As Energy Prices Soar, Bitcoin Miners May Find They’ve Found Fool’s Gold | John Naughton
IIn the bad old days, prospecting for gold was a macabre affair involving hysterical crowds, pickaxes, digging, wearing ghastly hats, standing in rivers looking for nuggets, “staking” claims, etc. The California Gold Rush of 1848-1855, for example, brought 300,000 hopes to the Sierra Nevada and northern California and resulted in the slaughter of thousands of Native people.
The new gold these days is bitcoin, a cryptocurrency, and prospecting for it has become a distinguished parlor activity, even if it’s called “mining,” for old times sake. In fact, it involves using computers to perform incredibly complicated calculations to create cryptographic “hashes” – codes that are, in practical terms, indecipherable.
Sounds daunting, doesn’t it? But actually, anyone can play the game. All you need is the right kit – a special computer for bitcoin mining called Asic (application-specific integrated circuit). These gadgets are readily available online. I’m looking at one as I write: the Bitmain Antminer S19, which costs $6,999 (£5,600) and can do 95 terahashes – 95 tn of calculations – every second.
Mining is a misleading term for the computational work required to validate transactions on the blockchain – the cryptographically protected distributed ledger that underpins bitcoin. For each “block” a miner is able to validate, they are rewarded with a certain number (currently 6.3) of new bitcoins. The value of the reward is tied to the prevailing price of the currency at that time. Not so long ago, for example, when each bitcoin was worth $68,000, that reward was worth nearly $430,000.
So you can see why bitcoin mining looks a bit like a contemporary version of what happened in California in the 1840s. While most of the hopeful comers then were Americans, there were also thousands from Latin America, Europe, Australia and China. Cambridge’s Judge Business School, which has been tracking bitcoin mining for years, now finds that the United States, with 37.84% of global hashrate, remains the largest location, followed by China (21.11% ), Kazakhstan (13.22%), Canada (6.48%) and Russia (4.66%).
Bitcoin mining has therefore become a global phenomenon. And while here and there there are small outfits branching out, like the Californian pancake batter maker who bought an Asic after pancake sales plummeted during the pandemic, most miners are now operations industrial-scale with big sheds of Asics in tight racks, everyone looking like small-scale data centers of the kind run by Google and co.
And, like data centers, they are power hungry. This Bitmain Antminer machine, for example, has a power rating of 3,250 watts. It was recently estimated that bitcoin consumes around 110 terawatt hours per year, or 0.55% of global electricity production, roughly equivalent to the annual energy consumption of countries like Malaysia or Sweden.
For many operators, bitcoin mining has until now been a surprisingly lucrative business, with gross margins sometimes reaching 90%. But suddenly things changed. First, the price of bitcoin has plunged – from its high of $68,000 to $30,587 at the time of this writing. And second, electricity prices have skyrocketed – up to 70% in some parts of the world, leading some industry experts to calculate that mining a single bitcoin can now cost up to $25,000. The industry therefore finds itself stuck on both sides. Just like any ordinary business, in other words.
There’s a nice sense of schadenfreude in it all. Bitcoin has been a fascinating phenomenon since the very beginning, but transformed under the pressure of greed. Originally conceived as a currency, that is to say as a means of payment, it was quickly perceived as an asset class and, in times of low interest rates, was the subject of a bubble hysterical speculation which today seems to have deflated, even if it has not definitively burst.
Although it was foreseeable from the outset that as the currency evolved, maintaining its underlying crypto blockchain would become increasingly onerous, it took a long time for the environmental consequences of this fact to materialize. become true. But maybe that’s a feature of every speculative bubble. It’s always hard to get people to understand something if their wealth – real or anticipated – depends on not understanding them. Meanwhile, the rest of us realize that even the coolest idea can fry the planet.
what i read
Noam Chomsky and GPT-3 is a fascinating Substack post by Gary Marcus on AIs and John Locke’s Theory of Mind.
The insightful reminiscence of Ars Technica Remembering Apple’s Newton, 30 Years It is recalled how the tech giant anticipated the iPad and gave British microchip company Arm a boost.
Take the route
A tempting proposition for the ultimate road movie is The Kystriksveien: Earth’s Most Beautiful Road Trip?