Electricity used to mine bitcoin plummets as crypto crisis widens | Cryptocurrencies

The amount of electricity consumed by the largest cryptocurrency networks has decreased by up to 50% as the “cryptographic winter” continues to eat the incomes of the “miners” and the financial contagion spreads even further across the sector.

The electricity consumption of the bitcoin network fell by a third from its peak on June 11, to the annualized 131 terawatt-hours per year, according to estimates by cryptocurrency analyst Digiconomist. That still equates to Argentina’s annual consumption, with a single conventional bitcoin transaction using the same amount of electricity that a typical American home would use for 50 days.

The decline in electricity used for Ethereum, the “programmable money” that underpins much of the recent explosion of cryptographic projects, has been further sharpened, from a peak of 94TWh per year to 46TWh per year: Qatar’s annualized consumption.

However, the underlying reason for the fall is the same for both currencies. The electricity consumption of a cryptocurrency network comes from “mining,” which involves people using specially built computers to generate digital lottery tickets that can reward cryptocurrency payments. The process sustains network security, but encourages the network as a whole to waste extraordinary amounts of energy.

As the price of cryptocurrencies has fallen – bitcoin hit a high of $ 69,000 (£ 56,000) earlier this year, and now hovers around $ 20,000 – the value of rewards for miners has dropped by the same proportion, leaving them in areas with expensive electricity or using older, inefficient mining “platforms” that can’t make a profit.

“This is literally leaving them out of business, starting with those operating with suboptimal equipment or in suboptimal circumstances (e.g., inefficient cooling),” said Alex de Vries, the Dutch economist behind Digiconomist.

“For bitcoins mining equipment it’s a big problem, because those machines can’t be reused to do anything else. When they’re not profitable they’re useless machines. You can keep them hoping the price will pick up or sell them as scrap.”

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Ethereum, on the other hand, can be extracted using a normal computer. But the most cost-effective is to do so using a very powerful graphics card, which has led to a widespread shortage of card supply and turned many players against the industry. The collapse of mining revenues has sparked an avalanche of graphics cards in the second-hand market as insolvent miners try to recoup their investments, but De Vries warns it is a lottery to buy one.

“These machines typically run 24 hours a day, 7 days a week, and the components will heat up when they do. [especially for prolonged periods of time] it is known to wear out electronics, reducing longevity and reliability.

“Right now they will be mostly older GPUs [graphics processing unit] making it profitable, which means it’s unlikely that these devices will be used for mining for a long time. ”Fortunately for gamers, falling demand has also led to large price cuts for new components.

Although the fall in the price of bitcoin has stabilized over the past week, the broader sector of cryptocurrencies continues to stumble as a result of the huge collapse in prices. The latest shake-up was caused by the failure of cryptobank ersatz Celsius, which announced on June 12 that it was suspending withdrawals as it faced a liquidity crisis.

Celsius ’failure caused a sector-wide domino effect: Three Arrows Capital (3AC), a multimillion-dollar hedge fund, experienced its own liquidity crisis as a result, and now several companies with significant outstanding loans to 3AC had to accept. emergency measures in turn.

Two other companies offering similar services to banks announced large exposures to 3AC. Last week, Finblox said hedge fund shares had a “liquidity effect” and severely restricted user withdrawals, lowering the daily limit from $ 50,000 to $ 500 while interrupting interest payments on deposits.

On Wednesday Voyager, which offers 12% on cryptocurrencies, revealed it had an outstanding loan of $ 650 million to 3AC, more than four times its available money. Voyager added that it would consider 3AC in arrears if the hedge fund does not repay the loan in full on Monday morning. The company also froze user withdrawals.

Bancor, a decentralized financing protocol that acts as an exchange, lost to “the recent insolvency of two large centralized entities,” which are believed to be Celsius and 3AC, and had to impose withdrawal limits. On Thursday another cryptocurrency exchange, CoinFLEX, announced it was pausing withdrawals because of “extreme market conditions.”

In the midst of the collapses, a large cryptocurrency company emerged as a possible savior of the sector. Alameda Ventures, the investment arm of the empire of cryptocurrency entrepreneur Sam Bankman-Fried, focused on its FTX exchange, rescued Voyager and the besieged BlockFi exchange, offering multimillion-dollar loans to both companies. The loans earned him comparisons to JP Morgan, the American banker who intervened during a 1907 financial crisis and bought the shares of troubled companies in an effort to stop the collapse.

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