Bitcoin: Cryptocurrency mining is still on the rise despite huge price drops
The value of bitcoin and other cryptocurrencies has plummeted in recent weeks, but the computer power devoted to the industry continues to rise
17 May 2022
, updated 17 May 2022
Cryptocurrency mining continues to consume increasing amounts of computer power, despite a global drop in prices making it a less attractive economic proposition.
Miners of currencies such as bitcoin and Ethereum are rewarded with cryptocurrency which fluctuates in value compared with traditional currencies, so although mining costs may be predictable, income varies. On 8 November last year, the price of bitcoin was above £50,000, while on 15 May this year, it was slightly less than half that at £24,244. Ethereum has dropped from £3567 to £1647 over the same period.
Despite these falls, miners seem resilient. They obtain cryptocurrency by performing intensive computing operations. The total hashrate of the bitcoin network, which is a metric tracking the amount of computer power devoted to mining, continues to hit all-time highs. The latest data from the Cambridge Centre for Alternative Finance (CCAF) shows that it reached 248 exahashes per second in February, while more recent data indicates that it has continued rising in the intervening months. Ethereum miners have also proven resilient to the drop in prices. On 15 May the Ethereum hashrate sat at 1103 terahashes per second, according to data from YCharts, while a year before the rate was just 613 terahashes.
An increase in hashrate raises concerns about the carbon footprint of the cryptocurrency sector, as more intense computation generally requires more electricity usage. This is likely to be offset by a switch to more efficient computing hardware, says Alexander Neumueller at the CCAF. Its latest model estimates that the current annual electricity consumption of bitcoin is 141 terawatt-hours, comparable with the amount used by Egypt.
“Without doubt, the network hashrate is an important variable, but the answer to this question is much more complex. How sustainably the electricity used by bitcoin miners was generated, and the efficiency of the hardware also play a decisive role,” says Neumueller. “We assume in our model that miners are rational economic agents – in other words, they only operate profitable hardware. Therefore, as profitability decreases, older, less-efficient hardware is assumed to be switched off.”
Along with recent price drops, the cryptocurrency sector is still wrestling with the impact of a Chinese ban on cryptocurrency mining that came into force last May. The CCAF says in a blog post today that the ban has worsened, rather than improved, cryptocurrency’s environmental footprint, as miners have sought cheaper, but not necessarily greener, energy elsewhere.
Artist Kyle McDonald, who uses cryptocurrencies in his work and has previously published research on the energy use of Ethereum, says that a reduction in the price of a coin should lead to a reduction in mining, but that this can happen over longer timescales. “Right now, despite the dip in price, we’re not seeing any unusual dip in hashrate,” he says. “There is a slight downward trend right now in bitcoin, but not outside of usual variability. In another week we may be able to see if miners are consistently turning off some of their rigs, which would indicate that they are operating on narrow profit margins.”
And there are anecdotal signs that an Ethereum slowdown could also be on the way. One Ethereum miner based in Australia, who gave his name as Josh Ward, told New Scientist that the economics of mining were less attractive now that the price had dropped. “The drop in profits is disappointing,” he says. “It’s made me reconsider how I view the opportunity cost of mining. On an individual level there are quite a few people backing out of mining and selling their rigs due to the market crashes.”
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