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“Buy them only if you’re prepared to lose all your money,” said Bank of England governor Andrew Bailey in May 2021. He was talking about cryptocurrencies such as Bitcoin, and one reason for his scepticism is that these next-generation virtual tokens “don’t have intrinsic value”.
But does that make them a bad investment? Indeed, are traditional currencies any better? Sterling was previously underpinned by gold, but Britain sold off half of its reserves between 1999 and 2002, when gold was at its lowest value in 20 years. When governments can make unilateral actions like that, decentralised cryptocurrencies which aren’t controlled by any single entity start to look appealing.
That’s particularly true if they’re set up to mimic a traditional gold-backed means of exchange, and Bitcoin’s pseudonymous creator Satoshi Nakamoto mimicked gold by making the currency rare and difficult to mine. To “create” a new bitcoin, a computer’s resources have to be used to crunch through equations. Most of those equations will come to nothing; just occasionally you will hit the jackpot and find a coin.
“It is its very cost of production that gives Bitcoin value (among other factors),” wrote Dominic Frisby in MoneyWeek last October. “You can’t just conjure up Bitcoins. You have to do some hard computer work first and thereby make your contribution to the network. And even if you do this, there is no guarantee you’ll get bitcoins at the end of it. There is risk.”
So, there’s a chance you could burn a considerable amount of electricity for no financial gain. That’s just one of the risks involved in mining cryptocurrency, and a big factor in the question of whether it’s worthwhile.
Mining bitcoins consumes a lot of electricity. In evidence presented to the United States Senate Committee on Energy and Natural Resources in 2018, Princeton University’s Arvind Narayanan outlined how Bitcoin miners were at the time computing “about 50 billion billion hashes… every second.” Combined, Narayanan estimated, those operations were consuming just under 1% of the global electricity supply, “or slightly more than the electricity consumption of the state of Ohio or that of the state of New York”.
And as time goes on it takes more and more power to generate a return. By 2020, digital assets exchange Zipmex was warning that “it takes a large setup nearly 30 days to mine 1 bitcoin. After deducting the electricity cost and the overall hardware and software cost, you will be left with 0.1 BTC of profit every month at best. With the majority of setups and the electricity cost and some manpower, it would cost you a total of $73,000 to process one Bitcoin every month.”
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At the time of writing, a single Bitcoin is worth $34,471, so you’d have to bank on the value going up considerably to make any profit at all. Or, you could try mining somewhere where electricity is cheaper. In 2018, Elite Fixtures calculated the energy cost of mining a single Bitcoin across 115 different countries, and found prices ranging from from $1,190 in Trinidad and Tobago to $26,170 in South Korea. In the UK, the cost was $8,402. Unfortunately, it’s not feasible for most of us to up sticks and start mining in a different country: the costs of moving will eat significantly into any putative profits.
It’s not just the energy of cryptomining that costs money: you need to pay for the hardware too. In theory you could use your personal PC, but this is likely to yield a trickle of currency at best, and most serious operations have switched to Application-Specific Integrated Circuit (ASIC) designs that are custom-designed for mining.
One mining platform that uses this technology is the Antminer S19 Pro, which costs £6,500 and which can rip through 110 terahashes per second. On average this should generate approximately 0.0007 BTC per day – but with an energy consumption of around 3.25kW it’ll cost you around $18.72 per day to mine around the clock. At current rates, you can expect an operating profit of $4.25 (£3.05) per day, or $1,551 (£1,116) annually.
Clearly this setup isn’t going to make you a millionaire. It would take nearly six years just to pay off the cost of the hardware – and there’s a further complication too. The complexity of the Bitcoin mining algorithm is continually updated to compensate for technological advances in the mining hardware, to ensure that future computers can’t flood the market with cheaply generated coins.
This means that today’s state-of-the-art hardware can quickly become uneconomical. In 2018 the International Business Times reported that miners in China were selling off older mining hardware because it was no longer possible to mine enough currencies with these machines to cover their electricity costs: “a mining machine bought at a price of about 20,000 yuan ($2,885) a year ago is being sold for a price between 100 yuan to 1,600 yuan.” So if you want to keep on mining coins at a consistent rate, you need to keep investing in the latest hardware.
If you’d rather not be constantly upgrading your mining rig, an alternative is to mine in the cloud using sites like shamining.com, hashing24.com or genesis-mining.com. This lets you benefit from the expertise of dedicated teams for whom operating and refining a mining operation is a full-time job, and in many cases, you can also make responsible choices regarding energy consumption. Shamining has a focus on solar and wind energy, for example, while Genesis Mining is based in Iceland, a country where 80% of power comes from renewable sources.
Cloud mining is still an expense, though, with most services requiring an up-front payment. When choosing one, check the minimum required investment, minimum contract length, expected profit, and the terms on which you can withdraw your share of the operation’s earnings.
If you really want to use your own computer for mining, there are sites that can help. nicehash.com is one that makes it easy, with a mining model which has (a little bizarrely) also been adopted in the latest release of the Norton 360 antivirus suite.
The idea in both cases is simple. The software runs quietly in the background, using your computer’s spare capacity to mine for cryptocurrency – in Norton’s case, Ethereum. Whatever you earn is automatically transferred into your wallet.
It sounds like a no-brainer: you might only see a small profit, but since there’s no impact on your computer usage it’s free money – right? Well, perhaps not. If you use your computer’s CPU, it’s all but certain that you’ll burn up a far greater cost in electricity than you will ever make back.
Graphics cards with their abundant cores and parallel processing are far better tuned to mining. If you have a powerful graphics card that spends most of its day sitting idle then it may be worth your while putting it to work. However, for precisely this reason, these cards are hard to come by, with mining enthusiasts snapping up stocks of high-end GPUs, leading to worldwide shortages of graphics hardware. To manage demand, Nvidia has even started shipping cards that deliberately reduce their own performance when used for mining cryptocurrencies.
Is cryptocurrency ethical?
It’s clear that, however you generate your cryptocurrency, it’s going to involve guzzling large amounts of energy, which can't be good for the environment. Cambridge university’s Bitcoin Electricity Consumption index recently put Bitcoin’s global electricity consumption roughly on par with that of a medium-sized European country such as Sweden or Ukraine.
Many have concluded that this alone is a good reason to ban all cryptocurrencies. “Bitcoin could be the first inefficient version of a disruptive technology,” Dr Larisa Yarovaya, a lecturer at Southampton university told the FT recently. “It should die for the common good of the planet and be replaced by a new model. It consumes more electricity than a country. All the rest is detail.”
And the societal cost of cryptocurrency mining isn’t felt only in electricity consumption. The GPUs and memory used in mining rigs are a hefty cocktail of silicon, copper, boron, cobalt, tungsten and all manner of chemicals. Some of those raw materials are in short supply, which is in part to blame for the current global CPU shortage. Rare-earth materials are – in part – being used up to mine highly volatile virtual currencies.
There is, at least, some awareness of these issues within the cryptocurrency industry. The Crypto Climate Accord, founded earlier this year, describes itself as “a private sector-led initiative for the entire crypto community focused on decarbonising the cryptocurrency industry in record time”.
The Accord – which is backed by some big names from the crypto industry – is largely focused on making mining use 100% renewable energy, with a target date of 2030. That’s more aggressive than many climate targets, but given that much of the mining is undertaken by unofficial farms around the globe, it’s highly unlikely to clean up the entire practice.
And even if it does manage to move generation to solar, wind and other renewable electricity sources within nine years, the question remains: wouldn’t that energy still be better used to power something more beneficial?
You don’t need to create coins yourself to take part in the crypto boom. The price of all cryptocurrencies is in constant flux, and as with any other currency you can invest by buying low and selling high. According to CryptoCoin News, a 2021 study by investment firm AJ Bell found that “more Brits have bought into cryptocurrency than into equity … 7% of young adults have invested into crypto over the course of the last year. The FCA estimates that 2.3 million Brits now own cryptocurrency, which amounts to 3.4% of the UK’s population.”
If you’re not among them, you might be wondering whether you’ve left it too late. We can’t advise on whether you should buy into cryptocurrency: nobody can say what will happen to the market day-to-day, let alone over the longer term, so those of us who didn’t invest in 2010 can only look back and rue what we missed. However, since fewer than one in 25 Brits has yet invested in a digital currency, the market could still see gains as interest increases.
If you do decide to invest, there are a few important factors to consider, not least of which is the environmental impact. Make sure you trust whichever institution you use to buy your currency, and consider buying when the market is down, to maximise your chances of selling at a profit later. Finally, remember where we came in, with advice from the Bank of England: there are no guarantees in the world of cryptocurrencies, so “buy them only if you’re prepared to lose all your money”.
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Miami jury rules in favor of Craig Wright, who claimed to invent bitcoin – CNBC
Why China's bitcoin miners are moving to Texas – BBC News
By Zhaoyin Feng
BBC News, Washington
China's ban on cryptocurrency mining has forced bitcoin entrepreneurs to flee overseas. Many are heading to Texas, which is quickly becoming the next global cryptocurrency capital.
When China announced a crackdown on bitcoin mining and trading in May, Kevin Pan, CEO of Chinese cryptocurrency mining company Poolin, got on a flight the next day to leave the country.
"We decided to move out, once [and] for all. [We'll] never come back again," Mr Pan told the BBC.
Headquartered in Hong Kong, Poolin is the second largest bitcoin mining network in the world, with most of its operations in mainland China. The country was home to around 70% of global bitcoin mining power, until the clampdown sent the price of bitcoin into a tailspin and caught miners off guard.
Now China's "bitcoin refugees" are urgently scrambling to find a new home, whether in neighbouring Kazakhstan, Russia or North America, because for bitcoin miners, time is literally money.
"We had to find a new location for the [bitcoin mining] machines," Poolin's vice-president Alejandro De La Torres said. "Because every minute that the machine is not on, it's not making money."
In what some call the "Great Mining Migration," the Poolin executives are among the many bitcoin miners who have recently landed in a place reputed as part of America's wild wild west: Austin, Texas.
Bitcoins are a digital currency with no physical form – they exist and are exchanged only online.
They are created when a computer 'mines' the money by solving a complex set of maths problems and that is how bitcoin 'miners' who run the computers earn the currency.
This takes a lot of energy.
As a new form of money that transcends national boundaries, there is also much confusion and potential to run afoul of government rules – so two things bitcoin entrepreneurs value are cheap electricity and a relaxed regulatory environment.
The Lone Star State fits the bill to a tee.
For Mr Pan, Texas felt like home almost instantly. Days after his arrival, he was gifted an AR-15 rifle, which he says he may use to "hunt hogs from a helicopter" one day.
While the shooting ranges and Texas barbeque provide for welcome entertainment, legal protection for business is the major attraction for the bitcoin miners. "What happened to us in China won't happen in the US," Mr De La Torre says.
Governor of Texas Greg Abbott has been a vocal supporter for cryptocurrency. "It's happening! Texas will be the crypto leader," he tweeted in June. In the same month, the Lone Star State became the second US state after Wyoming to recognise blockchain and cryptocurrency in its commercial law, paving the way for crypto businesses to operate in the state.
Many Chinese bitcoin companies have looked to Texas for stability and opportunity. Shenzhen-based firm BIT Mining has planned to invest $26 million to build a data centre in the state, while Beijing-based Bitmain is expanding its facility in Rockdale, Texas. This small town with around 5,600 residents once housed one of the world's largest aluminium plants, and now it's emerging as the next global hub for bitcoin mining.
There might be another underlying connection between the industry and the state, as De La Torre says that bitcoiners and Texans share the same values. "Texans take their freedom and rights very seriously, and so do we bitcoiners."
Experts believe China's bitcoin crackdown was motivated by having greater control over the financial markets, and it may become a boon for America.
"The migration benefits the US in terms of talent acquisition and furthering the innovation ecosystem," says Kevin Desouza, a business professor at the Queensland University of Technology who has done research on China's digital currency policy. In return, the bitcoin miners get access to a thriving and innovative community, as well as more diverse sources of capital, according to Prof Desouza.
Other than a stable regulatory environment, the energy-hungry industry is hunting for cheap electricity in Texas.
Texas has some of the cheapest energy prices in the world, due to its deregulated power grid. Consumers enjoy more choices of electricity providers, which encourage providers to lower prices to stay competitive. During peaks of electricity demand, bitcoin farms can even sell unused power back to the grid.
Although El Salvador is set to become the first country to adopt bitcoin as a national currency, bitcoin miners prefer the US because of its well-developed electrical infrastructure, says Mr De La Torre.
But some analysts warn that the "Great Mining Migration" may lead to serious repercussions, as cities and towns struggle to meet the huge energy appetite.
In February, blackouts following a deadly snowstorm left millions of homes and businesses in Texas without power for days. More than 200 people died. During the power outage, bitcoin farms were compensated to stay offline.
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The increased scrutiny of Chinese companies in America may also lead to more attention on these mining newcomers. Texas recently passed a law that prevents "hostile foreign actors" from accessing critical infrastructure, including its power grid. The new law was reportedly prompted by a Chinese billionaire's plan to build a wind farm in southwest Texas. Critics allege that the project could be used to hack into the Texas energy grid and to gather intelligence from a nearby US military base.
Prof Desouza says that while access to electricity grids is unlikely to be an issue for bitcoin miners in the short term, political risk will continue to evolve.
The bitcoin miners do miss something in China – cheap labour cost and speedy construction.
According to Mr Pan, while a new bitcoin farm takes up to five months to build in China, it could take as long as 18 months in Texas. Global shipping prices have also skyrocketed during the pandemic, making it significantly more expensive to ship mining machines from China to the US.
Despite the costly and time-consuming efforts, Mr Pan says his company is committed to settle in Texas, "It's a free land, and a lot of bitcoiners are here," he says, "so we feel: 'whoa, family reunion.'"
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