Another Type of Data Center

Bitcoin Mining Gobbles up Lots of Power

mckinsey.com chart of overall power consumption of data centers and future projection

A big part of data center growth is for bitcoin mining, which already uses somewhere between 0.6 to 2.3 percent of US electricity consumption and growing.

Mario Alumit wrote about growing AI energy consumption in March and mentioned Bitcoin mining -   

“Mining cryptocurrencies like bitcoin eats up electricity owing to the way the system was set up. To acquire bitcoin (and other currencies that rely on a similar scheme), miners compete to answer cryptographic riddles. Winning the competition takes a lot of computing power. As a result, server farms devoted to crypto mining tend to be situated in parts of the world where electricity is cheap. China used to lead the world in crypto mining, but it imposed a ban on the practice in 2021, and now the U.S. is No. 1. A few months ago, the U.S. Department of Energy tried to compel mining concerns to report their energy use, but in February a Texas judge issued a temporary restraining order blocking the effort. (According to the White House Office of Science and Technology Policy, crypto mining in the U.S. uses almost as much energy as all the nation’s home computers combined.) Meanwhile, the higher the price of bitcoin rises—it reached a record of sixty-nine thousand dollars on March 5th—the bigger the financial incentives for mining it, and the more energy consumed.”

A small company in Texas is trying to lessen the energy cost of their Bitcoin mining:

This Texas company (Giga) captures natural gas (methane) flaring energy to save energy costs of bitcoin mining.

“Giga’s system involves placing a shipping container full of thousands of bitcoin miners on an oil well, then diverting the natural gas into generators, which convert the gas into electricity that’s used to power the miners. The process reduces CO2-equivalent emissions by about 63% compared to continued flaring — or burning — of unused gas, according to research from Denver-based Crusoe Energy Systems. It also turns wasted energy into a valuable asset for oil producers.   “By capturing stranded natural gas to power modular data centers for energy-intensive computing, Giga is actively contributing to reducing global methane emissions,” Whitehead told CNBC in an interview.”

Making use of energy that is otherwise wasted, like gas flaring from oil wells, is one way to lessen the impact of Bitcoin mining’s need for electric power.

Another way is to use renewable energy for Bitcoin mining during times when there is a surplus of wind and solar, although this idea is limited by the fact that Bitcoin miners want to keep operating 24/7, not just when it’s windy or sunny.

Another type of cryptocurrency mining that uses about 20X less energy:

The second biggest crypto currency is ETH, the digital coin used for transactions on Ethereum’s network. One bright spot is that Ethereum’s verification of transactions and smart contracts for the blockchain record is much less energy intensive than Bitcoin’s. Nerdwallet.com explains the difference:

“Proof of work and proof of stake are the two most popular ways of processing cryptocurrency transactions. While they vary in crucial ways, proof of stake and proof of work are designed to assure users that payments will go through as expected.

Most of the established cryptocurrencies on the market use either proof of work or proof of stake. The most established proof-of-work cryptocurrency is Bitcoin, while the preeminent proof-of-stake asset is Ethereum.

The main difference between proof of work and proof of stake is that proof of stake relies on crypto staking, while proof of work relies on crypto mining. These methods add new "blocks" of transactions to the historical record, and both provide a way for users to earn additional crypto.

The bottom line: Proof-of-stake cryptocurrencies allow people to pledge or lock up some of their holdings as a way of vouching for the accuracy of newly added information. Meanwhile, proof-of-work cryptocurrencies require people to solve complex cryptographic puzzles — which can incur significant energy costs — before they're allowed to propose a new block.”

The Block reports the advantages of Ethereum:    “Ethereum’s PoS (proof of stake) implementation meets and even exceeds the security of Bitcoin’s Proof of Work (PoW), which underlies bitcoin-based ETFs that have already been approved for trading by the SEC," Consensys explained in a blog post.

Consensys also noted that Ethereum features faster block finality than the Bitcoin network and a segregation of duties between proposers and attesters that helps prevent large stakeholder control, costs more to attack than Bitcoin, penalizes validators for violating protocol rules, and is more environmentally friendly than Bitcoin. (As The Block reported earlier this week, the 13,900 nodes supporting the Ethereum network are now running more than 1 million validators.)

It also noted that Ethereum's active developer community is larger than Bitcoin's, and that the blockchain is also fully public and transparent.

"We urge the SEC to recognize the advanced safeguards inherent in Ethereum’s design," Consensys wrote, "which not only meet but exceed the exemplary security and resilience safeguards underlying Bitcoin-based ETPs that have previously been approved by the SEC."

It’s possible that governments will use the problem of too much energy consumption as an excuse to outlaw Bitcoin mining, (China has already done this) or tax it to death, especially after they realize the catastrophic shortage of energy that’s coming in the next few years. Governments aren’t too fond of Bitcoin anyway.

By the way, if CBDCs and cryptocurrency, in addition to credit cards, ever become so universal that all transactions are digital instead of cash, what will happen during a major power outage? That’s something to think about, as major power outages become more and more likely with the power grid becoming more and more vulnerable at the same time as demand is increasing.

Time will tell. In the meantime, I plan on hanging on to a little cash and some old silver coins. Just in case.

See also Oregon’s Mighty Data Centers