Big cyber mining companies are producing a lot of money and using high amounts of energy.
Bitfarms is a mining company based near Montreal in Canada’s Quebec province. Mining has a long history in this area. This company is a post-industrial sort of mining firm. Its racks of humming computers, crunching through zillions of cryptographic calculations every second, are designed to mine bitcoin and other cryptocurrencies.
The location of Bitfarms is no accident. In 2016 Hydro-Quebec, the local electricity company found itself flush with relatively cheap hydro-electric energy and said it wanted to attract data centers like those run by Facebook or Google. That sparked a cryptocurrency gold rush.
Alex de Vries, an analyst at PricewaterhouseCoopers, helps to run a site called Digiconomist which keeps track of this business. He reckons that its total global revenues from such mining, even after bitcoin’s fall from its peak in 2017, are around $4.5bn a year, mostly shared among a handful of Chinese firms that now dominate the crypto-currency mining business.
The most striking statistic is the sheer amount of electricity needed to run the system. Vries estimates that bitcoin mining consumes at least 22 terawatts per hour of electricity a year and probably as much as 73TWh, which is roughly the same amount as the entire country of Austria. Ethereum, the second-most-popular cryptocurrency, eats up a further 21TWh.
This phenomenal energy hunger is implicit in the nature of cryptocurrency mining. Miners are responsible for maintaining the blockchain, but anybody can set themselves up as one, so there has to be a way to deter frivolous or malicious operators. In bitcoin’s “proof of work” system, miners demonstrate their commitment by using computer power (and therefore electricity) to supply the answer to a mathematical puzzle. Whoever solves it first is rewarded with some newly minted bitcoins.
The result is a Red Queen’s race in which miners must run just to stand still. The best way of winning is to buy ever more and ever faster computers to solve the puzzles. But the system is designed to be self-adjusting, to keep the average rate at which new blocks are generated at one every ten minutes.
The more computer power miners throw at the problem, the harder the task becomes. In the long run, says Vries, the cost of mining a block should tend towards the real-world value of the 12.5 bitcoin reward. At current prices that is about $80,000, which buys a lot of electricity.
The biggest mining company, Bitmain, founded in 2013, is privately held, so numbers are hard to come by, but according to one estimate from Bernstein, a Wall Street research firm, Bitmain may have made a profit of $3bn-4bn last year. Its owners are planning to float the company on the stock market before the end of the year.
The dominance of a few big firms in mining worries many crypto fans. They are aware that anyone who controls more than half the total mining capacity of a cryptocurrency is able to manipulate its blockchain, a so-called “51% attack”. Several smaller cryptocurrencies have already fallen victim to such moves.
For most outsiders, the bigger worry is the current system’s voracious power consumption. After its initial enthusiasm, Hydro-Quebec was so overwhelmed that it has had to call a moratorium on new applications for cryptocurrency mining. It is unclear where most mining operations obtain their electricity. But the biggest cryptocurrency farms are in China, where most of the electricity is generated by dirty coal-fired power stations.
Mindful of such concerns, some cryptocurrency developers are looking for alternative ways to secure their products, but there is little agreement on how to do it. The most popular idea is a “proof of stake” system, in which a miner’s chance of being able to add a block depends on how much of the cryptocurrency he already owns, removing the need for elaborate power-hungry calculations. But giving yet more currency to those that have the most has a whiff of plutocracy about it, and many users object.
Even the miners themselves are making contingency plans. Bitmain, for instance, is planning to diversify by launching a new series of chips designed for machine learning. Bitfarms says that bitcoin mining is merely a transient project to fund its longer-term goal: enabling business applications for the blockchains that underlie cryptocurrencies.