Electricity used to mine Bitcoin drops as crypto crisis widens | cryptocurrencies

The amount of electricity consumed by the largest cryptocurrency networks has decreased by up to 50% as the “crypto winter” continues to consume the revenues of “miners” and the financial contagion spreads further across the industry.

Electricity consumption of the bitcoin network fell by a third from its June 11 high to 131 terawatt hours per year, according to forecasts from crypto analyst Digiconomist. This still equates to Argentina’s annual consumption with a single traditional bitcoin transaction using the same amount of electricity a typical US household would use for 50 days.

The decline in electricity used for Ethereum, the “programmable money” that underpins much of the recent boom in crypto projects, has been even sharper, from 94TWh per year to 46TWh per year, or Qatar’s annual consumption.

However, the underlying reason for the decline is the same for both currencies. The electricity consumption of a cryptocurrency network comes from “mining,” which involves people using purpose-built computers to produce digital lottery tickets that can reward cryptocurrency payments. The process underpins the security of networks, but encourages the network as a whole to waste enormous amounts of energy.

As the price of cryptocurrencies has plummeted – bitcoin peaked at $69,000 (£56,000) earlier this year and is currently hovering around $20,000 – the value of rewards to miners has plummeted by the same proportion, leaving them in areas with expensive electricity or expensive electricity. using old, inefficient mining “rigs” that cannot make a profit.

“This is literally putting them out of business, starting with those who work with suboptimal equipment or under inadequate conditions (eg inefficient cooling),” said Alex de Vries, the Dutch economist behind Digiconomist.

“This is a big problem for bitcoin mining equipment because these machines cannot be redesigned to do anything else. They are useless machines when they are unprofitable. You can keep them around hoping that prices will pick up or be sold for scrap.”

“,”caption”:”Sign up for our free daily newsletter First Edition – every weekday at 7:00 am”isTracking”:false,”isMainMedia”:false,”source”:”The Guardian”,”sourceDomain” :”theguardian.com”}”>

Sign up for our free daily newsletter First Edition – every weekday at 7:00 am

In contrast, Ethereum can be mined using a regular computer. However, it is most profitable to do this using a very powerful graphics card, which led to widespread shortages of cards and turned many players against the industry. The collapse in mining revenue has sparked a flood of graphics cards in the second-hand market as bankrupt miners try to recoup their investments, but De Vries warns it’s a lottery to buy one.

“These machines typically run 24/7, and while doing so, the components get hot. Temperature [especially for prolonged periods of time] It is known to wear down electronics, reducing longevity and reliability.

“Currently it will be mainly legacy GPUs [graphics processing unit] it becomes unprofitable, meaning these devices are unlikely to be used for mining for long.” Fortunately for gamers, falling demand has also led to massive price cuts for new components.

While the decline in Bitcoin price has stabilized over the past week, the broader cryptocurrency industry continues to stumble as a result of the massive price crash. The most recent jolt came from the failure of ersatz crypto bank Celsius, which announced on June 12 that it was halting withdrawals as it faced a liquidity crisis.

Celsius’s failure triggered a domino effect in the wider industry: Three Arrows Capital (3AC), a multibillion-dollar hedge fund, ran into its own liquidity crunch as a result, and multiple companies with significant outstanding loans to 3AC now had to take it. emergency measures in order.

Two other companies that offer bank-like services have disclosed major exposures to 3AC. Last week, Finblox said the hedge fund’s actions had an “impact on liquidity”, greatly restricting users’ withdrawals and cutting the daily limit from $50,000 to $500 while stopping deposit interest payments.

On Wednesday, Voyager, which offers 12% on cryptocurrency deposits, announced that it has an outstanding $650 million loan to 3AC, more than four times its current cash. Voyager added that if the hedge fund does not fully repay the loan by Monday morning, it will default on 3AC. The company has also reportedly frozen user withdrawals.

Bancor, a decentralized finance protocol that acts as an exchange, succumbed to “the recent bankruptcy of two major centralized institutions” believed to be Celsius and 3AC, and had to impose withdrawal limits. CoinFLEX, another crypto exchange, on Thursday announced that it is pausing withdrawals due to “extreme market conditions.”

Amid the crashes, a major cryptocurrency company emerged as the savior of the industry. Alameda Ventures, the investment arm of crypto entrepreneur Sam Bankman-Fried’s empire and focused on exchange FTX, bailed out Voyager and embattled exchange BlockFi, which offers millions of dollars in loans to both companies. The loans earned him comparisons to the US banker JP Morgan, who stepped in during the 1907 financial crisis and bought stocks of troubled companies to stop the collapse.

Leave a Comment

Your email address will not be published.