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

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.

Comments

LetThemEatRand IH8OBAMA Sat, 10/28/2017 - 19:21 Permalink

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.

In reply to by IH8OBAMA

11b40 LetThemEatRand Sun, 10/29/2017 - 09:54 Permalink

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.

In reply to by LetThemEatRand

DownWithYogaPants 11b40 Sun, 10/29/2017 - 10:39 Permalink

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 DWYPblab blah blabba blah  ( for 6 columnar inches) Therefore buy gold and sliver.............and is this article a cleverly placed ad for Hive.V stock?

In reply to by 11b40

AE911Truth LetThemEatRand Sat, 01/27/2018 - 03:21 Permalink

I wonder if it is possible to improve the Steven E. Jones circuit so that it can power a bitcoin miner, or anything else useful.

After all we have hopefully learned that a flaw in our understanding of the law of conservation of energy is that strictly isolated system do not actually occur in nature. Everything is connected. Many folks still don't acknowledge that.

In reply to by LetThemEatRand

CNONC Sabibaby Sun, 10/29/2017 - 09:00 Permalink

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. 

In reply to by Sabibaby

11b40 CNONC Sun, 10/29/2017 - 10:43 Permalink

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.

In reply to by CNONC

CNONC 11b40 Sun, 10/29/2017 - 10:53 Permalink

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? 

In reply to by 11b40

nevenbridge stacking12321 Sun, 10/29/2017 - 03:18 Permalink

"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.

In reply to by stacking12321

tmosley Nekoti Sat, 10/28/2017 - 19:50 Permalink

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.

In reply to by Nekoti

tmosley bitplayer Sun, 10/29/2017 - 09:12 Permalink

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.

In reply to by bitplayer

Oracle of Kypseli Looney Sat, 10/28/2017 - 18:51 Permalink

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?

In reply to by Looney

jmack Oracle of Kypseli Sat, 10/28/2017 - 20:06 Permalink

    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  

In reply to by Oracle of Kypseli