09 May, 2022 

Cryptocurrencies And the Energy Crisis

Recently the whole world is concerned about a global energy crisis caused by Russia's aggressive military actions in Ukraine, sanctions imposed on the aggressor country, and its position of manipulating the available resources.
Share this
Cryptocurrencies And the Energy Crisis

But in fact, the global energy crisis began even before the start of the war, in 2021. The war only worsened the already difficult situation associated with the transition to renewable energy sources and the reduction in supplies from a number of countries. In addition, the demand for energy is growing due to the growth of industries that require electricity for their operation.

One of such industries is cryptocurrency mining. Even with the massive transition to consensus algorithms that do not require as much energy as traditional mining farms, the energy consumption of the crypto industry remains quite high. Experts believe that the crisis will not end for at least the next two years, and predict a further growth of electricity prices. The question is - will mining become too expensive and will the growth of electricity prices affect those cryptocurrencies that still use energy sources for mining? Wouldn’t this demotivate miners?

Network Hash Rate And Mining Complexity - Do They Really Affect the Price of Cryptocurrency?

Consider this situation using the example of Bitcoin - after all, it is the most popular cryptocurrency for mining. In the Bitcoin blockchain, a lot depends on the hash rate, which measures the total power of the network. Not so long ago, Chinese miners were hit by government action that caused the hash rate to drop to an unbelievable 40% in just one month. And yet, just a few months later, Bitcoin reached an all-time high. From the chart below, we can conclude that the correlation between hash rate and price is not as strong as it might seem.

Learn more Cryptocurrencies And the Third World War

What about complexity? Complexity in mining Bitcoins is one of the important tools that protect it from falling in the case of a mass exit of miners. It correlates with their presence on the network and automatically decreases and increases proportionally. Recently, the complexity has reached such a level and such volumes of energy consumption that almost no one is mining at home anymore - it’s too unprofitable. Mining has moved to the industrial level of huge farms occupying entire factory premises, and now energy is a problem for those who own this business. In addition, although it’s woke to accuse Bitcoin of not being environmentally friendly, more and more miners are switching to renewable energy sources.

Although the Chinese mining ban has slowed down this process, it still continues. And this means that gradually mining will become more and more independent of the energy wars going on in the world. Therefore, we can conclude that, first of all, the energy crisis will hit the pockets of the owners of the mining business, who rely on traditional energy sources, and the market is unlikely to have a significant impact. What really affects the value of Bitcoin, followed by the entire cryptocurrency market - events in the global political and economic arena, as well as panic, sometimes deliberately dispersed in the media. Experts advise to keep an eye on this, keep a cool head and draw your own conclusions from the information flow of the news.

Share this