- What is digital currency mining, and what is proof of work?
- What are the incentive structures and principles that led to rapid and unconventional load growth?
- Why was the digital currency mining industry particularly challenging for utilities and regulators?
- Will the digital currency mining market experience similar growth in the future?
- What are the characteristics of utilities most heavily affected by digital currency mining?
- What are the implications of digital currency mining for the wider energy blockchain industry?
Utilities and Hardware Suppliers Should Plan for a Future Without Digital Currency Mining
Digital currencies like Bitcoin and Ethereum experienced a surge in valuation in 2017 and 2018. The extraordinary revenue potential associated with digitally mining these currencies led to the growth of a new and unprecedented industry with a prevailing incentive to minimize electricity costs. With surprising rapidity, digital currency miners built large data centers full of power-hungry devices solely focused on performing calculations specified by Bitcoin’s proof of work consensus algorithm.
The new industry had a marked impact on a handful of utility systems, as large-scale operations were established in cool regions with low average electricity prices. High electricity demand strained existing infrastructure and exposed vulnerabilities in these systems. The rise and fall of the digital currency mining industry contains lessons for utilities, which must make resource allocation decisions on a longtime horizon, and hardware suppliers and manufacturers, which must recognize that the digital currency market is time-limited and likely unsustainable. According to Navigant Research, the market for digital currency mining is likely to decline over the next 10 years due to technological shifts and other factors.
This Navigant Research report analyzes the drivers of the digital currency market, including utility systems most heavily affected by its growth. The study forecasts five scenarios for the growth of the digital currency mining market from 2019 to 2028 in terms of potential revenue and electricity consumption. The report examines the key factors that make low or negative growth scenarios most probable and makes recommendations for both utilities and hardware suppliers.
- Central processing unit (CPU) manufacturers
- Graphical processing unit (GPU) manufacturers
- Digital currency mining hardware manufacturers
- Distribution utilities
- Public utility commissions
- Resource planners
- Investor community
Proof of Work Is an Energy-Intensive Consensus Algorithm
Consensus Algorithms Keep Decentralized Networks on the Same Page
Proof of Work Requires Nodes to Invest Power for a Chance at Reward
Mining Nodes Validate Transactions and Group Them Into Blocks
Mining Nodes Compete for the Right to Add Their Block to the Distributed Ledger
The Network Will Reject Blocks That Include Fraudulent Transactions or Manipulated Data
Why Solve Consensus with Proof of Work?
High Digital Currency Valuation Caused Rapid Load Growth
Increasing Electricity Consumption Creates a Feedback Loop
Digital Currency Mining Has Unconventional Load Characteristics
Electricity Costs Are a Disproportionately High Fraction of Operating Costs
Digital Currency Miners Have a Prevailing Incentive to Minimize Electricity Costs
Digital Currency Miners Are Highly Mobile Relative to Traditional Industrial Customers
Digital Currency Mining Has an Uncertain Future
The Market for Digital Currency Mining Is Likely to Shrink
A Range of Factors Influence Growth in Electricity Consumption
Regulations That Once Encouraged Digital Currency Mining Are Being Withdrawn
Proof of Work Is Already an Outdated Technology
Utilities Must Prepare for a Range of Future Scenarios
Utilities Should Not Panic
But They Must Be Prepared
Hardware Suppliers Must Look to New Markets for Growth
Utilities Must Not Invest in New Infrastructure to Support Digital Currency Mining
Investors and Partners Must Be Wary of Greenwashing
Digital Currency Miners Need a Backup Plan
Blockchain Technology and Digital Currencies Must Be Viewed Separately
- Monthly Revenue Potential, Bitcoin Network: January 2015-December 2018
- Online Computing Power and Proof of Work Difficulty, Bitcoin Network: January 2015-December 2018
- Estimated Historical Electricity Consumption, Bitcoin Network: 2015-2018
- The Antminer S-9, a Dedicated Digital Currency Mining Node
- Regional Vulnerability to Digital Currency Mining, Europe
- Regional Vulnerability to Digital Currency Mining, US
- NordCoin Module with Integrated Digital Currency Mining Hardware and Cooling Systems
- Dollar Value of Bitcoin by Growth Scenario, Bitcoin Network: 2019-2028
- Revenue Potential Growth Scenarios, Bitcoin Network: 2019-2028
- Bitcoin Mining Electricity Consumption Scenarios, Bitcoin Network: 2014-2028
- Bitcoin Mining Block Reward Schedule: 2008-2024 (Approximate)