Bitcoin Miner Power Efficiency – Why should I care?

They say in order to make money, one should have money. So when you wish to make a profit from bitcoin mining, you shall not only need the right mining equipment but you must also pay your electricity bills. Which is why power efficiency is the talk of the bitcoin town.

As we all know that new bitcoins are produced through mining, a process where the computer expands its energy and computational resources to solve difficult math problems in order to verify a block of bitcoin transactions. Therefore, to maintain the mining capacity bitcoin miner must have a comprehensive plan so that efficiency can be maintained during their time of investment. At the core of this plan lies power efficiency.

As bitcoin attracts more miners, the mining difficulty increases and the amount of energy consumption increases too. All data consultants and bitcoin specialists are of the opinion that the amount of energy bitcoin mining consumes is challenging. Each Bitcoin transaction consumes about 300 kWh, and at the rate, in which new miners are joining the network, the level of difficulty increases. It is said it might reach 900 kWh by the end of 2019. And this shall be the trend for the next few years.

The reason this is so because greater consumption of energy also leads to equipping mining tools to become better at solving blocks. This erupts a situation to do or die, With rising difficulty, miners must be more efficient with their mining hardware such that they can operate on a greater land. However, if the mining hardware couldn’t cope up then the miner is dead. This directs that you are not mining efficiently and also speculating that the price will increase long-term but in the present scenario or in the short term you are incurring a loss. However, such situations can be rarely seen because most the large miners are very well aware of what they have signed and hence most of the operation is in black.

Another problem that arises is the hosting of several hundred bitcoin miners. Along with an increase in efficiency, there is also an increase in power and heat to run these miners. Hence the traditional data centers and bitcoin colocation startups come in the scene. The power density is the keystone to make capacity available to operate the miners. So it becomes extremely important for them to understand the utility charges. The host too charges a price keeping in mind their utility cost as well as the operational expenses.

This is also one of the reasons for miners to look out for places like Canada where electricity is comparatively cheaper.

All of this means that miners are nothing but dependent on the host, The expenses only continues to rise up as there is a floor price above the raw cost of electricity which further determines the overall profitability and performance of the system. Researches show that such mining is not profitable for the current generation of miners in the long run.

Here is a good Bitcoin mining calculator for reference: https://www.cryptocompare.com/mining/calculator/

Furthermore, there is a price that needs to be paid for the security of the network. The Bitcoin network is protected by a consensus algorithm called proof-of-work (PoW). We know that the miners are paid for solving a block. However, if the miner fails to solve the cryptographic proof, the whole process would be nullified; as there will be no record of the transaction and no blocks will be added to the chain by a miner. Therefore, it’s also the duty of the miner to maintain security which again requires a large consumption of energy. Energy is basically a simple tax paid to maintain network security.

Therefore, the whole situation of mining has become the survival of the fittest, where one miner can win bitcoins only by making the other miner to lose it. Also, alternatives that consume less energy such as proof of stake and the lighting network which are in the stage of development, once developed can be used. Still, for now, the war is on until the large miners privately fund the small miners who are eventually becoming extinct over time.

Lastly. Answering if the expenditure is worth it or not is very subjective as there is no hard data available to measure how much is bitcoin helping the society. There is no quantitative measure that says has it changed people’s lives for good? But since bitcoin miners are so sensitive about the price of electricity, this shall create a scope of research and development towards increasing the efficiency of power and energy.