This article is not about industrial scale bitcoin mining. It is intended only as a guide to those who, having are either mining for bitcoin, or possibly other crypto-currencies, or are planning to, from the comfort of their own homes.
This article is focused mainly on the incremental cost of the electricity consumed when using a home-based bitcoin mining setup. It assumes that you have already purchased the necessary mining rig - the computer system used for mining bitcoin.
To mine bitcoin mining you are going to need a bitcoin wallet, a mining rig, access to a mining pool, and mining software. Once you have all that you are going to need electricity - a lot of electricity.
Bitcoin mining consumes energy - globally, a huge amount of energy.
In his original white paper on the cryptocurrency, Satoshi Nakamoto noted the following about the cost of mining for new coins. "In our case, it is CPU time and electricity that is expended". So basically, mining is using a computer to turn electricity into money.
Digiconomist produces an interesting Bitcoin Energy Consumption Index which tracks the estimated annual electricity consumption of global bitcoin mining. The index is based on global bitcoin mining revenues (bitcoins mined times price per bitcoin in US dollars) multiplied by the % of the revenue that is estimated to be spent on electricity (about 60%).
While this is clearly an estimate, and the baseline level could be off, the trend this provides is likely to be highly indicative. The index throws up some interesting observations.
As at 26 January 2017 Bitcoin's current annual electricity consumption is estimated to be 45 TWh (terra watt hours) - that is roughly 0.2% of global consumption.
This may not sound like a lot but it is already more than the annual consumptions of countries like Ireland and New Zealand. Furthermore, consumption is estimated to have almost doubled in the last 3 months and more than quadrupled in less than a year.
According to Forbes, analysts at Credit Suisse have a lower estimate for global electricity consumption from bitcoin mining at around 20 TWh, although still on a par with Ireland.
The team at Credit Suisse also calculated the bitcoin price that would be needed to incentivise miners to gobble up all the world's generation capacity; $1.1 million per coin. A frightening prospect.
That very much depends upon the type of miner that you have, and its power consumption rating.
Below we compare the electricity prices for a modern efficient bitcoin miner, like the Antminer S9, with an earlier less efficient version like the Antminer S5+.
- The miner has already been purchased so there are no additional capital costs.
- You have an unlimited Internet broadband connection so there are no incremental Internet access or data charges.
- You take no compensation for your time other than the financial return you generate from the bitcoin mined.
Table 1 shows how much energy these bitcoin miners consume under 2 scenarios - if used constantly and if use is restricted to 7 hours of off-peak usage.
Whichever way you look at it, it is a lot. An efficient bitcoin miner running 24/7/365 will consume as much power as 4 (four) average sized family households consume in a year. An older less efficient miner will consume as much electricity as almost 10 households. Given such a prolific use of electricity, price per kWh paid becomes a critical consideration.
Table 1 - Miner consumption profiles
|Device||Power rating (kW)||Annual Consumption|
Electricity unit rates vary....a lot.
Day rates range from 11.3p/kWh to 21.7p/kWh.
Night time (off-peak) rates range from 4.3 p/kWh to 25.0p/kWh.
With electricity being the largest variable cost of bitcoin mining, being on the right tariff is key to ensure that you can make a profit.
Tariffs to avoid
It goes without saying, as this applies to all consumers generally, but you do not want to be on a Standard Variable Tariff (SVT) of any kind.
As a baseline, we have compared the annual cost of the incremental electricity units used for bitcoin mining based on the cost of the SVTs of the Big 6. Please note that we have ignored standing charges as we are looking at incremental costs, and standing charges would have been already incurred as part of the general electricity consumption of the household independent of the decision to mine bitcoin. In any case, given the size of the electricity cost to mine bitcoin, the standing charge is a very small component of the overall bill and makes little difference to the analysis.
Table 2 - Mining Cost using Standard Variable tariffs
(Off peak use)
(Off peak use)
So why should you avoid SVTs? Because it will cost £2,000 a year just to run an efficient mining rig and anything up to £5,000 a year for an inefficient one.
Does switching help?
Absolutely. You can reduce the rate you pay for each unit by 28% from over 16p / kWh to under 12p / kWh. Over the course of a year that translates into savings of anything from £542 upwards to over £1,000 per rig.
Table 3 - Mining Cost using cheapest daytime electricity rates
|Big 6 - Average||1,948||4,867|
What about off-peak rates?
Should you consider switching to an Economy 7 tariff?
Off peak rates offer unit prices that can be up to 70% cheaper that standard variable day rates. With mining difficulty set to increase - something built into the bitcoin algorithm - then it will become increasingly more energy intensive and expensive to mine bitcoin. It is therefore important to secure the absolutely lowest possible unit prices and switching to an Economy 7 tariff may be the way to do this.
It is difficult to know how profitable bitcoin mining at small scale really is. Given the rate at which new mining capacity is being added it strongly suggests that industrial scale mining is a very profitable business indeed, particularly in those countries where electricity costs are relatively much cheaper, such as China. But on a small scale the data is patchy.
However, even if domestic mining of bitcoin is profitable now one thing is for sure. The difficulty in mining Bitcoin will increase over time. The Bitcoin algorithm is designed to produce a constant amount of Bitcoin every 10 minutes. The difficulty of solving the computational problems therefore has to increase in order to adjust for the rate at which problems are being solved. Basically, this means that the more miners that join the mining network, the harder it gets to mine Bitcoin successfully.
Remember that electricity consumption for Bitcoin mining has quadrupled over the last year. Given that the most recent CPUs added will be more efficient than the older CPUs implies that the number of mining CPUs is growing faster than electricity consumption, possibly much faster. As such, if small scale mining is profitable now, it will become less so in future unless CPU efficiency grows in line with mining difficulty (or unless the price of Bitcoin keeps rising to compensate for the increase in difficulty). But even if CPU efficiency does increase to offset increases in mining difficulty it will only help the bitcoin miner if they are constantly replacing their rigs with the most efficient units available and that is not practical on a small scale. Inevitably therefore one needs to ensure that electricity costs are as low as possible to ensure mining stays profitable.
The best way to really get the unit cost of electricity down is to move to a time of use tariff and only run the rig during off peak rates when energy prices are lowest. The upside is that costs are much lower. The downsides are two-fold;
1. You can only participate during off peak hours - typically 7 hours during the night - so your overall mining revenue will be lower.
2. Economy 7 tariffs offer cheaper night rates but usually charge more for daytime usage, so you need to consider not just what you will save on mining at night but also any off-setting increase in costs from higher day rates.
Table 4 compares the costs of running a miner during off peak hours at the cheapest off-peak rates compared to the running the same miner at the same time but paying regular SVT rates. The absolute saving is smaller because the rig is only being run for 7 as opposed to 24 hours but the percentage saving is a staggering 70%. That is because you are cutting the unit rate from 16.2p/kWh to only 4.9p kWh.
There is also a certain irony in the results.
Firstly the cheapest night rate unit is actually an SVT provided by one of the Big 6.
Secondly, the rate is determined not by competitive forces but by regulation. The tariff in question is a prepayment tariff where the rate is partially set by a prepayment price cap designed to protect vulnerable customers. Ironically the prepayment cap is actually offering bitcoin miners the opportunity to get ultra-cheap electricity for profitable gain. We wonder how many miners are vulnerable customers.
Table 4 - Mining Cost using cheapest off-peak electricity rates
|Big 6 - Average||568||1,420|
Joe Malinowski, founder of award winning energy price comparison website TheEnergyShop.com commented.
"If you are mining Bitcoin, or planning to, you are going to need electricity and lots of it. Being on the right tariff is therefore critical otherwise you could be spending hundreds if not thousands over the odds. No point making money on the one hand if you just end up giving it all back to your energy supplier right?"
Joe Malinowski continued.
"Off peak (Economy 7) tariffs can offer unit prices up to 70% cheaper that standard variable day rates and so cannot be ignored. Rather ironically the cheapest Economy 7 rates currently on offer are regulated prepayment rates from one of the Big 6. Legislation designed to protect vulnerable customers may be helping grow profits for bitcoin miners."
Joe Malinowski concluded.
"Overall electricity costs will vary depending on factors such as where you live and your overall usage profile. Doing your research is important. Work out how much energy you will use and make sure you compare energy prices before switching,"