How Much Power Does Crypto Use? The Government wants to know

Think if you don’t buy bitcoin, the whole cryptocurrency craze doesn’t affect you? Think again.

Globally, crypto mining uses as much electricity as the Netherlands, and all that energy use has serious climate implications.

In addition, studies indicate that it can increase the price you pay for electricity.

Exactly how much energy is used to mine crypto in the US, and how it affects the energy system in general, is not very clear. One US government agency is trying to find out.

The Energy Information Administration, which tracks and reports on energy use, has announced that it plans to begin collecting data on electricity use by crypto miners in the US. In February, the agency will begin surveys of crypto-mining companies, which will have to respond with details of their energy consumption.

“We intend to continue to analyze and write about the energy implications of cryptocurrency mining activities in the United States,” EIA Administrator Joe DeCarolis said in a statement Wednesday. “Specifically, we will focus on how energy demand for cryptocurrency mining is evolving, identify geographic areas of high growth, and quantify the sources of electricity used to meet cryptocurrency mining demand.”

Studies have shown that crypto mining operations can increase the utility bills of people living around them, but this is a relatively new and rapidly changing issue. Here’s what it all means.

Crypto mining uses a lot of electricity

Anyone writing about crypto’s energy use is bound to compare it to a country. The University of Cambridge’s Bitcoin Electricity Consumption Index estimated that global bitcoin mining used 121.13 terawatt-hours of electricity in 2023. The entire country of the Netherlands, with more than 17 million people, consumed 121.6 terawatt-hours in 2022, according to the International Energy Agency.

Why so much electricity? Essentially, crypto tokens are generated by a computer solving complicated puzzles. This requires a lot of computing power, usually done by specialized computers that perform calculations 24 hours a day. All those computers generate a lot of heat, which means these facilities usually have energy-intensive cooling systems.

Not all crypto tokens are as energy intensive as bitcoin. Ethereum made a significant change in 2022 (called the Merger) that significantly reduced its energy needs.

For bitcoin in particular, energy demand tends to rise when higher prices for the token itself encourage miners to produce more. After falling well below $20,000 at the end of 2022, the price of bitcoin is now back above $40,000 – fueling demand. Cambridge’s index now estimates a year of energy demand at the current rate at nearly 165 terawatt hours.

In a memo outlining the need for the new EIA survey, DeCarolis noted the rising price of bitcoin as a reason for more analysis of the industry’s energy use.

“At the time of this writing, much of the central United States is in the grip of a major cold snap that has resulted in high demand for electricity,” he wrote. “The combined effects of increased cryptomining and stressed electricity systems create increased uncertainty in electric power markets, which can lead to demand spikes that affect system operations and consumer prices, as happened in Plattsburgh, New York, in 2018. Such conditions can materialize and disappear quickly.”

Why crypto’s energy consumption matters

All this power demand has ripple effects through the energy ecosystem. First, consider where the US gets its electricity. The largest source of power is natural gas, at around 39% of net generation in 2022, according to the EIA. Another 20% came from coal. Burning fossil fuels such as coal and natural gas for power are major contributors to climate change, and total generation from renewable sources such as wind and solar accounted for just 21.3% of US generation in 2022.

Crypto’s growing thirst for electric power comes amid a push for electrification across sectors in an effort to wean the world off fossil fuels. The grid is also under pressure from things like electric vehicles and all-electric heating and cooling systems.

The severe electrical demand from crypto mining can also cause fluctuations in prices, as DeCarolis noted. A study released in 2023 by researchers at the University of California, Berkeley and the University of Chicago calculated that crypto-mining led New York state households to pay an extra $88 per year in utility bills per year .

While increasing demand from crypto mining can affect anyone’s electricity bills, it can have a more immediate impact if you have an electricity rate that changes with demand. In other cases, it can lead to more frequent outages if the network cannot meet the demand.

The EIA’s justification for the survey also pointed specifically to the effects of cryptomining’s energy use during moments when the network is under pressure, such as extreme weather such as winter cold or summer heat waves.

There are ways to insulate yourself against any changes in the energy market. One way, if you live in a state where you can choose an energy plan, is to consider longer term fixed rate plans.

You can also consider getting solar panels or a home battery. Solar panels allow you to be your own source of electricity, independent of market prices. A battery can be used to store energy when it is cheap, so you can use it when prices rise. Batteries can also provide you with power during power outages if the grid goes down.