Research Report | 74% of global BTC mining activities depend on renewable energy

Highly centralized
Contrary to the decentralization system established by Bitcoin, bitcoin mining has become very concentrated in recent years due to technological advances in professional mining hardware that make commodity hardware obsolete. This centralization was caused by the rise of mining pools in which miners collaborated and agreed to share block rewards in proportion to their contribution to the mining hash calculations. These mines control most of the bitcoin networks, and it is estimated that the Chinese mines control about 81% of the network hash rate (Figure 1). Among them, the larger Chinese mines include, F2Pool and AntPool (Figure 2).

Figure 1: Geographical distribution of Bitcoin mining pools

Source: "Bitcoin Mine Pool"

Figure 2: Network Hash Rate Percentage of Top Pools

Source: Blockchain Luxembourg SA (Blockchain [Luxembourg] AG) "Hash Rate Distribution"

The reason for the high degree of centralization is that bitcoin mining requires a lot of electricity, which attracts miners to countries with cheap electricity (ie China). Other highly centralized countries include the Czech Republic, Iceland and Japan, for the same reason as the pursuit of cheap electricity.

Mining hardware into a new competitive land


When Bitcoin (BTC) was first introduced, enthusiasts could easily mine it by using their personal computer (PC). However, this quickly became extremely inefficient, when hardware manufacturers began to focus on production-specific hardware called ASICs, which were built for the specific purpose of mining Bitcoin. optimized.

The first company to enter this field was Bitmain, which has achieved incredible success over the years by selling AntMiner. According to documents disclosed in 2018, Bitmain's revenue in 2017 was $2,517,719,000, far higher than the 2016 revenue of $277,612,000. Although the overall performance details of 2018 have not been disclosed, there are reports that in the third quarter of 2018, there was a loss of $500 million with the decline of BTC in 2018. In addition, Bitmain suffered significant losses in the gambling of bitcoin cash.

Image source: Network

In recent years, another hardware company, Canaan Creative, has also gained attention and become the world's second largest manufacturer of ASIC mining hardware . Although it is far from Bitmain's revenue, its AvalonMiner product is very popular among the industry and has a good balance between hash rate and energy efficiency. In addition, Canaan's profits have grown at an alarming rate over the past few years and are likely to continue to grow at this rate (Figure 3).

Figure 3: Canaan Creative's profit

Source: Quartz, "Canaan Creative seeks an IPO"

Another company in the arena is Hwalong Mining, whose Dragonmint model is actually more efficient in hashing than Bitmain's hardware.

Finally, Bitfury is a hardware company that is focused on providing larger solutions, segmentation, and ways to beat Bitmain in the market.

In general, although Bitmain still has a clear advantage in the bitcoin mining hardware market, it is also facing competitive pressure from many other talented companies.

Energy consumption and coexistence

Currently, there are a total of 17.82 million bitcoins, leaving 3.18 million bitcoins to be mined. About 1,800 new bitcoins are mined every day, which consumes more and more energy. According to the Cambridge Bitcoin Power Consumption Index (CBECI), the global bitcoin network consumes more than 7 gigawatts, or 64 kWh of electricity. This makes Bitcoin's energy consumption higher than that of Switzerland. This amazing power consumption is still in a one-way growth trend (Figure 4).

Figure 4: Country Comparison of Bitcoin Energy Consumption

Source: The Verge (a US technology media website founded in 2011 in Manhattan, New York) "Bitcoin Energy Consumption"

In addition, the Bitcoin network handles only 100 million transactions per year, which is dwarfed by the 500 billion transactions handled by the traditional financial industry. If Bitcoin can catch up with the financial services industry, energy consumption will be astronomical.

However, supporters of Bitcoin believe that most of this energy comes from renewable resources. Because miners position themselves as the cheapest source of energy in the world, they tend to pool their own sources of renewable energy that lack energy demand. For example, China uses its rainy season in the southwest to generate hydropower, which in turn is heavily used by Chinese mines.

In fact, the latest research by CoinShares shows that 74% of mining activities depend on renewable energy . “The Bitcoin mining industry drives more renewable energy than almost all other large industries in the world.”

National position becomes the key
Bitcoin mining has become a booming industry due to the high returns of the mining industry. It promotes media attention and the adoption of cryptocurrencies and strengthens network systems that protect network security. However, some governments oppose the use of cryptocurrencies in their countries and have policies that prevent them from spreading.

Bitcoin and other cryptocurrencies have been banned in Bolivia. Colombia does not allow bitcoin use or investment, while Ecuador has taken a similar position in prohibiting cryptocurrency. Bitcoin is unregulated in Russia, but its use as a means of payment for goods or services is illegal. The Iranian authorities have recently seized 1,000 bitcoin mining machines, saying it is illegal to use the country’s national grid to power encrypted mining.

Countries such as the United States, Canada, Australia, the European Union, and Finland all have a friendly position on encryption, while adopting different levels of regulation to avoid money laundering and tax evasion.

Future leaders show up
The 35 cryptocurrency mining organizations are currently negotiating with Hydro Quebec, a hydroelectric company based in Canada, to discuss how to conduct business there. The site will provide sufficient low-cost energy in a stable government environment that is cryptographically friendly. In addition, Canada's cold climate is particularly beneficial for ASIC machines, which operate better and last longer in cold conditions.

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