Who is paying for BTC's energy bill?

Who is paying for BTC's energy bill?

From Syed Kashif Ali

Millions of people have never miningBTC or used it for transactions, but they are still paying for the existence of BTC.

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Millions of people have never miningBTC or used it for transactions, but they are still paying for the existence of BTC. Matteo Benetton and Adair Morse of the University of California, Berkeley and Giovanni Compiani of the University of Chicago Booth School of Business pointed out that this is because the vast hash rate required to create a new BTC consumes a lot of electricity, which drives up the energy consumption of residents and businesses.

Researchers estimate that in the United States, cryptocurrency mining will cost household and corporate taxpayers $1 billion each year. In China, BTC miners consume so much electricity in some areas that the government needs to adjust relevant policies to clear them, hoping to reduce coal consumption and help achieve its carbon emission reduction goals. At this time, cheap electricity in Texas and other places in the United States may make the United States the central refuge for these cryptocurrency miners.

BTC mining, also known as cryptocurrency mining, generates new BTCs by solving increasingly complex problems, just like using a computer to ‘shovel’ a complex code. As more and more tokens are mined, the puzzle's difficulty will increase, and people engaged in this activity will need more and more powerful computers. Researchers said that BTC mining currently consumes 0.5% of the world's electricity, and demand continues to rise.

Benetton, Compiani, and Morse focused their research on the two major global BTC mining farms in northern New York State and China. They analyzed China and New York, respectively, since 2007 (just before BTC was launched in China) and 2016 (shortly before North New York became a mining center), their respective electricity prices, electricity usage, and BTC prices public record. Benetton and Compiani also received financial support from the University Blockchain Research Initiative launched by Ripple Labs, the issuer of the cryptocurrency XRP.

A quarter of all cryptocurrency mining in the United States is carried out here in upstate New York. As the demand for mining grows, electricity bills also rise. Studies have shown that the electricity consumption required for BTC mining causes households in this area to pay an additional US$165 million in electricity costs each year, and companies need to pay an additional US$79 million each year.

On the other side of China, more than two-thirds of the world's encrypted mining has occurred here in the past ten years, and the related mechanism of electricity prices prevents it from being affected by demand. In addition, the study pointed out that BTC miners here forced electricity rationing by squeezing other industries out of the market.

When Benetton, Compiani, and Morse analyzed the exchange rate of BTC against the U.S. dollar, they found that when the price of BTC remains high, its impact will be magnified. This is because cryptocurrency miners are often paid in BTC, ‘so the higher the price of BTC, the higher the return and the higher the enthusiasm of the miners,’ Compiani said.

Researchers also found that fixed-asset investment fell by 0.36% per year when cryptocurrency miners entered the Chinese market and wages fell by 0.68%.

Regarding the impact of cryptocurrency on the local economy, one of the possible solutions is additional levy taxes by the government. However, due to the high taxable profit rate of BTC, most governments have regarded BTC mining as a stable source of income. Those who rely on BTC mining for tax revenue will worry about additional taxes. Expropriation will cause it to move to other areas.

At the same time, the researchers' calculations pointed out that in northern New York, cryptocurrency mining only increased taxes by 40 million U.S. dollars, while the local welfare cost, including high electricity bills, has exceeded 240 million U.S. dollars.

This is not to say that BTC mining brings only disadvantages. On the contrary, the researchers pointed out potential benefits, such as the taxes paid by cryptocurrency mining. They suggested that future research can benefit society, such as the democratization of the payment system. Nevertheless, because researchers did not consider the environmental impact of cryptocurrency mining, they are overly optimistic about the total social cost of cryptocurrency mining.

It is worth noting that the upper limit of BTC supply is 21 million. Since 2010, nearly 19 million have been mined. Although BTC supply restrictions seem to make the energy consumption problem disappear, this will not happen in the short term. The problem of mining BTCs is becoming so complicated that mining the last batch of BTCs will take longer and consume more energy.

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