Cryptocurrency Mining: Revenue For Utilities But Little Economic Value
- September 14, 2018
The Pacific Northwest, with its low-cost electricity, temperate climate, robust telecommunications, and ready access to trans-Pacific cable connections to Asia, has proven attractive to electricity-intensive businesses that discover and trade cryptocurrencies like Bitcoin. But as the value of cryptocurrencies fell over the last year, and continues to fall, interest has waned, and as a result it appears the cryptocurrency power load has stabilized, a survey of utilities by the Council indicates. The Council’s power planning staff reported on the survey results in September at the Council’s monthly meeting.
Cryptocurrencies are digital forms of cash that use encryption techniques to regulate the generation of currency units and verify the transfer of funds. While cryptocurrencies have a value in standard currencies like dollars, they operate independently of a central bank using a digital ledger of all transactions called a “blockchain.” Bitcoin uses one form of Blockchain technology, which has several different applications in different forms. Importantly, Bitcoin and blockchain are not one in the same.
The value of cryptocurrencies varies with the amount of currency in circulation. By September, the value of all cryptocurrencies fell below $200 billion worldwide, which is 76 percent below the all-time high of $832 billion last January.
Cryptocurrencies – Bitcoin is perhaps the best known – are verified, or “mined” in a process that involves extremely complex mathematical formulas and hundreds or thousands of computers running constantly, and, as a result, huge amounts of electricity for operating – and cooling – the machines. The amount of available cryptocurrency is controlled, and as the amount – say, the number of Bitcoins – increases, so does the degree of mathematical difficulty in verifying new currency and, thus, computing time and electricity use.
Cryptocurrencies were created after the financial collapse of 2008 when people lost trust in central banking authorities. Cryptocurrencies are fast, global, supposedly hack-proof, and distributed only among users.
The Council’s 2017 survey suggested known electrical demand for Bitcoin mining in the Northwest was at least 38 average megawatts. That’s an estimate because there also is an unknown load – some cryptocurrency miners operate from their homes, and the only indication of the activity is a rapidly spinning electric meter – or a fire from overloaded home wiring. Expressed as power generation, 38 average megawatts would meet the average annual electricity demand of about 27,000 Northwest homes.
Most of the cryptocurrency demand has been at utilities with low electricity rates such as the three Mid-Columbia public utility districts in Washington that own and operate five hydropower dams on the Columbia River. The demand for service at these utilities has been intense, and out of caution some have instituted special rates and requirements or moratoriums on cryptocurrency mining to protect other ratepayers from paying for investments in the heavy-duty power lines and transmission equipment that mining operations require. Those investments could become stranded if the miners go out of business or move.
“Within the Northwest miners are going to utilities at the intersection of cheap, reliable power with good communication infrastructure,” said Massoud Jourabchi, the Council’s demand forecasting manager who supervised the 2017 survey.
That includes Oregon, although the state has not seen the degree of interest that miners have shown for Washington. Christopher Tamarin, a telecommunications strategist for the Oregon Business Development Department in Portland, told the Council the state is working to increase access to high-speed broadband communications, but Oregon Council member Ted Ferrioli added that while the official policy of the state is to expand broadband access for citizens, “we do not have a policy to expand or incent bitcoin mining.”
Low-cost electricity is important to cryptocurrency miners not only because they use a lot, but because it is a reality of the business that if power costs exceed 5 cents per kilowatt-hour cryptocurrency mining no longer is economical.
Jourabchi said that while cryptocurrency mining can provide a lot of revenue for utilities, it is an industry that does not provide economic growth comparable to other industrial activities. For example, in other types of manufacturing, the amount of power used in cryptocurrency mining would produce 18,000 to 27,000 jobs, but that is not the case. “The opportunity cost of mining is far greater than the benefits,” he said.
As well, there is little hope for improving the energy efficiency of mining operations, unlike efficiency opportunities in other electricity-intensive industries, he said. Most efficiency measures for computers affect idling – when the computer is not in use – not when it is operating, and computers attempting to mine cryptocurrencies operate constantly.
“The degree of difficulty to obtain a unit of currency can be increased, and that works against efficiency in electrical consumption because the computer has to work longer,” he said.