Bitcoin: Cryptocurrency Mining Still Rising Despite Huge Price Drops

The value of Bitcoin and other cryptocurrencies has plummeted in recent weeks, but the computing power dedicated to the industry continues to rise

Technique


May 17 2022

Artist’s impression of physical cryptocurrency

Mark Brussels / Alami

Cryptocurrency mining continues to consume increasing amounts of computer power, despite the global drop in prices making it a less attractive economic proposition.

Miners of currencies such as Bitcoin and Ethereum are rewarded with a cryptocurrency that fluctuates in value compared to traditional currencies, so although their costs may be expected, their income varies. On November 8 last year, the bitcoin price was above £50,000, while on May 15 it was just under the halving at £24,244. Ethereum fell from £3,567 to £1,647 over the same period.

Despite these falls, the miners seem to be resilient. The total Bitcoin network hash rate, a metric that tracks how much computer power is devoted to mining, continues to reach all-time highs. The latest data from the Cambridge Center for Alternative Finance (CCAF) shows it reached 248 exashhs in February, while the latest data shows it has continued to rise in the intervening months. Ethereum miners have also proven resilient in the face of falling prices. On May 15, the Ethereum hash rate sat at 1,103 terahs per second, according to data from YCharts, while the previous year the rate was just 613 terahs.

The increase in the hash rate is raising concerns about the carbon footprint of the crypto sector, as arithmetic intensive operations generally require more electricity to be used. This will likely be offset by a shift to more efficient computing devices, says CCAF’s Alexander Neumüller. It estimates that the current annual electricity consumption of bitcoin is 141 TWh, compared to the amount used by Egypt.

“Without a doubt, network fragmentation is an important variable, but the answer to the question of power consumption is more complex,” he said. “In our model, we assume that miners are rational economic agents — in other words, they only operate profitable hardware. So, with lower profitability, it is assumed that older, less efficient hardware should be turned off.”

Besides the recent price drops, the crypto sector is still grappling with the impact of the Chinese ban on crypto mining that went into effect last May. In today’s blog post, the CCEF says that the ban has worsened, rather than improved, the environmental impact of cryptocurrencies, as miners have sought cheaper, but not necessarily greener, energy elsewhere.

Artist Kyle MacDonald, who uses cryptocurrencies in his work and has previously published research on the energy use of Ethereum, says that a decrease in the price of the coin should lead to a decrease in mining, but that this can happen over longer periods of time. “Right now, despite the price drop, we are not seeing any unusual decline in the hash rate,” he says. “There is a slight downtrend in bitcoin at the moment, but not beyond the usual range of variance. In another week, we may be able to see if miners are consistently stopping some of their rigs, which could indicate that they are operating on tight profit margins.”

And there are unconfirmed signs that an Ethereum slowdown could be on the way as well. An Australian-based Ethereum miner who goes by the name Josh Ward told new world The economics of mining were less attractive now that the price had fallen. “The drop in earnings is disappointing,” he says. “It made me reconsider how I see the opportunity cost of mining. On an individual level, there are quite a few people who are pulling back from mining and selling their rigs due to market disruption.”

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