How Many Barrels Of Oil Are Needed To Mine One Bitcoin?

Tyler Durden's picture

What would you guess? Five…twenty five…fifty?

James Stafford, editor of Oilprice.com not only does the math, but explains the energy-driven geographic arbitrage currently driving bitcoin mining

The bitcoin boom is well and truly underway, and investors are constantly looking for new ways to gain an advantage in this space The best way to do this, it seems, is by cutting the energy costs of mining this precious commodity. The bitcoin mining industry consumes 22.5 TWh of energy annually, which amounts to 13,239,916 barrels of oil equivalent.

With 12.5 bitcoins being mined every 10 minutes, that means the average energy cost of one bitcoin would equate to 20 barrels of oil equivalent.

While it’s all about where you sit on the cost curve, Stafford provides us with some context on gross energy consumption.

To put this in perspective, the total energy consumption of the world’s Bitcoin mining activities is more than 40 times greater than that required to power the entire Visa network.

And it’s very profitable...

Mining bitcoin has the potential to be a wildly lucrative business, with a single Bitcoin now valued at more than 100 barrels of oil.

 

That kind of price makes it one of the most valuable commodities on the planet and, just like oil, this commodity is increasingly valuable to mine if the energy costs can be kept down. Bitcoin transactions are secured by computer miners, who are competing for rewards in the form of coins from the network.

 

The more computation power they use, the better their chances. The drill rig is a computer, and hydraulic fracturing is done with the tip of your fingers.

...if you’ve got bucket loads of cheap electricity.

It’s a phenomenally energy-intensive process. Cheap electricity is exactly what made China the Bitcoin mining king. The yearly cost of the energy necessary to mine Bitcoin determines its economics. But to get in on that you risk reputation because you’re either siphoning off surplus energy from somewhere else, or you’re partnering with the government. No matter how you look at it, it’s a very gray area. No one wants dirty coal fueling such a sophisticated endeavor, for example.

As we discussed recently, subsidized electricity and hyperinflation has led to rapid growth in Bitcoin mining in Venezuela, albeit from a low base.

When it comes to scale, however, the new Bitcoin mining hub - with a different type of energy advantage - is Iceland. James Stafford calls it the “New Ground (Below) Zero”, he continues.

That’s why HIVE Blockchain Technologies Ltd. - a gold-miner-turned-bitcoin-miner - has set up in Iceland. As one of the first public companies that lets you participate in the build-up and infrastructure of crypto mining, HIVE is taking advantage of Bitcoin’s favorite element: Ice. It’s freezing in Iceland, so the relative energy cost of mining there is lower. Mining hardware requires enormous power and creates tons of heat, and natural temperature is key: Iceland saves on cooling costs, making it one of the most potentially profitable places to mine Bitcoin.

He cites other examples of crypto companies moving to Iceland.

Giant ether mining start-up, BitFury Group, is there. BitFury, out of the Netherlands, generated over $90 million in revenue this year, and predicts it will be generating $585 million in revenue by 2021. While its flagship data center is in the Republic of Georgia, it’s also now tapping into the cool temperatures of Iceland. Emmanuel Abiodun, founder of Cloud Hashing, a company which owns a computing facility in Iceland, chose Iceland because of its cheap and plentiful geothermal and hydroelectric energy, and the “free Arctic air” that is piped in to cool the machines. Iceland is also ground zero for Hong-Kong-based Genesis Mining Ltd, which is building the largest ether mining facility in the world in Iceland. And HIVE has recently acquired a new data center from Genesis for $9 million and a 30 percent equity stake in HIVE, according to Bloomberg, which says HIVE shares have “Bitcoin investors buzzing”. Right next door to this landmark bitcoin facility in Reykajanes, Iceland, HIVE has just acquired a second data center from Genesis.

Stafford states that “The cold countries are now the home of what is being dubbed ‘geothermal gold’.” Talking of which.

HIVE’s backers include mining mavericks Frank Giustra and Frank Holmes. Giustra built up Goldcorp (NYSE:GG) in 2000 and today it trades at a market cap of nearly $11 billion, and is one of the largest gold-mining companies in the world. He was also behind Silver Wheaton, which is now Wheaton Precious Metals Corp. (NYSE:WPM), the biggest silver and gold streaming company in the world. Giustra’s 20-oscar-winning entertainment behemoth, Lion’s Gate, also took in $2.4 billion in revenue in 2015. And these are just a few of his multi-billion-dollar hits. Holmes is the CEO of San Antonio-based US Global Investors, which has $2.6 billion in assets under management and is one of the definitive top precious metals funds. Both have backed HIVE, and Holmes is now its chairman. Both still love gold because gold will always be gold, but they’re not old-fashioned. Bitcoin is huge, and they won’t be left out of the wave.

A two-pronged strategy of gold and crypto, we’re not going to argue with that.

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VD's picture

so fucking stupid it's just unreal.

Occident Mortal's picture

So if I piss away millions of dollars of electricity to pump hot air into a ballon is my balloon full of hot air worth millions of dollars? Or I’d this reasoning obviously flawed even to a moron?

Looney's picture

 

How Many Barrels Of Oil Are Needed To Mine One Bitcoin?

Well… all BitCoins ever mined can be easily hidden behind the Tooth Fairy’s hymen.  ;-)

Looney

Stuck on Zero's picture

Unlike gold, that can sit around with no expenditure of energy for hundreds of years, bitcoin requires the maintenance of huge energy burning server farms indefinitely.

tmosley's picture

No, that is just for transactions.

Gold requires vaults, guards, armored cars, purity testing, etc. Just because you don't see the costs doesn't mean they aren't there.

Automatic Choke's picture

And many of these same bitcoin lovers - investing their surplus from high salaries in silicon valley - are simultaneously embracing legislation to outlaw gasoline vehicles to save energy....

 

IH8OBAMA's picture

What a monumental waste of the world's resources.  Where are the environmentalist to complain about this cross distruction of world resouces and additional polution.  And for what?  Some electonic bits with an intrinsic value of ZERO.

 

LetThemEatRand's picture

I have to side with Tmosley on this one (even though I own no crypto, darn it).  What the author is talking about is the cost of computer processing.  So what.  We all sit here on the internets and watch Netflix, Amazon Prime, HBOGo, and post on ZH.  And I've heard the internet is used for other forms of entertainment as well.  How many lights do you have on in your house right now?  Etc.  Bullshit point, bullshit article.

USA USA's picture

20^ because I can't leave them on the comment!

Tarzan's picture

They're admitting, it's worthless without electricity!

This whole block chain idea is just the fast road to a cashless society, a place I do not want to be.  If you think it's hard to withdraw cash when the ATMs go down, wait till Crypto takes over, and an EMP goes off, or the web kill switch is thrown!

11b40's picture

Agree on the point about cost of energy use, but not on the article being bullshit.  What is very clear is the amount of visionary money being invested in the future of cryptos specifically, and of block chain generally.   It also illustrates the problem that governments have if they try to shut it down.  Mining can occur anywhere there is electricity, new currency creation can't be stopped, and the cryptos can be used anonymously anywhere in the world there is an Internet connection.  No government permission required - and none wanted.

One other point to add to the list of things to think about is how much total value is lost annually to the inflation of fiat currency, and how much is extracted from the public in the form of usury.

Give this a little deep thought instead of automatic, uninformed rejection....as happened with Fonestar several years ago.  We laughed at him then, but who is laughing now?

So, what does this mean for governments and for bankers in the future?  What happens when they cannot control commerce?  What happens when they can't find the tax revenue, but continue printing, and their currencies keep devaluing against cryptos?

Here we have the potential to kill off the Central bankers by starvation, and to eliminate income taxes by going back to the way things once were.  The government gets it's money from tariffs, and some forms of VAT.

Please feel free to chime in on this.  We need more thought and less heat on this revolutionary block chain concept.

DownWithYogaPants's picture

I only come here to watch the gold bugs have epileptic fits over BitCoin because it is doing what they think gold should be.

A little note: Gold is not worth much without electricity also because the manufactured goods you have become dependent on can not be made without them.  BitCoin ad gold are different beasts. 

Ok so parody time: 

EVERY ARTICLE EVER WRITTEN ON Zh: By DWYP

blab blah blabba blah  ( for 6 columnar inches) 

Therefore buy gold and sliver.

............and is this article a cleverly placed ad for Hive.V stock?

malek's picture

So you're saying pissing away 22.5 TWh annually just for fun is OK?

Please tell us at what amounts you'd be pissed too.

Sabibaby's picture

The fact that machines are expending energy to make them gives them value. How many barrels of oil does it take to mine an ounce of gold? 

 

Investing in bitcoin and gold and silver is a good hedge for all the volitility in the world.

CNONC's picture

Expenditure creates value?  Why is it so hard for some to recognize that value and cost are seperate and fundamentally unrelated measures?  That cost and value, in our daily experience, display a strong correlation is simply a demonstration of the origin of microeconomic theory.  If I build a house that no one wants, it does not matter how much I spent to build it.  It is still worth nothing. 

11b40's picture

So what?  There seemsto be plenty of demand for cryptos.  And, if you build a house (it would have to be up to code), it still has value as shelter, and could be sold at some price. 

CNONC's picture

You seem to have missed the point.  Cost is not related to price.  Does the demand for cryptos derive from their cost of production?

11b40's picture

No, and again I ask, so what?  It is simply arguing a meaningless point as relates to the reality of block chain.  Value is derived from function.  No real argument about the relation of cost to value, just not a major issue in the long term value of the subject.

CNONC's picture

Yes, value is derived from function.  As I have asked repeatedly, what is the function of Bitcoin which justifies its current price?  It is not a currency, as participants generally will not transact with it, or loan it as they expect further appreciation.  You may argue that it is a store of value, if you believe that it is unlikely to fall in price relative to whatever transactional medium you must convert it into.  Is that belief certain enough to justify its price?  What other function can justify the current and expected future price? 

unsafe-space-time's picture

There is no need to mine anymore gold. There is plenty to go around.

stacking12321's picture

the "WORLD'S resources"?

what are you, a commie?

resources are privately owned.

what someone does with their own resources is their business, not yours.

your comment has an intrinsic value of zero.

nevenbridge's picture

"resources are privately owned" until someone shot you, a meteorite hits the earth, god reclaims your soil or some aliens choose to transfer their civilization on earth.

"resources are privately owned" is an artificial convention made by men. I know it's difficult to understand for who blindly follows an ideology but humans are not gods, you are going to die, you are a fart, i am a fart, Einstein was a fart, Trump is a fart, Julius Caesar was a fart, Hillary is a massive fart, all humankind is a fart, resources are a piece of this universe, they don't realy have an owner, they are much older than any man or any law.

I would say that earth resources are mainly of the planet earth, then i would add "of humankind", in the end "assigned to particular human individuals or groups of human individuals through human actions and laws". Men could go extinct but resources would still be there. It is a concept not tied to ideologies like the comunist or libertarian ones. Resources already existed before any ideology.

universe > men, we all are a fart in the universe or in front of god, as you prefer so it's absolutely licit to say "WORLD'S resources" imho.

unsafe-space-time's picture

Resources will reach a global peak. As they start to decline food will become unaffordable and you will starve. Industry and technology have created a commie-like global hive whether you like it or not.

Lanka's picture

Another unexpected consequence of unlimited printing of fiat.

Silver Glock's picture

Sure, better spend some time on Facetube looking at a cat shitting on toilet?

Cloud9.5's picture

Not mine.  Its at the bottom of a lake.

Nekoti's picture

No vaults, guards or armoured cars here. Find a nice spot to deep six it, and it is good as gone.

tmosley's picture

You idiots aren't talking about transacting. The second you go to sell your gold, you'd better pray for rubes, or you are going to pay out your ass for assaying. If your gold is even where you left it.

Nekoti's picture

I've never dissed you for liking bitcoin. I beleive to each his own. Never understood why someone would knock another for their choice of investment.

tmosley's picture

You were talking about storing, not transacting.

Bitcoin also costs nothing to store. And the storage is secure--far more secure than your safe or other hiding place.

If you have that shit buried somewhere outside, you had best beware AI-enhanced metal detection. Direct visualization of buried metals will be possible. Hell, if someone with a little know how wanted to, they could probably get one to market in a few months.

Nekoti's picture

I have transacted with the metals. Same as paying cash "under the table". Isn't that what bitcoin is about? By passing the beast.

tmosley's picture

I prefer my transactions to have zero chance of me getting stuck with one of these: https://www.alibaba.com/product-detail/One-Troy-ounce-Warking-Liberty-tu...

Dirty Bumn's picture

youre so fucking stupid, keep buying virtual securities backed by nothing asshole

tmosley's picture

Hahaha, cry more for me.

Dirty Bumn's picture

you're so fucking stupid

SWRichmond's picture

Who cares how many barrels?  Web sites are stealing CPU cycles from you with a browser hack to have you mine for them.

phatfawzi's picture

making about $7 a day after power for each rig, ill keep doing it thank you. That doesn't include any appreciation in BTC. Not selling till it reaches $500k per coin. Who would iv'e thought Bitcoin would be the solution to the oil glut. 

bitplayer's picture

Don't sell at $500k you Imbecile! It'll just be getting started then!

phatfawzi's picture

i don't want to be greedy. If you read ZH daily you would know the $500k reference. 

tmosley's picture

That would be near the end of its run in the best case scenario, assuming we're talking 2017 dollars here. It would have another ~20X to run from there if it took over the role of broad money for the entire world.

But I doubt that it will be Bitcoin that assumes that mantle, as good money doesn't cost a significant amount to transact. I suspect it will be more of a reserve asset. Something with free transactions, like IOTA, will take over the role of broad money.

kochevnik's picture

Mining requires the energy.  As hardware grows more efficient less energy is required.  Transactions require normal computation

tmosley's picture

That is incorrect. Mining is designed to use as much energy as possible while remaining profitable. Processing transactions is a minor part of the cost of mining. Almost all of that cost is in securing the chain. More efficient machines just mean the chain will be that much more secure.

Michigander's picture

Unlike gold, that can sit around with no INCREASE IN VALUE for hundreds of years...

Fixed it for ya...

Oracle of Kypseli's picture

So then, bitcoin is a novel way to increase power consumption and bring oil prices higher?

What a scheme! Congratulations to whoever thought of it. What a waste of resources!

A friend got caught by the sate troopers in Montana traveling at 140MPH. he got a $25 ticket not for speeding (unlimited) but for wasting valuable resources.

Get the point?

jmack's picture

    Is your point that Montana is a communist police state?   That is what I got from your comment.  

 

    bit coin is an attempt to create trustless transactions,  if you cannot grasp the implications of that concept, then you are wasting a very valuable resource, your brain cells, and should be ticketed.  Just because you are unaware of the utility of bitcoin and blockchain generally does not mean it is a waste of resources. 

     bitcoin mining is thriving in socialist countries, it is a method by which people living under an authoritarian economic system can convert a state resource into private capital.  Then take that private capital and bypass the central authority's capital controls.  That happens to a degree in America, and will continue to expand as Federal authorities continue to abuse their power in regards to the US dollar. 

 

   So at the end of the day, the wasted resource is the governements' abuse of personal liberty by devaluing currencies into worthless paper

 

 

RationalLuddite's picture

Bllockchain - good. Evolution in more diverse mutations if distributed ledgers et al - good. Intent of Diversification away from govt control on wealth proxies - terrific. Using enormous amounts of energy as an artifical construct to limit the resource - simply the road to ruin, in actual wealth., desirable and useful negative entropy. 

 

I am sorry but this utter fucking waste of resources is simply a parasitic waste of energy. Would you have created wealth in past times by mandating that all draft horses must thence carry 100kg of lead weight around their neck, thus dramatically increasing the cost of PlowCoin? Would you create it now by making haulage trucks more expensive by mandating that they pul 20 tonnes of extra weight wherever they go, so as to increase the price if TruckCoin? Would you create wealth by destroting most of the world’s fossil fuels so that the remaining few barrels in the now collapsed society were worth 10s of billions each for all the capital that can no longer be allicated for OilCoin? Fuck no

 

Yet this is what bitcoin mining does - creates an artifical barrier that ofc means burning energy in an utterly eviscerating fashion as a means of creatng rarity. There is a direct correlation so that if computing becomes more energy efficient,  then the price will settle lower. Its 'value' necessitates sending real wealth into the ether.

 

Wake up guys. From a net society-energy benefit perspective THIS IS CANCER. EVEN FUCKING FIAT IS JUST PARASITIC ON ALL THOSE DOWN STREAM OF THE CON MEN UPSTREAM. THIS IS FIAT THAT ALSO INCINERATES REAL MINED WEALTH (such that it is) . Profit from it - ok. Exploit the late comers in this experiment if you must. Cash out now But don't fucking rationalise yourself into self delusion that you are doing anything but participating in what was previously a valid idea with a fucked up implementation.  Blockchain has merit. This Bitcoin mining is  at this scale simply naive at best and malevolently narcissistic at worst. 

 

Fini

jmack's picture

how much energy is consumed by porn videos?  how many barrels of oil are in one cat video?  how much energy is used to attack afghanistan and Iraq, or Syria if you want to talk about a waste of resources,  or to float 3 air craft carrier fleets to the Korean Peninsula?   Where are you enviro-commies then?   How about the 5 eyes use of prism to capture every electronic signal, needlessly duplicating essentially everything?

http://www.popularmechanics.com/military/a9465/nsa-data-mining-how-it-wo...  

https://www.wired.com/2012/03/ff_nsadatacenter/

Why waste those resources when you cannot stop the boston bombers or the las vegas shooters?  Or the Trumps.  Why is NSA wastefully collecting all that data?   Why is it that "waste of resources" only fall on free market actors, and never the State?

 

      Bit coin uses proof of work, which is wasteful, and will not continue into the future as alluded to in this article https://www.bloomberg.com/news/articles/2017-02-28/bitcoin-s-top-rival-i...  

 

    That is what happens when people are allowed to freely innovate in a competitive field.  They innovate.  If Bitcoin doe not hardfork into the future, they will be considered a cassette tape or vhs of cryptocurrencies in a few years.  Or they may just provide the incentive for vast improvements in energy creation.   If bitcoin is using previously untapped energy from geothermal features in iceland and instead of transmitting that power thru transmission lines, it converts it to "value" and transmits  via fiber optic, or satellite, globally, then that is an efficiency increase, a bigger pie all around, so to speak.