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Researchers Claim That Recent Cost of Crypto Mining Figures “Pulled out of the Air”

Earlier this week, a study published by Dutch researcher Alex de Vries concluded that Bitcoin mining uses almost as much electricity as the entire Republic of Ireland, but Standford lecturer Johnathan Koomey says his figures are wrong, reports NBC news.

The recent claims that cryptocurrency is draining nation’s power supplies have been compared to concerns in the 1990s when some experts predicted that half of the US electrical grid would be needed to power the then-burgeoning internet, which was later proved to be highly exaggerated.

Koomey’s Berkley Lab proved these calculations wrong at the time, and then again in another study in August 2011 concluding that the data centers used less than 2 percent of the nation’s electricity.

Dutch researcher, Alex de Vries who made the new claims last week, seems to have ignited yet another argument over exactly how much power is being used in excess as a result of the adoption of new technologies.

Koomey asserts, “For two decades, people have been eager to overestimate electricity use by computing…My concern is that we simply don’t have adequate data to come to the strong conclusions that he’s coming to.”

The rise in popularity of Bitcoin and other cryptocurrencies has sparked numerous concerns regarding the energy required by thousands of computing systems that power virtual currencies, and De Vries is certainly not the first to comment on it.

De Vries estimates that the Bitcoin network consumes “at least 2.55 gigawatts of electricity currently, and potentially 7.67 gigawatts in the future.” He also writes that figures will gravitate towards a figure of 8.2 gigawatts by as early as the end of 2018, as energy supplies are further called on to mine cryptocurrencies.

It is these figures that De Vries and other experts in the field contest, suggesting the numbers were simply “picked out of the air.” Koomey argues:

“There may be some basis for them, but it’s a very unreliable way to do these kinds of calculations, and nobody who does this for a living would do it like that. It’s odd that someone would.”

Christian Catalini, an assistant professor at MIT’s Sloan School of Management, who researches cryptocurrencies and blockchain technology, pointed out much of the problem with these kinds of assertions is that data is not actually taken from miners. The very nature of the process often demands that those mining value their privacy, making energy consumption data hard obtain, and therefore to calculate, plus the equipment miners use is varied:

“The main challenge is that this gear is scattered across the globe and faces different prices. This debate keeps popping up, but it would be great if someone did some data sharing with the miners and got some good estimates.”

Bitcoin mining, whether individually or through a mining pool. is often set up in order to keep costs to a minimum, and frequently mining is conducted in such places as caves, energy-rich areas or low-cost countries, in order to reduce costs and maximize user profit. These variables make it hard to ascertain how much global energy is actually being used.

De Vries has responded to counterclaims to those made in the PwC report by his critics, suggesting that, “Right now, the information available is pretty poor quality overall, so I’m hoping that people will use this paper as a foundation for more research.”

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Solution Needed for Global Crypto Mining Energy Drain

A recent study conducted by Alex de Vries, a Dutch economist working for PricewaterhouseCoopers (PwC) has revealed that bitcoin now uses as much energy as Ireland and could match Austria by end of 2018.

The global Bitcoin network currently consumes at least 2.55 gigawatts of electricity, a figure that has roughly doubled in the last 6 months, and new research suggests that this figure could triple this by the end of 2018.

The Bitcoin blockchain uses an algorithm known as Proof of Work (PoW) to achieve its security and distributed consensus. So-called miners are paid in Bitcoin as they verify the agreed state of the ledger. It is the mining that uses the majority of energy required to keep the cryptocurrency functioning.

The actual consumption of power is difficult to ascertain with any degree of accuracy, due to not knowing the exact figures of CPU usage, cooling and other electricity used in the mining process. Further complications in estimating true energy consumption of the bitcoin blockchain can also be attributed to the element of secrecy which often lays behind the mining process and even problems associated with finding details of the equipment used.

Mining efficiency, according to the research, is a factor in the power drain, as most miners are less efficient than lowest estimate figures; the calculation that the 10,000 nodes in the bitcoin network are all single, highly efficient, purpose-built machines such as the Antminer S9. In an optimum case such as this would calculate to about 2.55 gigawatts, which is little less power than used by Ireland.

De Vries’s worst-case scenario sees power used on the bitcoin network matching that of Austria’s total power consumption in the near future, even as early as the end of 2018 if a solution isn’t found. Factors such as the price of Bitcoin, efficiency improvements to the application-specific integrated circuits (ASICs), electricity prices, the number of new miners, local restrictions and many other issues are all significant elements in trying to gauge future usage figures.

Alternative models exist and are beginning to attract other decentralized networks away from Bitcoin because of its enormous consumption of energy. Ethereum claims to be working the towards Proof of Stake, and other models, such as Delegated Proof of Stake, and Capacity and Proof of Resource may be future solutions to the current power drain problem.

Iceland has become the mining location of choice due to its cheap geothermal resources, but already miners are using more than the country’s citizens

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Bitcoin Mining To Comprise 0.5% of Global Electricity Consumption

A new study authored by Alex de Vries and published in Science Direct forecasts that Bitcoin mining will comprise 0.5% of total global electricity consumption by the end of 2018, and is currently consuming 2.5 GigaWatts. This is the first scientific peer-reviewed paper on Bitcoin mining energy usage, and the author hopes this study will be the impetus for getting the conversation started on the best way to handle this problem in the future.

Bitcoin is the most popular cryptocurrency in the world with a market cap of USD 137 billion and trading volume of several billion dollars per day as of this writing. It uses the proof of work (PoW) algorithm where computers cryptographically hash transactions and organize them into blocks, which are added to the blockchain in order to maintain and secure the network. Computers that participate in PoW calculations are called Bitcoin miners, and they receive Bitcoin for their efforts.

Mining Bitcoin has become an extremely popular way to earn Bitcoin, and the amount of processing power used to has snowballed. As more computers mine, each computer already mining Bitcoin receives less income, causing the people to buy more mining machines so that they remain competitive. This has turned into a self-sustaining positive feedback loop that has led to exponential growth of the Bitcoin mining hash rate.

Currently, over 32 million TH/s of processing power is maintaining and securing the Bitcoin network. This uses a tremendous 67 TWh of electricity per year, which is enough to power 6.2 million US households, and is approximately the same amount of electricity that the Czech Republic uses annually.

Fossil fuels burned for Bitcoin mining releases 33,000 kilotons of carbon dioxide into the atmosphere per year, which is contributing to global warming, not to mention the damage from other toxic pollutants that are released into the environment when burning fuel.

This environmental damage that Bitcoin mining is causing has brought up the question if there is a more energy efficient way to maintain and secure the Bitcoin network. One answer lies in switching to Proof-of-Stake (PoS) mining, which some believe is just as secure as PoW but uses almost no electricity in comparison. Any changes to the Bitcoin protocol are met with extreme controversy, however, and this is unlikely to happen. Miners would be particularly opposed, considering that PoW provides such a large amount of money to Bitcoin miners, and switching to PoS would take away their income and make all their mining rigs obsolete.

Bitcoin mining hash rate and electricity usage will continue to rise until the point is reached that the revenue earned from Bitcoin mining equals the amount spent on equipment plus electricity. Currently, Bitcoin electricity usage is more than doubling every year.

 

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10% of Bitcoin Miners Merge-Mine RSK Smart Contract Sidechain

Rootstock (RSK), the first Bitcoin smart contract sidechain, has announced that 10% of all Bitcoin miners are now securing the RSK blockchain. This makes RSK extremely secure since that is a tremendous amount of hashing power.

Smart contracts are a major advancement in the cryptocurrency and blockchain technology world. They allow users to enter into conditional agreements and lock up a certain amount of cryptocurrency until conditions are met. This provides the building blocks for the development of decentralized applications that are directly integrated with the blockchain.

Ethereum has consistently been the second most popular cryptocurrency behind Bitcoin and currently has a market cap of over USD 70 billion. The reason for its popularity is that it has smart contract technology integrated into its protocol, used by many blockchain-based applications.

It is not possible to directly add smart contracts to the Bitcoin blockchain without controversial protocol changes. RSK founders found a solution in creating a sidechain which supports smart contracts and is directly linked to the Bitcoin blockchain.

RSK has its own native cryptocurrency called Smart Bitcoins, but they are directly pegged to real Bitcoins. When a user deposits Bitcoin for an RSK smart contract it remains on the Bitcoin blockchain and is locked up for the duration of the contract, and an equivalent amount of Smart Bitcoins on the RSK sidechain are put into the smart contract. This is done so that RSK smart contracts truly are Bitcoin-based, rather than using their own independent cryptocurrency which would compete with Bitcoin.

Currently, the RSK sidechain can handle 100 transactions per second, with block confirmation times of 10 seconds, but it soon hopes to release a version of RSK called Lumino that has Lightning Network technology and can handle 20,000 transactions per second.

The RSK sidechain can be merged-mined with Bitcoin, meaning that machines mining Bitcoin don’t have to use any additional power or resources to participate in securing and maintaining the RSK network. Miners are rewarded with transaction fees from the RSK network, so it is logical and profitable that every single Bitcoin miner would merge-mine RSK to get extra money. Due to this, the developers of RSK expect much more hashing power to join its network in the long term.

RSK is fully operational and can be used to build decentralized apps that use Bitcoin and directly interact with the Bitcoin blockchain. This gives Bitcoin capabilities similar to Ethereum and will help make Bitcoin use more widespread.

 

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First Large-Scale Crypto Jacking Strike in India Targets Conglomerate

The third largest conglomerate in India, Aditya Birla Group, was targeted in what is believed to be the first large-scale crypto jacking attack of its kind in India.

 Over 2,000 computers affected

Hackers were able to gain access to over 2,000 computer systems belonging to various companies governed by the Aditya Birla Group, taking over the computers’ terminals and processing power to illegally mine cryptocurrency.

While the attack was first detected last month, reporting from the Economic Times notes that it took just a few days for the malware to infect areas of the manufacturing and additional services belonging to the Aditya Birla Group.

A person familiar with the attack spoke to the Economic Times, describing the attack as one in which ”the primary intention of the hackers is not to steal information and cause business disruption. Rather, they hijack the target’s computers and tap the power supply to the organization to mine crypto coins”.

Addressing reporters, a Birla Group spokesperson said: ”Recently, the advanced threat detection systems of our Group alerted us of suspicious activity on some desktop systems. Based on this, our internal team immediately carried out an investigation and deployed countermeasures to isolate and eliminate the cause of this activity.”

Bigger enterprises mean bigger gains for hackers

The Birla Group spokesperson was able to assure the public that with the comprehensive investigation nearly being complete, the hack was not subject to any data loss. Hackers were instead able to mine what has been described as a substantial amount of Monero.
It is common for hackers to target larger establishments, as they are able to provide the potentially largest gains. Universities are known to be another target rich environment hit by hackers.
It is important to note, however, less than 1% of Bitcoin transactions involve illicit activities. While in this case, Monero was the cryptocurrency mined in the illegal process, there is no specific data indicating how frequently it is involved with fraudulent activities.

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Zcash Responds to ASIC Threat

Bitmain is set to launch its new application-specific integrated circuit (ASIC), the Antminer Z9 mini in June, which will be used for mining cryptocurrencies using the Equihash proof-of-work (PoW) algorithm. The Zcash Foundation was quick to respond, labeling the task of maintaining ASIC resistance an “immediate technical priority”.

Pleased to announce the Antminer Z9 mini, an ASIC miner to mine #Equihash-based cryptocurrencies. To prevent hoarding and to let more individuals worldwide get one, we’ve set a limit of one miner per user. Order here (https://t.co/LdIbpRrbgI) now while stock lasts!#AntminerZ9 pic.twitter.com/xJD58SKUfy

— BITMAIN (@BITMAINtech) May 3, 2018

Zcash (ZEC) prides itself on being a decentralized cryptocurrency with optional privacy for transactions. Many developers and members of the cryptocurrency community are opposed to ASICs as they feel they are a step towards centralization, which could lead to similar problems of traditional systems. ASICs are highly efficient compared with their GPU counterparts, and there is speculation that Bitmain mines privately in order to gain market dominance.

Effects of ASICs and centralization

If an entity of miners are allowed to establish a majority on the network, it leaves the system more vulnerable to manipulation. Disrupting the flow of hashing power to the network can affect transaction times, leading to higher fees. Centralization can also lead to a concentration of tokens held by a single group, which can then be used for so-called “pump and dump” schemes, further consolidating their share of the market.

Bitmain is already cornering the market with USD 4 billion of profit from its dedicated hardware. This can be re-invested into future ASIC technologies and token holdings, further increasing their edge over competitors and control of the market.

There are growing concerns about centralization and the effect it could have on the industry.

“Bitmain is in a position where the Chinese government can take over their equipment at any time; something they will no doubt do if Bitcoin grows enough to allow them to use their control of the hashrate to push a Chinese geopolitical agenda,” said Cobra, the anonymous owner of bitcoin.org and bitcointalk.org.

Others view the attempt to resist ASIC hardware as delaying the inevitable.

“Even if we manage to neuter a wave of Equihash ASICs, this will not be the end of the discussion. Inevitably, some new ASIC will arise, and we may have to go through this process again,” wrote Josh Cincinnati, executive director of Zcash Foundation.

 

Image source: https://www.flickr.com/photos/120586634@N05/14673305874/ – Gareth Halfacree

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Fundstrat Analysis Indicates Mining May Push Bitcoin to $36K by 2019

Tom Lee, co-founder of Fundstrat Global Advisors research institute, revealed on Thursday via Twitter new data provided by the group that predicts the price of Bitcoin will reach USD 36,000 by the end of 2019. The anticipated price inflation has been attributed to Bitcoin mining.

Fundstrat’s Quantamental Strategist Sam Doctor provided a breakdown of the correlation between the costs of Bitcoin mining, and the price of the cryptocurrency itself. The conclusive results from the study indicate that Bitcoin’s value will progress to somewhere between USD 20,000 and USD 64,000 by the end of 2019.

CRYPTO: Our quant/data scientist @fundstratQuant publishing #bitcoin mining white paper. Crypto mining economics lead/explain $BTC price—suggests $39,000 per bitcoin by YE19. key takeaways below… pic.twitter.com/f5ZQ4py3jS

— Thomas Lee (@fundstrat) May 10, 2018

Doctor’s calculations are predominantly focused on Bitcoin Price to Mining Breakeven Cost Metric, or P/BE, which is described in the executive summary posted by Lee above, as having a ”proven and reliable long-term support level”.’

Part of Doctor’s analysis focuses on the increasing energy efficiency of the mining network, and an escalation of large-scale operations over individual setups. The summary notes that in order stay competitive, it is becoming necessary for individual miners to join mining ”pools”, with the aggregate mining economy expected to grow.

However, it is possible that a material shift in the predicted route of hash power could alter the P/BE support level of Bitcoin’s value. This is noted as the main risks to Fundstrat’s thesis.

The trajectory outlined in the summary above falls in line will Lee’s personal prediction of Bitcoin’s year-end target reaching USD 25,000. Earlier this week, he elaborated on this by anticipating a Bitcoin price rise concurrent with the blockchain and digital currency Consensus Conference in Manhattan that begins Monday.

Last month the 17 millionth Bitcoin was mined, meaning there is less than 20% left to uncover. Bitcoin’s scarcity is a valuable asset in increasing the value of the cryptocurrency. With 21 million Bitcoins in total, the exact year suggested for the final to be mined is 2140.

 

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Websites Hit by Latest Wave of Cryptojacking

The website ‘Bad Packets Report’ has released a list of some 300 sites that have been compromised by “cryptojacking”, including Chinese hardware maker Lenevo.

Coindesk reports that the site’s security adviser, Troy Mursch, wrote last week that the compromised sites had been infected by hackers installing a browser mining software which exploited an outdated version of Drupal, a content management system (CMS). The two vulnerabilities, CVE-2018-7600 and CVE-2018-7602, have left numerous websites vulnerable to hacks if they did not receive immediate updates.

Incidents of cryptojacking are currently on the rise, defined as the secret use of one’s computing device to mine cryptocurrency. The hacking used to occur when the victim unknowingly installed a program on their computer which secretly mined cryptocurrency. Now, hackers are infecting websites with software that utilizes the victim’s computer power to mine cryptocurrency on the attackers’ behalf.

The list published by Mursch includes government and university portals as well as private companies, but is not the first of such alerts. After a previous release by cyber-security firm Imperva, warning that Drupal sites were being hacked by ‘Kitty’, an in-browser cryptocurrency miner containing a file named ‘me0w.js.’, it became clear that these sites were at risk.

Mursch explained why mining malware is currently rife:

“This is because Coinhive and other cryptojacking services (malware) are simply done with JavaScript. Every modern browser and device can run JavaScript, so as such, everybody can mine cryptocurrency and unfortunately Coinhive has been used and abused time and time again. [In] this particular case, Drupal users need to update [as soon as possible].”

Not all Coinhive users are malicious, as Bitcoin News reported recently. UNICEF recently launched a project called ‘The Hope page’  in support of Rohingya refugees in Bangladesh, which used the crypto mining service to fund its project. In this case, users gave permission to UNICEF to mine the coin monero using donors’ computer power.

 

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Stolen Icelandic Bitcoin Miners Found in China?

Police in Tianjin, China have seized 600 Bitcoin mining rigs, exactly the same amount of machines that were stolen in Iceland during a series of heists in December and January. The Bitcoin mining farm caused a short circuit on its electricity meter and was stealing power; electricity authorities noted a 28% increase of power loss on one of their lines prompting an investigation.

It is estimated that if the illegal operation wasn’t stopped it would have cost hundreds of thousands of Chinese yuan (1 USD = 6.3 CNY) per month of electricity, making it one of the biggest power theft cases in recent years. Bitcoin mining utilizes a tremendous 65 TWh of electricity worldwide per year, approximately the same amount of energy consumed by the entire Czech Republic.

Icelandic police had been tracking electricity usage across their country in hopes that once the stolen machines were plugged in they would cause an abnormal spike in electricity usage. This was perhaps the only way they would ever track down the missing Bitcoin mining rigs, since the thieves would likely use the machines to turn a big Bitcoin profit rather than to try and sell them to someone else.

Eleven people were initially arrested in Reykjavik, Iceland after the thefts occurred in December and January, but only two were kept in custody. A reward of ISK 6 million (Icelandic krona, approximately USD 60,000) has been offered by the owners of the stolen Bitcoin mining rigs for information leading to their recovery.

A news agency contacted Icelandic police regarding the seizure of the 600 rigs from the illegal Chinese Bitcoin mining farm, resulting in the Icelandic police sending an inquiry to Chinese police. So far, Icelandic police have not received a response, but once communication is established it will be possible to verify with serial numbers whether the seized machines are in fact the stolen machines from Iceland.

 

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Less Than 20% of Bitcoin Left to Mine

With over 80% of Bitcoin already mined, the increased scarcity is likely to lead to the appreciation of the currency.

The 17 millionth Bitcoin was mined last month

There is, of course, a finite supply of Bitcoin; last month a milestone was reached as the 17 millionth Bitcoin was mined. There are only 21 million Bitcoins to be mined in total.

Despite the fact that it has taken just nine years to mine 17 million Bitcoin in the market, it is estimated that the remaining currency will not be all be mined for over a century. The exact year being suggested is 2140.

This is due to the algorithms solved in the mining process becoming more difficult, and the reward for Bitcoin miners also decreasing. The initial reward for each block mined started at BTC 50 but was scheduled by founder Satoshi Nakamoto to halve every 210,00 blocks mined.

Currently, miners are rewarded with BTC 12.5 per block, with this expected to halve in the next two years. As Bitcoin users and miners can track approximately when this halving is supposed to occur, it is thought that this does not significantly decrease the valuation of Bitcoin.

In order to sustain the network once Bitcoin mining eventually becomes nearly unprofitable, transaction fees paid by network users will be used to subsidize their activities. As more users enter the network and more Bitcoin is actively traded, this will help make up for the decreasing block reward.

Benefits of scarcity

As scarcity will make it more difficult and expensive to obtain Bitcoin, this both encourages holders to retain their assets and new users to enter the market sooner rather than later, driving the demand higher.

Essentially, as with any asset, it is a matter of ‘utility + scarcity = value’. A whole host of factors are encouraging new investors into the market, one example being Japan legally recognizing Bitcoin as tender last year.

The popularity of Bitcoin with the younger generations is spurring the widespread adoption of the currency. A recent survey polling millennials found that 27% would choose Bitcoin over traditional stocks.

 

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