From Computational Difficulty to Electricity Crisis: What Makes Bitcoin Mining So Energy-Intensive?

Many people are unfamiliar with the question of what mining is. In fact, Bitcoin mining in the virtual world is equivalent to mining activities in the real world—only instead of drills, miners use high-performance computing equipment. However, as market participants increase, the energy consumption problem of mining has become more prominent. According to a mid-2021 study by Cambridge University, the annual electricity consumption of Bitcoin mining has reached 134.89 terawatt-hours. When compared to the electricity consumption of various countries, it ranks 27th in the world, equivalent to Malaysia’s total annual electricity use.

Mining Mechanism: Why Is the Difficulty Continually Increasing

To understand why mining consumes such enormous amounts of electricity, we first need to understand Bitcoin’s issuance mechanism. The total supply of Bitcoin is permanently limited to 21 million coins. Miners discover new blocks by solving mathematical problems, and each time they find a block, they receive a Bitcoin reward. The initial reward was 50 coins, but after every 210,000 blocks, the reward halves.

This design means that at Bitcoin’s inception, Satoshi Nakamoto could develop 50 bitcoins with just a home computer. But as more people entered the market to compete, mining difficulty increased exponentially. Initially, one computer could mine one coin per day; later, two computers took two days, and four computers took four days. The increasing difficulty directly led to a doubling of computational resources and electricity consumption needed. This difficulty adjustment process will continue until 2140, when all 21 million bitcoins are mined.

From Home Computers to Mining Empires: How Hardware Competition Drives Up Energy Use

As difficulty rises, mining hardware has continued to evolve. When Bitcoin first appeared, ordinary CPUs could handle mining tasks. Later, GPUs were used, and now specialized mining chips are employed. Modern mining machines are equipped with dedicated mining chips, typically operating at high power, which causes each machine to consume about 35 kW of electricity.

To stay competitive, mining operators have no choice but to purchase more and faster mining equipment. This hardware arms race not only consumes significant computing resources but also involves large-scale power consumption for cooling systems. Continuous operation of case fans and power supply fans is essential; otherwise, high temperatures could cause the entire mining farm to shut down. It is estimated that a large-scale mining farm consumes enough electricity in a day to meet the annual electricity needs of an average person.

Before May 2021, nearly 70% of global Bitcoin mining farms were located in China. Miners took advantage of regional electricity advantages, purchasing cheap hydropower in Yunnan, Guizhou, and Sichuan before the rainy season, and switching to lower-cost thermal power in Inner Mongolia and Xinjiang during dry seasons. It was predicted that if this development continued at the same pace, by 2024, China’s annual Bitcoin mining electricity consumption would be equivalent to the annual power generation of 3.5 Three Gorges Dam.

The Mystery of Bitcoin’s Value: Bubble or Consensus

So, what is the actual value of the bitcoins that miners invest such huge amounts of electricity and hardware costs to obtain?

Bitcoin was born in a special context in 2008. During that year, the global subprime mortgage crisis erupted, and the Federal Reserve was forced to implement quantitative easing to respond to the economic crisis. Facing the continuous devaluation of the dollar, in January 2009, a developer claiming to be Satoshi Nakamoto released the white paper “Bitcoin: A Peer-to-Peer Electronic Cash System,” attempting to challenge the monopoly of fiat currencies through digital currency. Subsequently, the Bitcoin genesis block was created.

Initially, Bitcoin circulated within a small circle of programmers, with negligible value. There is a famous story of a programmer exchanging 1,000 bitcoins for two pizzas. But as the tech community recognized it and its usage expanded, Bitcoin gradually gained market acceptance, and its price experienced a surreal rise. In 2020, the Federal Reserve again “printed money,” issuing 21% of the total dollar supply that year, and Bitcoin entered a peak period, with its price soaring past $68,000.

However, from an economic perspective, the actual value of Bitcoin is questionable. First, Bitcoin is not a necessity for society and does not satisfy rigid demand. Second, the value of the labor involved in mining cannot be measured by traditional labor standards. Since its inception, Bitcoin has remained outside the mainstream circulation system of goods, and its current high price largely reflects a market-driven asset bubble fueled by speculation.

From the perspectives of decentralization, anonymity, and difficulty of loss, Bitcoin indeed possesses some attributes of artificial digital assets. But once it attempts to return to the function of real currency, it will face suppression by mainstream fiat currencies. In a sense, Bitcoin’s greatest “value” may lie in the high electricity costs and investment in mining hardware.

National Perspective: Why Regulate Cryptocurrency Mining

In mid-2021, the People’s Bank of China issued a notice reaffirming the country’s stance against virtual currency speculation, calling on major financial institutions to reinforce bans. This policy decision was not made hastily but based on multiple considerations.

Conflict between energy consumption and economic efficiency: The electricity demand for Bitcoin mining is growing exponentially. If allowed to spread domestically, it would squeeze electricity available for other industries, affecting the normal operation of manufacturing, services, and other strategic sectors. As the most populous developing country, energy efficiency is crucial for economic development.

Concerns over financial risks and social stability: The strong anonymity of Bitcoin makes it an ideal tool for money laundering, drug trafficking, and scam-related capital transfers. In the context of actively cracking down on crime, cutting off the transmission chain of Bitcoin becomes a necessary measure.

Core considerations of monetary sovereignty and financial security: Global economic turbulence and unpredictable capital flows mean that virtual assets like Bitcoin could become tools for cross-border arbitrage, threatening national financial security and monetary sovereignty. In September 2021, El Salvador announced Bitcoin as legal tender, attracting international attention. However, as Bitcoin entered a bear market, the Salvadoran government suffered losses of tens of millions of dollars and was even dubbed the “first country to go bankrupt due to crypto speculation.” This case clearly shows that over-reliance on a single virtual asset could push a country toward a financial cliff.

For individuals and society, “speculating on coins” is akin to gambling—it consumes productive resources, erodes diligent work ethic, and fosters social impatience. Therefore, China’s policy approach aims to protect national interests and promote healthy social development. Maintaining vigilance and rationality amid the global cryptocurrency craze is a responsible act of a major nation.