Bitcoin mining is a process of creating new bitcoins by solving complex math problems. In return, the miner is rewarded with a fixed amount of bitcoins. The value of bitcoin has risen rapidly since its introduction in 2009, resulting in a huge interest in mining. The high costs and lack of good prospects have discouraged most people from taking on the task, though.
Resource-intensive
Bitcoin mining is a resource-intensive industry, requiring massive amounts of electricity. Many miners have been moving to areas with cheap energy, such as Kazakhstan, where coal is plentiful. Some governments have become wary of the cryptocurrency, as well, and have already placed restrictions on the process. However, the environmental impact of Bitcoin mining is still unclear.
Mining cryptocurrency is not only energy-intensive, but it can also cause emissions. It also creates hardware pileup, as miners want the most efficient and powerful machines. Because of this, Bitcoin mining can lead to a huge amount of e-waste. In China, for example, two-thirds of the country’s electricity comes from coal. Although the government is trying to move towards renewable sources of electricity, no official agency is keeping track of the amount of energy Bitcoin miners are using.
Complexity
The complexity of bitcoin mining has decreased by 28% over the past four months, the biggest drop in the history of Bitcoin. The decline is caused by three consecutive downward corrections in the infrastructure. The first correction took place on May 29 and the second one took place on June 13. In addition, widespread closures of mining facilities in China have affected the stock market, which has promised to crackdown on the cryptocurrency.
Unlike conventional currencies, Bitcoin is purely online and is powered by blockchain technology, a decentralized computer network. This system tracks group transactions across the network. In the process of mining, computers in different parts of the world solve mathematical tasks. They then secure these blocks by creating a hash for the block. This process is complicated and requires a lot of computing power, and a lot of energy. One estimate indicates that bitcoin mining uses as much energy as the country of Spain.
Environmental impact
Bitcoin mining is already impacting the environment. According to a study by the University of Cambridge, power usage for Bitcoin mining in China is set to peak at 297 terawatt-hours in 2024, which is higher than the carbon emissions produced by Qatar and the Czech Republic combined. In addition, the computing power needed to maintain the Bitcoin network consumes almost as much energy as Argentina.
Much of this energy is generated in China, where cheap hydropower is plentiful. Because this energy is abundant and cheap, bitcoin operations tend to cluster around areas where it is cheaper to generate it. This is not to say that the energy used by Bitcoin mining is environmentally benign – it is highly competitive, mobile, and often close to the nearest power grid.
Cost
Bitcoin mining is a lucrative business, but it is also expensive for the average person to undertake. It requires a large amount of equipment, often costing more than $10,000, and access to reliable, inexpensive energy and broadband internet. It also has a large environmental footprint. As of 2021, Bitcoin mining is estimated to consume 91 terawatt hours of electricity each year, much of it from fossil fuels.
The cost of mining has fluctuated in the past several years relative to the volume of transactions. However, it has not been increasing over time. Instead, it has been fluctuating within a narrow band. The largest variations occurred in the first few years, and after 2014, the ratio stabilized into a plateau. In the last few months, it has jumped to a higher plateau.
Regulation
The legal risks and challenges associated with bitcoin mining are numerous. In order to mitigate them, it is important to have a clear picture of the legal landscape and to make a top-down commitment to compliance. The mining industry needs to avoid unnecessarily risky litigation and be prepared to defend itself during federal audits.
Several federal agencies are involved in the regulation of bitcoin mining. First, the Federal Trade Commission oversees the industry and has filed several enforcement actions against miners. In addition to general FTC requirements pertaining to data security and truth in advertising, bitcoin miners must adhere to regulations set by the Securities and Exchange Commission. These agencies must approve various aspects of bitcoin mining operations and negotiate with them to ensure compliance.
Another issue related to the mining of bitcoins is the energy consumption of these operations. The mining of cryptocurrency involves specialized computers that consume huge amounts of electricity. In 2019, bitcoin’s annual electricity consumption was equivalent to that of Hong Kong. As a result, some cryptocurrency miners are looking to find ways to reduce their fossil fuel use.
