable sources such as wind and solar will account for only 21.3 of the United States' electricity generation in 2022. It is only %.
Crypto's thirst for power is growing amid a sector-wide electrification push to wean the world off fossil fuels. The power grid is also facing pressure from things like electric vehicles and all-electric heating and cooling systems.
As De Carolis pointed out, severe electricity demand from crypto mining could also cause price fluctuations. A study published in 2023 by researchers at the University of California, Berkeley and the University of Chicago estimated that crypto mining could cost households in upstate New York $88 a year in extra utility bills.
Increased demand from cryptocurrency mining can affect anyone's electricity bill, but it can have a more direct impact if electricity prices change in response to demand. Additionally, power outages may occur more frequently if the power grid cannot keep up with demand.
The EIA's justification for the study also specifically points out the impact of cryptocurrency mining's energy use during moments of stress on the power grid, such as during extreme weather events such as cold snaps in winter or heat waves in summer.
There are several ways to protect yourself from changes in the energy market. If you live in a state that allows you to choose your energy plan, one option is to consider a long-term fixed rate plan.
Why not consider purchasing solar panels and household storage batteries? Solar panels allow you to become your own source of electricity, regardless of market prices. Batteries can store energy when prices are low so it can be used when prices rise. Batteries can also provide power during power outages when the power grid goes down.