Electricity used to mine Bitcoin drops as cryptocurrency crisis escalates

The amount of electricity consumed by major crypto networks has fallen by as much as 50%, as the “crypto winter” continues to devour the income of “miners” and financial contagion spreads further across the sector.

Electricity consumption on the Bitcoin network has fallen by a third from its peak on June 11 to an annual figure of 131 TWh, according to calculations by cryptocurrency analyst Digiconomist. This is equivalent to Argentina’s annual consumption, as one traditional Bitcoin transaction consumes the same amount of electricity as a typical American home in 50 days.

The decline in electricity used by Ethereum, the “programmable currency” that underpins much of the recent proliferation of crypto projects, has been even more pronounced, rising from 94 TWh per year to 46 TWh per year, the estimated annual consumption from Qatar. .

However, the underlying reason for the decline is the same for both currencies. The electricity consumption of the crypto network comes from “mining,” which consists of people using specially designed computers to create digital lottery tickets that can offset crypto payments. This process forms the basis of network security, even though it encourages the network as a whole to expend extraordinary amounts of energy.

As the price of the cryptocurrency drops — bitcoin peaked at $69,000 earlier this year and is currently hovering around $20,000 — the value of miners’ rewards have fallen by the same amount. , leaving it in areas where electricity is expensive or old and inefficient mining “equipment” unable to turn a profit.

“This literally means putting them out of business, starting with those working with suboptimal equipment or in suboptimal conditions (for example, inefficient cooling),” said Alex de Vries, the Dutch economist in charge of the Digiconomist.

“In the case of bitcoin mining equipment, this is a huge problem, because you can’t reuse these machines to do something else. When they are not profitable, they are useless machines. You can keep them waiting for a price refund or sell them for scrap.”

On the other hand, Ethereum can be mined using a regular computer. However, it is profitable to do so with a high-capacity graphics card, which caused a widespread shortage of these cards and caused many players to turn against the industry. The collapse in mining revenue has sent graphics cards into the flea market as insolvent miners try to recoup their investment, although de Vries warns that buying one is like a lottery.

“These machines typically run 24 hours a day, seven days a week, and components heat up when doing so. Heat (especially over long periods) is known to corrode electronic components, reducing their longevity and effectiveness.”

“At this point in time, the older GPUs will be the ones that will essentially become unprofitable, which means that these devices are unlikely to have been used for mining for a long time.” Fortunately for gamers, lower demand has also led to significant price cuts for new components.

Although the bitcoin price drop has stabilized over the past week, the broader cryptocurrency sector is still suffering from a massive price crash. The latest jolt was caused by the bankruptcy of crypto bank Celsius, which announced on June 12 that it was suspending withdrawals as it faced a liquidity crunch.

Celsius’ failure caused a ripple effect across the industry: Three Arrows Capital (3AC), a multibillion-dollar hedge fund, suffered its own liquidity crunch as a result, and many of the companies 3AC had taken out large loans were forced to adopt. Sometimes emergency measures.

Two other companies that provide bank-like services have announced that they face significant risks with 3AC. Last week, Finblox noted that the hedge fund’s actions had a “liquidity effect,” severely restricting user withdrawals, lowering the daily limit from $50,000 to $500, and suspending interest payments on deposits.

On Wednesday, Voyager, which offers 12% on crypto deposits, revealed that 3AC has a loan outstanding of $650 million with the company, or more than four times its available cash. Voyager added that it would consider 3AC in default if the hedge fund did not pay the loan in full by Monday morning. The company has also been reported to freeze user withdrawals.

Bancor, a decentralized financial protocol that operates as an exchange, fell due to the “recent bankruptcy of two large central entities,” believed to be Celsius and 3AC, as they had to impose limits on withdrawals. On Thursday, another cryptocurrency exchange, CoinFLEX, announced that it would suspend withdrawals due to “extreme market conditions.”

In the midst of the meltdown, a major cryptocurrency firm has emerged as a potential savior for the sector. Alameda Ventures, the investment arm of crypto entrepreneur Sam Bankman-Fried’s empire based on its own FTX exchange, rescued Voyager and beleaguered exchange BlockFi, providing millions of dollars in loans to both companies.

The loans drew comparisons to J.P. Morgan, the American banker who intervened during the 1907 financial crisis and bought shares of troubled companies in an effort to stem the collapse..