Electricity used to extract bitcoin plummets as the cryptocurrency crisis increases Cryptocurrencies

The amount of electricity consumed by the largest cryptocurrency networks has fallen by up to 50% as the “cryptocurrency winter” continues to erode the revenues of “miners” and financial contagion spreads further across the sector.

The electricity consumption of the bitcoin network has fallen by a third from the highest on June 11, down to 131 terawatt hours on an annual basis this year, according to estimates from the cryptanalyst Digiconomist. It still corresponds to the annual consumption of Argentina, with a single conventional bitcoin transaction using the same amount of electricity that a typical American household would use over 50 days.

The decline in electricity used for Ethereum, the “programmable money” that underlies much of the recent explosion in crypto projects, has been even sharper, down from a peak of 94TWh a year to 46TWh a year – the annual consumption in Qatar.

However, the underlying cause of the fall is the same for both currencies. The power consumption of a cryptocurrency network comes from “mining”, which means that people use specially built computers to generate digital tickets that can reward cryptocurrency payments. The process underpins the security of the networks, but motivates the network as a whole to waste extraordinary amounts of energy.

As the price of cryptocurrencies has fallen – bitcoin reached a peak of 69,000 dollars (56,000 pounds) earlier this year, and now hovers around 20,000 dollars – the value of the rewards to miners has fallen by the same proportion, leaving them in areas with animals electricity or by using older, inefficient “rigs” for mining that cannot make money.

“This is literally putting them out of business, starting with those operating with suboptimal equipment or under suboptimal conditions (eg inefficient cooling),” said Alex de Vries, the Dutch economist behind Digiconomist.

“For bitcoin mining equipment, it’s a big problem, because these machines can not be used to do anything else. When they are unprofitable, they are useless machines. You can keep them around in the hope that the price will recover or sell them for scrap. »

Ethereum, on the other hand, can be extracted using a regular computer. But it is most profitable to do so by using a very powerful graphics card, which has led to extensive shortages of supplies on the cards and turned many players towards the industry. The collapse in mining revenues has led to a flood of graphics cards in the used market, as insolvent miners try to recoup their investments, but De Vries warns that it is a lottery to buy one.

“These machines are usually in operation 24/7, and the components will get hot when they do [especially for prolonged periods of time] is known to wear out electronics, which reduces service life and reliability.

“Right now it will be mainly older GPUs [graphics processing unit] becomes unprofitable, which means that it is not unlikely that these devices have been used for mining for a long time. ” Fortunately for players, the 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 cryptocurrency sector continues to stumble as a result of the huge price collapse. The latest shock was caused by the failure of the replacement cryptocurrency bank Celsius, which announced on June 12 that it stopped withdrawing when it faced a liquidity crisis.

The Celsius error triggered a domino effect across the broader sector: Three Arrows Capital (3AC), a multi-billion dollar hedge fund, experienced its own liquidity crisis as a result, and several companies with significant outstanding loans to 3AC have now had to take emergency measures in turn .

Two other companies offering bank-like services announced large exposures to 3AC. Last week, Finblox said that the hedge fund’s actions had an “effect on liquidity”, and severely limited user withdrawals, reducing the daily limit from $ 50,000 to $ 500 while stopping interest payments on deposits.

On Wednesday, Voyager, which offers 12% on crypto deposits, revealed that they had an outstanding loan of $ 650 million to 3AC, more than four times the available cash. Voyager added that they would consider 3AC as default if the hedge fund did not repay the loan in full by Monday morning. The company has also allegedly frozen user withdrawals.

Bancor, a decentralized financial protocol that acts as a stock exchange, lost out on “the recent insolvency of two large centralized entities”, believed to be Celsius and 3AC, and had to impose withdrawal limits. On Thursday, another cryptocurrency exchange, CoinFLEX, announced that it was withdrawing due to “extreme market conditions”.

In the midst of the collapse, one large cryptocurrency company has emerged as a possible savior for the sector. Alameda Ventures, the investment arm of crypto-entrepreneur Sam Bankman-Peace’s empire, centered on his stock exchange FTX, has saved Voyager and the troubled stock exchange BlockFi, offering multi-million dollar loans to both companies. The loans have given him comparisons to JP Morgan, the American banker who went into a financial crisis in 1907 and bought up the shares of troubled companies in an attempt to stop the collapse.