In recent months, the bitcoin explosion has seen scrutiny from different sources, including environmentalists.
Concerns have been raised over the amount of electricity needed to mine bitcoin. There have been some shocking estimates.
In November 2017, just before the price of bitcoin exploded to reach nearly $20,000 a coin from $1,000 it started the year at, Digiconomist estimated the power usage consumed to run the cryptocurrency was higher than the entire Republic of Ireland.
Bitcoin bounty: Estimates have shown just how much energy is needed to mine the cryptocurrency
Since then, with the digital currency seeing its popularity surging, the strain on the energy network has increased.
It’s on pace to use a whopping 45TWh (terra watt hours) of electricity this year, ahead of the needs of Hungary and New Zealand. It will represent roughly 0.2 per cent of global consumption.
Consumption is estimated to have almost doubled in the last three months and more than quadrupled in less than a year, leaving environmentalists worried over the impact it is having.
Credit Suisse eggheads have also calculated the bitcoin price that would be needed to incentivise miners to gobble up all the world’s generation capacity as $1.1million per coin.
Luckily, it’s nowhere near there now but that frightening prospect and potential environmental disaster waiting to happen highlights why some are willing to burn through energy to mine the coins.
Now, one expert is warning that those mining bitcoin from the comfort of their own homes in Britain could be paying over the odds on their energy bills. Yes, really.
But if the bitcoin miners are more savvy, he also believes they could be exploiting legislation designed to protect vulnerable customers by offering them lower energy bills.
Joe Malinowski, founder of comparison website The Energy Shop, said: ‘If you are mining bitcoin, or planning to, you are going to need electricity and lots of it.
‘Being on the right tariff is therefore critical otherwise you could be spending hundreds if not thousands over the odds.
‘No point making money on the one hand if you just end up giving it all back to your energy supplier right?’
He points out that the cheapest option is a prepayment Economy 7 tariff, which has costs limited to protect customers who tend to me more financially vulnerable.
HOW MUCH ENERGY DOES BITCOIN MINING USE?
The Energy Shop has crunched the figures to show how much it can cost individuals to mine bitcoin, rather than some industrial scale operations.
Its figures assume an already purchased mining rig – which in simple terms is a computer system used for mining bitcoins.
To mine bitcoin you need a bitcoin wallet, the mining rig, access to a mining pool, and mining software.
Mining is the process of adding transaction records to bitcoin’s public ledger, or the blockchain. There are different types of mining rig.
The Energy Shop has compared the electricity costs for a modern efficient bitcoin miner, such as the Antminer S9, with an earlier less efficient version such as the Antminer S5+.
It assumes an individual miner has unlimited fast broadband connection so there are no incremental internet access or data charges.
Figures show that to run an Antminer S5+ 24 hours a day, 365 days a year takes up 30,100kWh of energy.
That falls 8,780kWh if usage is restricted to seven hours per day, which is based on it being run overnight.
For a more modern machine, the Antminer S9, usage is a slimmer 12,045kWh run 24/7, or 3,513kWh for seven hours per day.
In contrast, the typical household fridge freezer uses between 150 to 270kWh of energy per year to run 24 hours a day, typically one of the biggest energy sappers in a home.
The figures show that an efficient bitcoin miner running constantly all-year round will consume as much power as four average-sized family households typically do in a year.
An older less efficient miner will consume as much electricity as almost 10 households. And remember, this is based on one rig. Many involved in this could be running more than one machine.
Mining: Individuals can mine bitcoin – and one of the biggest costs is the drain on electricity
HOW MUCH DOES IT COST?
According to The Energy Shop, day rates range from 11.3p/kWh to 21.7p/kWh depending on supplier.
Night time (off-peak) rates range from 4.3 p/kWh to 25p/kWh.
With electricity being the largest variable cost of bitcoin mining, being on the right tariff can be key aspect of doing it profitably.
The Energy Shop says that miners should avoid standard variable tariffs – a rule of thumb for most households.
It estimates that having Npower as supplier, using the S5+ would cost £5,292 if in constant use, while the S9 would cost £2,118 a year on a standard deal with the energy giant.
The cheapest standard variable rate of the big six from British Gas would still cost an S5+ user £4,434 a year and an S9 user £1,774.
As such, it estimates miners can save up to £1,300 by switching – as could many households whose energy use is more prosaic. This is Money has outlined some of the top tariffs below:
|Provider||Tariff||Average cost||Saving v average bill|
|Outfox the Market||Zapp! November Tariff (medium consumption)||£807||£328|
|Avro Energy||Simple and Control||£840||£295|
|Breeze||Breeze Fixed 1 Year January 2018||£842||£293|
|Tonik||Positively Green v7||£842||£292|
|Pure Planet||100% green||£860||£275|
|Iresa||IRESA Flex5 12month Fixed Direct Debit||£860||£275|
|Gen4U||GENU Easy V1.2||£861||£274|
|People’s Energy||The People’s Tariff||£868||£267|
|Source: energyhelpline.com, 19/01/2018, all calculations are for an average usage dual fuel household paying by monthly direct debit on a single rate meter. Average usage as defined by OFGEM is 12,000 kWh pa of gas and 3,100 kWh pa of electricity. Includes publicly available tariffs that are available in at least 12 of the 14 regions of the UK. Excludes exclusive, collective and other tariffs that are not generally available.|
IF YOU DO BUY INTO BITCOIN
Find out how bitcoin and the blockchain works, so that you have some understanding of the system, the ledger, the major players and the public and private key elements.
Remember bitcoin yields nothing and its main source of value is scarcity. Most bitcoin activity is trading not investing.
Research coin wallets, the digital vaults where cryptocurrency is held, and consider security carefully. Bitcoins have been stolen before, understand how this happened.
Be prepared for extreme volatility. The price can move by 20 per cent in one day and you could easily lose half of your cash in a far quicker time that investing in the stock market.
Consider how you would cash in any gains. There are reports that this has proved hard for some people. A time of market stress could lead to people being locked in and unable to trade.
Read our guide to How to be a successful investor, which looks at the far less high octane world of long-term investing and how to make it a success.
What is bitcoin?
The digital currency that most will be familiar with is free from government interference and can be shared instantly online. It doesn’t rely on trusting one central monetary authority.
The underlying technology is blockchain, a financial ledger maintained by a network of computers that can track the movement of any asset without the need for a central regulator.
WHAT ABOUT AN OFF-PEAK TARIFF?
Joe Malinowski says: ‘Off-peak Economy 7 tariffs can offer unit prices up to 70 per cent cheaper that standard variable day rates and so cannot be ignored.
‘Rather ironically the cheapest Economy 7 rates currently on offer are regulated prepayment rates from one of the Big 6. Legislation designed to protect vulnerable customers may be helping grow profits for bitcoin miners.’
Bitcoin mining difficulty is set to increase, due to its algorithms. It will become increasingly more energy intensive and expensive to mine bitcoin.
Legislation designed to protect vulnerable customers may be helping grow profits for bitcoin miners
The more miners that join the network, the harder it gets to mine bitcoin successfully.
As such, if small scale mining is profitable now, it will become less so in future unless computer efficiency grows in line with mining difficulty – or unless the price of bitcoin keeps rising to compensate for the increase in difficulty.
It is difficult to know how profitable bitcoin mining at small scale really is.
Given the rate at which new mining capacity is being added it strongly suggests that industrial scale mining is a profitable business, particularly in those countries where electricity costs are relatively much cheaper, such as China.
But on a small scale the data is patchy.
In the unlikely event that you do decide to be a bitcoin miner, it is therefore important to secure the lowest possible unit prices – and switching to an Economy 7 tariff may be the way to do this.
The upside is that costs are much lower. The downsides are two-fold.
Firstly, users can only participate during off peak hours – typically seven hours during the night – so overall mining revenue will be lower.
Secondly, Economy 7 tariffs offer cheaper night rates but usually charge more for daytime usage, so you need to consider not just what you will save on mining at night but also any off-setting increase in costs from higher day rates.
However, for those only mining at night, the cost saving can be a huge 70 per cent, as the unit rate can be cut from 16.2p/kWh to just 4.3p/kWh.
The cheapest night rate unit is currently a prepayment standard variable tariff provided by one of the Big 6.
The rate is determined not by competitive forces but by regulation. The tariff in question is a prepayment tariff where the rate is partially set by a prepayment price cap designed to protect vulnerable customers.
Ironically the prepayment cap is actually offering bitcoin miners the opportunity to get ultra-cheap electricity for profitable gain.
Mr Malinowki adds: ‘We wonder how many miners are vulnerable customers.’
THE WINTER COLLECTIVE : COULD YOU SAVE MONEY ON YOUR BILLS?
This is Money has joined forces once more with energyhelpline to launch a new collective switch to help readers save money on energy bills.
The Winter Collective allows our readers to team up with thousands of other people and use their collective power to negotiate a unique offer on their energy bills.
Switchers taking advantage in the past have typically shaved £265 from their annual dual fuel bills.
This special deal turns the table on energy firms – rather than households having to hunt out a better price, they will be competing to offer you one.
You can register with just a few details here and once we have picked the winning deal we will deliver a unique tariff straight to your inbox on February 14.
If you decide to switch and save money you can. If you decide it is not for you then you do not have to take it.
- Not interested in taking part but want to search for a better deal? For full details of how to switch your provider and where to find the best deals check out This is Money’s switching guide.
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