Arcane Research has released a new study in which they look at the future energy consumption of Bitcoin. Bitcoin mining is under a microscope because of its high energy consumption. Will it continue to do so in the future?
Let’s first look at the current situation, because as you’ve probably noticed in your own wallet, energy prices have skyrocketed.
Bitcoin price halved
Bitcoin miners, of course, had a great 2021, with an unprecedented rise in the price. But since the beginning of the year, the price has halved, which in theory also means half income for the miners.
Bitcoin mining break even
Miners’ entire revenue model is directly tied to the price of energy. Because it is a proof-of-work network, miners must take into account their electricity costs to determine their income and profit margins. As the price of bitcoin falls, so have revenues for miners, and finding cheaper electricity is one of the best ways to restore profit margins.
In 2021, miners earned $500 per MWh of energy used by the Antminer S19. At an energy price of $40 per MWh, this represents over 1000% profit. With the drop in the price, miners are now earning only half per MWh.
Cheap energy and more economical bitcoin mines
These extreme profit margins have naturally led many newcomers to purchase Bitcoin miners and existing miners to expand. These miners can now look back on 2021 only with nostalgia, as profit margins have collapsed due to the sharply declining bitcoin price and more hashrate coming online.
According to Arcane’s chart above, the break-even price to mine bitcoin is at $40 per MWh. That means that if miners are still using the 6-year older Antminer S9, they are actually not making a profit anymore.
Arcane concludes that in the long run, the only solution to survive as a miner is to gain access to cheaper electricity.
‘Bitcoin mining is an exceptionally competitive industry and miners with higher electricity prices will gradually be squeezed out of the industry. This means that as the industry matures, the average electricity price in the industry will gradually decline. In the long run, the only miners who survive will be those who use stranded and undervalued energy or are paid to serve as ‘energy tools’ ’
Energy is 50% of cost bitcoin mines
Arcane is also looking to the future. According to a NEW RESEARCH 50% of the costs for miners consist of energy costs. The study was written by Jaran Mellerud and he expects that the average energy price per MWh will not change in the future. So this is because the mining industry is ultra-competitive and miners with higher energy prices simply will not be profitable anymore.
Mellerud writes:
‘Bitcoin mining is a location-agnostic industry, which means you can set up a mining operation virtually anywhere. By 2040, I think most bitcoin miners will be using stranded energy sources that are much cheaper than grid power. Some miners may still be connected to the grid, but they will reduce their energy costs by offering demand response services or selling the heat output of their machines.’
Three scenarios’s bitcoin price 2040
Bitcoin mining consumes 88 TWh per year or 0.05% of the global energy consumption of 173,340 TWh. Historically, energy consumption moves with the bitcoin exchange rate. If the price rises then bitcoin mining could grow into a much larger energy consumer.
Because it is not certain what the exchange rate will be in 2040, Mellerud has developed three scenarios’:
- Bitcoin will be worth $2 million in 2040
- Bitcoin will be worth $500,000 in 2040
- Bitcoin will be worth $100,000 by 2040
He has plotted these scenarios’ in the chart below. If bitcoin becomes worth $2 million, it is associated with an annual energy consumption of 894 TWh.
This means that the Bitcoin network will consume 10 times more energy compared to today. This energy consumption is equal to 0.36% of the estimated global energy consumption in 2040, which is a big increase from Bitcoin’s current 0.05% share.
Transaction fees bitcoin
These three scenarios do not tell the whole story, as much also depends on transaction fees. This is the second way for miners to make bitcoin/money. Not to mention the halving. Every four years, the number of bitcoins a miner can earn per block is halved.
So the study concludes that while the growth of the bitcoin exchange rate encourages more mining and higher energy consumption, the halving has just the opposite effect.
Halving means that the price must continue to rise at a tremendous rate for Bitcoin’s energy consumption to increase in the long run. The balance between exchange rate and halving can be upset if transaction costs rise (or fall). But that will only happen if many more transactions will take place on the network.
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