Bitcoin production has already cost $197 million in energy this year
Those virtual mines need a lot of actual power.
At the moment, the total market capitalisation of bitcoin is around US$177 million. But, according to a recent analysis from Alex de Vries and his Bitcoin Energy Consumption Index, the process of transacting with and mining bitcoin costs about US$2 billion per year.
Since we are now 36 days into the year, that means about US$197 million has already been spent this year. In total, the whole bitcoin network spends almost $2 billion per year mining.
Given the way block rewards work, those production costs will end once all the bitcoin has been mined, although we are many years away from that event.
The cost of energy that is used to mine and transact bitcoin varies significantly from country to country. For example, in the United States, energy production costs about $0.10-$0.15 per kilowatt hour. But in China, the cost is about half that while in Australia, the figure is closer to $0.30 per kilowatt hour.
We may see cryptocurrency mining push the renewables energy industry as miners look for cheaper ways to produce energy in order to maximise returns on already volatile cryptocurrency prices.
One of the things that is clear is that the abstraction of production costs from the market will be addressed at some point. It's estimated that the production of a single bitcoin requires about 50,000 kilowatt hours of energy. The disparity in energy costs between different countries could lead to shifts in markets as mining operations move to locations where the cost is lower. And miners who have invested in renewable energy production to power their mining operations may find themselves at an advantage when trading as the coins they place into the market will have cost them less to produce, allowing them to increase margins on trades.
All of these factors will help shape bitcoin and other cryptocurrency markets over the coming months as traders and miners become more circumspect and get a better handle on the real costs associated with mining.