The wonderful world of Bitcoin mining

The day before yesterday, a small Bitcoin miner, who may have been mining with one or two machines, added a new block to the Bitcoin blockchain and made about $235,000 in the process. Last week, the hashrate of the largest mining pools fell by about 11% as Kazakhstan shut down the internet. It was also revealed that Norton Antivirus has secretly hidden mining software in Norton 360. In short: a lot is happening in the mining landscape.

Satoshi Nakamoto’s white paper introduced bitcoin mining as both an incentive to create new blocks and a means of bringing new bitcoins into circulation. Miners earn – by following the rules – with mining money. This incentive encourages miners to remain honest. Bitcoin mining is therefore the basis for Bitcoin. Yet it is still poorly understood by many people.

Basically, mining bitcoin serves two purposes (source: Mastering Bitcoin):

  • Miners validate transactions against Bitcoin’s consensus rules. In this way, miners ensure the security of transactions by rejecting invalid transactions.
  • Miners create new bitcoins per newly found block (currently 6.25 bitcoin). The amount of bitcoin created per block is limited and decreases over time on a fixed issuance schedule.

Bitcoin energy consumption

In 2021, the energy consumption of Bitcoin has been the subject of a lot of talk. Some compared Bitcoin’s energy consumption to a country’s energy consumption. Although this does little to help, such comparisons are often flawed, because power consumption is compared to energy consumption. While electricity is only part of the energy consumption. Nevertheless, energy consumption is likely to increase in the coming years.

??????A reasonable rule of thumb is that energy consumption grows along with the security budget of the miners: the block reward. This consists of the block subsidy that halves every four years and the costs that they are allowed to collect for processing and bundling transactions. The subsidy will play an increasingly smaller role and in about twenty years’ time practically the entire security budget will come from the transaction costs’. Bert and Peter Slagter ?????ǣ Our money is broken

In principle, Bitcoin miners are always looking for the cheapest energy sources. After all, energy costs are one of the biggest cost items for miners. At the same time, renewable energy sources such as wind and solar energy are becoming cheaper. This means that miners are increasingly using such resources. Bitcoin can therefore provide an important stimulus to the energy transition to clean and renewable energy.

Miners are also increasingly working with energy suppliers who have to deal with overcapacity of energy. For example, Marathon Digital Holdings, an American miner, uses the abundance of wind and solar energy in Texas. Marathon is not the only miner who does that. Marathon also announced a month ago that it wants to mine more than 100,000 machines on renewable energy from Texas.

Hut 8 Mining, a Canadian miner, runs its machines on power generated from excess gas that is normally flared. This seems to be an increasingly common phenomenon. Hut 8 is helped by the smart mobile power generators from Validus Power, with whom the company entered into a tactical partnership in early 2021. Hut 8 has also recently joined the Business Renewables Center Canada which aims to accelerate the use of renewable energy in Canada.

The above makes it clear that the discussion about energy consumption and the impact on climate objectives is more nuanced than you might have thought beforehand. The future will show whether Bitcoin mining can contribute to a greener future. In any case, the developments in the sector are hopeful.

Do you want to know why Bitcoin consumes so much power? Read more here.

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