How Cryptocurrencies' Rise Affect Electricity Supply
How the Growth of Cryptocurrencies Could Affect Electricity Demand and Prices
From the earliest point of human history, humans traded and bartered for the goods and services they desired. The modern era has grown to trade in currencies such as dollars, rubles or yuan. This system ultimately depends heavily on third party financial institutions such as banks. Enter the modern era. No longer do people need to depend on centralized banks to keep their money and financial transactions secure. The newest development in currency is cryptocurrency, but its ease and growing accessibility have a downside due to extremely high energy usage. So, what is this currency, and how can it affect electricity rates for everyone?
What is cryptocurrency?
The opposite of a currency like dollars or pounds that has centralized, government backing and which can be easily tracked, cryptocurrency is a decentralized, anonymous way to make financial transactions. Bitcoin, the first fully implemented decentralized cryptocurrency, remains the most popular and holds big-name recognition because of its quick growth. Other cryptocurrencies can be referred to as altcoin in general, with prominent names including the second-largest Ethereum, LiteCoin, PeerCoin and numerous others.
If you want to go in-depth to find out more exact terminology and process, feel free. Included here is just a basic description in order to present the general idea.
What is cryptomining?
Cryptomining is the decentralized process by which a miner uses specialized software to solve complex mathematical problems/formulas/transactions in return for some sort of altcoin (aka when mining for bitcoin, payment in bitcoin). Mining in the Bitcoin model involves solving a "block" of computations in order to add the completed block to a "block chain." Mining serves two primary purposes: 1) to confirm financial transactions in an open manner when enough computational power is expended on the individual block and 2) to reward the miner with cryptocurrency (in this case, bitcoin) for his/her work on each block.
How do cryptocurrencies and cryptomining affect electricity prices?
This is where things become interesting. Notice that the first purpose of mining involves computational power being expended on the block of transactions. In order to collect bitcoin, miners must have several key items: 1) adequate computer hardware and programs 2) electricity supply 3) time. When you consider that both Futurism and ING claim that "a single bitcoin transaction consumes enough energy to power the average household for an entire month." you can see how electricity supply may struggle to meet demand. In fact, according to Futurism, bitcoin mining as a global phenomenon accounts for the same amount of electricity consumption as the entire country of Ireland. And Bitcoin is just one of many cryptocurrencies in today's booming cryptocurrency market.
The majority of Bitcoin mining is done in China through mining farms where hundreds of computers (and fans to cool them) are grouped together under one roof. Since electricity costs are lower in China, miners are able to pool resources to build these farms. However, the idea of mining farms is growing in Europe and North America, putting additional strain on electrical systems that already receive heavy use.
Experts are concerned that the high rate of energy usage burned by mining and creating blockchain will fonly continue to increase, putting a world still dependent on fossil fuels into an even more precarious position. It is easy to see how increased demand for power could result in an increase in electricity rates in the near future.
What are some possible future developments in electricity markets based on the effects of cryptocurrencies?
Although Ethereum, the second largest after Bitcoin, is currently using a blockchain with a "proof-of-work" set-up, the company plans to shift its model to a "proof-of-stake" system this year which puts less pressure on the power systems currently in place. Created specifically for business use, Ethereum has positioned itself to grow in usage, so its efforts to take a greener approach are commendable.
However, many companies involved in cryptocurrencies are not concerned with conserving electricity. Demands will most likely continue to rise, possibly resulting in moves to alternative energies such as solar power. Additionally, government regulation of business electricity usage could grow, although how it could play out in the world marketplace remains to be seen.
In the short term, it's probably safe to say that home and business electricity rates will most likely rise, so taking steps now to reduce what your home or business needs would be a wise step looking toward the future.
If you would like to see current electric rates you can find them here.