- CoinShares released a 19-page report analyzing the geographic distribution, composition, efficiency, electricity consumption, and electricity sources of the Bitcoin mining network
- The firm notes that bitcoin miners are likely mining at a loss, but given the right conditions, some mining operations can still be profitable
- CoinShares concludes that, based on its estimates, renewable energy accounts for 77.6% of total bitcoin mining energy usage
CoinShares, the cryptoasset investment and research platform, released a new 19-page report titled: “The Bitcoin Mining Network—Trends, Marginal Creation Cost, Electricity Consumption & Sources.” The report analyzes the geographic distribution, composition, efficiency, electricity consumption, and electricity sources of the Bitcoin mining network. Additionally, the white paper examines trends in hash rate, marginal creation cost, hardware costs, and hardware efficiency. This report is the second edition of CoinShares bi-annual mining report. The firm’s first report of Bitcoin mining was published in May 2018.
CoinShares starts off the report by noting that in the second half of 2018, several next-generation mining units were introduced onto the market. These mining units saw significant improvements in both gigahash-per-joules (GH/J) efficiency and investment cost per terahash-per-second. On average, the efficiency of hardware introduced since CoinShare’s last report has fallen along the previously identified trendline, while the cost of the hardware has fallen below the previous trendline, and the network’s hashrate has grown faster than the two-year average, but slower than the all-time average.
CoinShares goes on to model out the cost of creating bitcoin, concluding that at prices of ~$4,000/btc the average miner is either: operating at a loss and unable to recover capital expenditure or paying less for mining gear than the firm’s estimate. However, CoinShares notes that, given the right conditions, miners can still profitably mine bitcoin.
Next, CoinShares takes a look at the geographic locations of the bitcoin mining industry. According to CoinShares, miners are leaving China in significant numbers, and instead, are setting up operation in Scandinavia, Russia, Canada and the United States where cheap, abundant electricity, friendlier regulation, fast internet connections, and cooler climates can be attained. CoinShares estimates that no more than 60% of miners currently remain in China. Of these miners, an estimated 80% have set up operations in Sichuan, with the remaining spread out in Yunnan, Guizhou, Tibet, Xinjiang, Western Inner Mongolia, and Heilongjiang. In addition, CoinShares notes that while there is mining activity outside of these regions, the firm does not believe they are large enough to “warrant detailed investigation.”
In the remainder of the report, CoinShares examines the renewable energy usage of miners. According to CoinShares one of the major issues for renewable energy generation, over the past 10 years in China, is curtailment. Curtailment refers to the rejection of additional energy output due to the fear of overloading and shutting down an energy grid. Curtailments impact the earnings of renewable generation operations at a fixed cost basis — significantly impacting the net profitability of renewable energy operations. In certain regions of China, depending on the energy source, curtailment rates can be higher than 30% — that is, rejecting an extra 30% of energy production.
For miners, however, regions with high curtailment rates are attractive locations for mining operations. Energy surplus, which would otherwise be wasted, will often be sold at cheaper prices to miners. While CoinShares, themselves, admit that it is difficult to measure the difference between renewable and non-renewable energy use for individual mining operations, the company does make some educated guesses based on data it collected.
Using the above data points, CoinShares estimates that Sichuan has a 43.2% share of global bitcoin mining renewable energy usage, the remaining relevant Chinese provinces have a 5.7% share, relevant western regions have a 27.8% share, and the rest of the world has a 0.9%. Adding these up, CoinShares concludes that renewable energy makes 77.6% of total bitcoin mining. These estimates all assume that the renewable energy penetration and global mining market share are accurate. CoinShares states, in the report’s disclaimer, that “the information presented in this document has been developed internally and/or obtained from sources believed to be reliable,” and that the firm does not guarantee “the accuracy, adequacy, or completeness of such information.”