Bitcoin (BTC) stands as the world's pioneering blockchain-based cryptocurrency, often referred to as digital gold. Over more than a decade, BTC has overcome numerous challenges. Now, we are on the verge of a significant event— the point where no new BTC can be mined, as it is predetermined to be capped at 21 million. Nowadays, BTC mining has created heated debates regarding its energy-hungry consensus algorithm, Proof-of-Work (PoW). Miners get rewards for utilizing their computing resources to validate the transactions and a huge amount of energy is required to operate their mining equipment. Miners are employing various energy resources, but a significant concern revolves around the environmental impact, particularly the greenhouse effect, due to their excessive energy consumption.
On the other hand,Ethereum (ETH) has transitioned to switch its PoW consensus algorithm to the energy-efficient Proof-of-Stake (PoS) algorithm. After the well-planned “
Understanding what BTC mining is:
The Bitcoin blockchain network consists of a chain of blocks. Each block consists of important information about transactions, the hash of the previous block, and other details. BTC mining consists of solving complex mathematical problems by using computers’ computing resources to create new blocks and new Bitcoin. For this task, miners receive rewards in crypto and BTC. Talking about the rewards and chances for producing a new block for the Bitcoin blockchain network, it is highly competitive as larger institutions are competing to validate the transactions.
There are several components that are responsible for impacting Bitcoin mining which are as shown in the following diagram:
Understand how BTC mining works:
Bitcoin miners have a very important role in creating new bitcoins. They also mine transactions which are added to the blockchain. Understand the entire process from the following diagram. First, it begins with users initiating a Bitcoin transaction then it enters the
Remember, miners compete to solve the mathematical puzzle and the first miner to solve it broadcasts the solution to the network. After that, consensus should be achieved to validate the blocks and it will only happen when most miners agree to add the new block consisting of transactions into the network. Now, the successful miner receives newly created BTCs and transaction fees as the reward for conforming the transactions in the block. For smooth operation, there are periodic difficulty adjustments to maintain a consistent block time.
Well, these are the basic concepts of BTC mining. Now, let’s focus on our core matter of discussion i.e. profitability of BTC mining, challenges, current practices, its future, and other issues.
Profitability of BTC mining:
Before 2013, there was less competition for BTC mining between individual miners but after that, the new development of application-specific integrated circuits (ASICs) came into existence. Individual miners started to face difficulties competing against big mining farms with bigger mining rigs to share more computing power. In addition, the gradual mining difficulty adjustments and cutting block rewards through the BTC Halving Events have made it less profitable for individual miners who can not afford to adjust proper mining equipment on a competitive basis.
So, it is not profitable for a solo miner?
No, it is not entirely correct. You can still manage to bag lucrative rewards if you can consider the following factors;
-
Good ASIC mining equipment costs hundreds to thousands of dollars, and you should have to afford it for an initial mining set-up.
-
BTC mining is not legal everywhere. So, if you are in a favorable country and the electricity charge is affordable, you can consider BTC mining.
-
No matter even if you are a solo miner and lucky enough, you’ll get a newly minted 6.25 BTC if you are successful in mining a block. This reward plus the transaction fee in that block will be yours.
-
Bitcoin mining difficulties adjustments can be a checkmark because if mining difficulty increases, you need to increase the hash power to compete with other miners. It will force you to adjust the risk as well as cost management strategy.
But for bigger mining farms, that is not the case. They can make good profits if they manage to balance electricity, equipment maintenance costs, and operational costs with proper risk management strategies. The chart of Hash Rate for the different time frames has exhibited growing difficulties which means miners are competing to generate more computing power.
In simple terms, the mining difficulty is directly proportional to the amount of hash power required to solve complex mathematical puzzles of the block. The above chart exhibits the increasing mining activities with the increasing hash power.
Let’s have a look at the current block reward distribution chart. The halving event is adjusted to happen every four years or when it reaches every 210,000 blocks which means another halving event is expected to happen this year.
The BTC halving event of 2024 will cut the current BTC block reward to half of it which is 3.125 BTC.
You can check the following chart to get insights into the cons and pros of BTC mining from a bigger farm.
Crypto communities have explored different techniques and methods to feed the energy-hungry PoW consensus algorithm of BTC by utilizing its computing power.
Here are a few of them:
Pool mining:
If you have difficulties in operating mining operations being a solo miner, you can prefer pool mining where other contributors also share their hash power with the pool. Please remember that you still need the mining equipment to participate in a pool. So, depending on your hash contribution, you will receive a reward from the sum of BTC that your involved pool received.
Cloud Mining:
Some mining farms sell hash power to users who are unable to afford electricity costs and equipment operational costs. In this sort of mining, the user can just spend his amount and sit remotely to track the mining progress and achieve rewards. However, this sort of mining still can not address the notorious energy consumption issue of BTC. There is a platform called “Gomining” that offers hash power to the users who purchase their NFT. It is an excellent way to bag benefits for both users and the company’s ends. The company fulfills its costs to run its mining farms from the portion of collected amounts from the users and splits the rewards to all involved users.
Some companies or platforms have also developed their apps or browsers to mine BTC but they can not generate significant hash power through their device’s CPU. So, practically it is not the best practice for BTC mining.
As already stated, BTC has to remain a PoW-based consensus algorithm due to its technical difficulties. Computing power is required to mine and confirm the transactions. BTC Lightning Networks have been created to address its persisting issues but it did not significantly contribute to reducing the high energy consumption nature of BTC. There have been growing debates regarding the environmental impacts of BTC mining.
Controversies and real-world costs created by BTC mining:
The majority of controversies and critics of BTC mining highlight center several factors. The first one is the high energy consumption that can contribute to climate change. The article from
Let’s have a look at the following diagram:
The
Another one is carbon emissions due to BTC mining on a large scale. Particularly, if we talk about the USA, its nationwide BTC mining reportedly produces the equivalent of
We can see an estimated 71.81 MtCO2e of annualized greenhouse gas emission from BTC mining.
Some projects have already explored alternative energy sources and methods to minimize the energy footprint created by BTC mining because heavily relying on fossil fuels for energy is unsustainable. A report from the
Here are current techniques and practices to mine BTC by using sustainable energy sources along with real-world examples.
1. Alternative energy sources
There are some real-world examples of companies that are utilizing alternative energy sources for BTC mining to reduce carbon emissions which are as follows:
✅Hydropower: There are BTC mining companies like Bitfarms, Hut 8, Iris, and OceanFalls which have been utilizing hydropower as a clean energy source to mine BTC.
✅Solar and wind power: Projects like Tesla, Block, and Blockstream have been unitized
✅Nuclear-powered BTC mining: You have heard it right. A project like
2. Customization of mining equipment with powerful ASIC chips
The Intel Corporation has developed a high-performing and energy-efficient Blockscale ASIC which is targeted to assist BTC PoW. The HIVE blockchain is one of the four to get this ASIC to integrate into their
3. Waste heat recovery
The mining equipment uses electricity and mines produce excess heat energy while mining BTC. There are some projects to introduce an innovative approach to use such excess energy. One such company is SAITech-based in Singapore. They use a liquid cooling system to recycle waste energy produced due to BTC mining. Such waste energy is used in residential, agricultural, and industrial applications. Another company that uses waste heat recovery is MintGreen. They recover 96% of the electricity used for BTC mining as heat. Such heat energy is then utilized for different industrial applications.
Is BTC mining the most energy-consuming vampire that contributes to harmful environmental impacts?
No. If we perform an in-depth investigation, BTC’s estimated annualized 141.72 Terawatt-hours power consumption (mentioned above) is even less than 1% of the
The fact is, BTC mining itself is not directly linked to carbon emissions; however, the energy production process is. Miners and mining farms are relocating to areas with affordable electricity charges. Nowadays, BTC miners are increasingly opting for sustainable energy sources to power their mining equipment.
If we talk about BTC mining’s emission intensity, it is just
Challenges of BTC mining:
There are several risks that BTC mining has to tackle which are as follows:
- BTC price is highly volatile in the market. Miners may face difficulties in balancing the cost and profit balance particularly when BTC price is decreasing.
- There is a good sign that BTC mining utilizes the highest sustainable energy mix from 2019 to 2023 in comparison with other industries but, energy cost is still high.
- Security concerns have always been one of the most notable challenges of BTC mining as attackers may intercept the connection of mining devices to insert malware or malicious software for the wrong purpose.
- Despite BTC miners shifting towards eco-friendly energy consumption, it is still a fair matter to consider that the environmental impact caused by to energy production process is one of the major challenges.
- There is significant progress in building powerful processors and quantum computers from various companies. The encryption of BTC is the strongest and assists in securing the entire blockchain network. Reversing the work done by BTC’s PoW algorithm needs tremendous amounts of computing power but by chance, if powerful quantum computers evolve rapidly in the future, it may also create challenges in BTC’s encryptions.
Future of BTC mining:
Finally, we have an answer to our initial question “Is it the end of BTC mining?” What do you think? Based on our analysis of data and evidence, BTC mining will not end soon. Rather, there is a possibility that it can become a leading adopter of renewable energy resources. Not all BTC miners, but analysts suggest that miners with low costs and a highly sustainable energy mix for mining BTC will likely thrive in the future.
Bigger mining farms as well as miners are seeking alternative energy sources because they can not afford to pay high for electricity to operate the mining devices. So, governments and different projects have opportunities to establish solar plants and other renewable energy solutions on a larger scale. It creates employment opportunities for so many workers from different industries. In addition, orphaned wells of methane emission can be sealed to utilize it as the energy source for BTC mining which will create an extra usage of waste gas for income. Some effective practices like grid balance, mining decentralization through pool mining, etc. are already initiated which can be even more effective in the future to use energy effectively.
The development of powerful chips like Intel’s Blockscale ASIC could assist in reducing energy consumption with high-performance ability. Fears persist due to the development of quantum computing and its presumed ability to crack BTC’s encryption but it has not been proven yet so, no worries. Even if such computing becomes an enemy to BTC, let’s hope the Bitcoin community will invent a genuine solution to tackle it. Overall, the future of BTC mining is bright.
Conclusion:
The main attraction of BTC is its decentralized nature and security feature paved by its PoW consensus algorithm. Computing power is required from BTC miners to form a single BTC that’s why it is something special and some investors have already seen it as a modern form of store of value i.e. Digital gold. BTC has a limited supply so once all BTCs are mined, miners have to rely on its transaction fees as the reward for mining the transactions. The critics have accused BTC mining’s over-energy consumption has created carbon emissions and environmental impacts but based on our analysis, traditional banking and other industries are leading to BTC. It doesn’t mean that BTC miners should do nothing to invent new energy-effective solutions to reduce carbon emissions but if it is related to global issues, why critics are majorly centred on BTC mining? We all should be equally responsible.