Digital Assets and Electrification

Digital assets i.e. crypto currencies continue to expand. Through price appreciation, new use cases, and institutionalization (the approval of spot bitcoin ETFs being a watershed moment) digital assets are a growing part of the financial system. 

Digital assets have one important impact on the real economy – they use a lot of electricity. EIA estimates that 0.6% to 2.3% of US electricity consumption comes from crypto currency mining¹. This blog explores how digital assets are a key source of power demand growth and a driver of electrification.  

Unique sending addresses as of Dec. of each year; 2024 as of Sept. Blockchains include Aptos, Arbitrum, Avalanche C-Chain, Base, Bitcoin, Blast, BNB Chain, Celo, Ethereum, Fantom, Linea, Near, OP Mainnet, Polygon PoS, Scroll, Solana, Sui, TON, Tron, zkSync, and Zora. EVM addresses on multiple chains only contribute once to the total.

Sources: 1/ World Bank/ Artemis and Dune (@DarenMatsuoka)

How do digital assets consume electricity

Several cryptocurrencies, most notably bitcoin, use a system called “proof of work” to release new currency. This process, called mining, involves using computing power to solve a complex cryptographic problem that adds blocks of transactions to the blockchain (the digital ledger that allows transactions tracking). In exchange for adding blocks miners are rewarded with new coins and transaction fees.  

Not all cryptocurrencies work like this. Some, such as Ethereum, use “proof of stake” where participants, to validate transactions and add blocks, stake a portion of their blockchain tokens. This requires substantially less computing power and hence less electricity.  

Bitcoin uses a lot of electricity to power and cool the machines used for mining. The challenge is the increasing complexity of the puzzles these machines need to solve which requires more power. This overwhelms the computational efficiency that has generally improved over time.  

Digital asset electricity demand also depends on the price of the cryptocurrency being mined, with more mining happening in times of higher prices. This volatility leads to challenges for the grid operator and as a result crypto miners are frequent users of large flexible load (LFL) programs to manage demand in large peak periods.  

Do crypto operations really use that much power? 

Crypto mining involves a basic computer that house several graphics cards (a “rig”) that can use more than 1,000 watts of power, and mining operations generally have hundreds or even tens of thousands of rigs in one location working 24 hours per day. The latest generation of computers can produce 12.9 bitcoin a year for every 8,760 MWh of electricity. That means $147 per MWh compared to $40/Mwh wholesale electricity prices – a profitable endeavour on the marginal cost level.  

All this mining adds up, and in 2024 year to date it has consumed nearly 146 TWh, more than the annual electricity used by all of Sweden.  

Historical annualised electricity consumption

With so much demand for power, crypto miners have sought out areas of stranded excess power. China’s Sichuan Province is home to the country’s second largest population of crypto miners due to the intermittent over supply of cheap hydroelectric power during the rainy season. Here in the US, less populated rural states like Montana and Kentucky, have attracted crypto miners that are willing to pay for energy supplied by previously underutilized coal fired power plants. One mining operation in eastern Kentucky draws 10 megawatts of power. The company has the ability to increase that amount to 13 megawatts of power, equivalent to powering more than 5,000 homes over the course of a year.  

Source: In a rural Kentucky community, the roar of a suspected crypto 'mine' never ends • Kentucky Lantern

Bottom line - How does crypto mining impact the electrification value chain? 

Bitcoin mining adds to electricity demand growth, creating the $7 trillion investment opportunity in electrification. Co-location demand also requires peripheral investment in electric equipment. The variability of mining demand creates extra need for grid infrastructure upgrading. VOLT invests in companies exposed to all parts of the value chain and benefits from cryptocurrency driven demand.