From virtual gold mines to energy black holes – what mining is and what it really costs

When people mention what mining is, many people’s first reaction is the mining industry in reality. But in the cryptocurrency world, what mining is pointing to a global computational race. A 2021 study by the University of Cambridge revealed the astonishing scale of this invisible “arms race”: Bitcoin mining has reached 134.89 TWh of electricity per year, ranking 27th in the world in terms of energy consumption as an independent country, equivalent to Malaysia’s total electricity consumption for an entire year.

What is Mining: A Computational Competition in the Metaverse

To understand what mining is, we must first recognize that it is not “mining” in the traditional sense. In reality, miners use heavy equipment such as excavators and drilling rigs to mine minerals; In the digital world, the core of what mining is is - the process of using computer computing power to solve complex cryptographic puzzles and then obtain Bitcoin rewards.

Satoshi Nakamoto, the inventor of Bitcoin, released this revolutionary concept in late 2008. At that time, the world was in a subprime mortgage crisis, the Federal Reserve started unlimited quantitative easing, and the dollar faced the risk of depreciation. Satoshi Nakamoto has a bold vision: creating a decentralized electronic cash system based on cryptography that does not rely on central banks. In January 2009, Bitcoin’s “Genesis Block” was born, and this experiment officially began.

In the design of the Bitcoin system, there is a crucial mechanism that determines why mining will gradually evolve into an energy-intensive industry. The total supply of Bitcoin is permanently capped at 21 million, and miners are rewarded for validating new blocks. But this reward is not fixed - for every 21 blocks generated (about 4 years), the number of rewards will be halved. This design is known as the “halving mechanism”.

Difficulty spiral and power-saving paradox: Why mining energy consumption continues to rise

In the early days of Bitcoin, the answer to the question of what mining is is very simple - Satoshi Nakamoto used an ordinary home computer to mine 50 Bitcoins. But as participants surged, mining difficulty increased exponentially. The logic behind this is that the Bitcoin network automatically adjusts the difficulty coefficient, ensuring that no matter how many miners participate, the generation time of new blocks remains constant at a constant rate of about 10 minutes.

Imagine that a computer could mine one Bitcoin a day, then it took two computers two days to mine one, and then it became four computers for four days. Miners must constantly upgrade their hardware to outperform their competitors. Home computers are upgraded to GPU graphics cards, and then evolved into specially designed ASIC miners. These miners are equipped with specialized “mining chips” and typically operate on high-power combustion.

According to industry data, the power consumption of a single modern mining machine reaches about 35 kWh. The daily electricity consumption of a medium-sized mine is enough to meet the electricity needs of ordinary people for a lifetime. The heat generated by mining machines during high-load operation also requires a powerful cooling system - this includes power supply fans, chassis fans, etc., each of which further amplifies the overall energy consumption.

Before May 2021, nearly 70% of the world’s Bitcoin mining farms were concentrated in China. Mine owners are smartly taking advantage of seasonal electricity price differences: they go to Yunnan, Guizhou and Sichuan to buy cheap hydropower during the wet season, and go to Inner Mongolia, Xinjiang and other places to buy thermal power during the dry season. It is estimated that by 2024, the annual electricity consumption of Bitcoin mining in China will be equivalent to the annual power generation of 3.5 Three Gorges Dams. This level of resource consumption poses a real threat to the energy system of any country.

Value illusion or financial asset: Is Bitcoin worth anything?

After the question of what mining is answered, another fundamental question arises: Is the Bitcoin mined by miners spending a huge amount of electricity really worth that much money?

From the perspective of Marxist labor theory of value, the value of Bitcoin should be equal to the average social labor time consumed to produce it. But the situation with Bitcoin is special. First, human society didn’t need Bitcoin before it was born - it’s not a rigid commodity. Secondly, the “labor” of miners cannot be measured by traditional economics at all, because computing power is essentially machines performing mathematical calculations, not human labor. From this logic, the labor value of Bitcoin should be recognized as “zero”.

But Bitcoin does have a market price. In 2008, it was penniless, and by the time the Federal Reserve “released water” again in 2020, Bitcoin soared to an all-time high of $68,000. What’s going on?

The answer lies in the special properties that Bitcoin possesses - decentralization, anonymity, difficulty in losing, and difficulty in adding. Under the admiration of specific communities, especially in the spread of Geek and technology enthusiast circles, Bitcoin has gradually gained a “consensus value”. This consensus is particularly strong in the dark web, where Bitcoin is even used as the “dollar” in the virtual world for various transactions.

The classic case is that the programmer bought two pizzas for 1,000 Bitcoins - a reasonable exchange at the time, reflecting the genuine recognition of early users. But as time went on and prices rose, this “recognition” gradually evolved into speculation and hype. Today’s high prices are not so much based on intrinsic value as on the collective expectations and bubble accumulation of market participants.

Bitcoin in the Global Regulatory Storm: Waste of Resources and Financial Risks

Because of the huge energy consumption and financial risks caused by this activity, countries around the world have begun to take action. In mid-2021, the People’s Bank of China issued an announcement reiterating its intention to crack down on virtual currency speculation led by Bitcoin.

The Chinese government’s decision-making has three core considerations:

The practical dilemma of energy resources. As mentioned earlier, the energy consumption of Bitcoin mining has exploded. If allowed to spread in the country, it will inevitably crowd out the power resources of other industries and pose a real threat to the manufacturing industry and people’s livelihood. This is not only an economic issue, but also a strategic resource allocation issue.

Financing channels for the black industry. Bitcoin’s anonymity makes it a perfect tool for money laundering, drug transactions, and the transfer of fraudulent proceeds. In the context of severely cracking down on underworld forces, cutting off the transmission chain of virtual currency is equivalent to cutting off the capital flow of criminal groups.

Monetary sovereignty and financial stability. This is the most fundamental consideration. When a country allows virtual currencies to occupy an important position in the financial system, it is equivalent to planting a time bomb in the financial fortress. In September 2021, El Salvador, a small Central American country, made Bitcoin legal tender in an attempt to conduct a financial experiment. As a result, in less than a year, the Bitcoin bear market cost the country tens of millions of dollars, and the country even faced the risk of bankruptcy due to “currency speculation”. This case profoundly illustrates that the monetary policy of a single country cannot counter the volatility of global virtual assets.

After all-out promotion in recent years, Bitcoin mining farms have gradually withdrawn from China, but global mining activities continue. Whether from the perspective of energy efficiency, environmental protection, or financial stability, human society needs to remain vigilant about this phenomenon.

The real answer to what mining is may not only be a symbol of technological innovation, but also a microcosm of the huge price paid by humanity in the pursuit of financial freedom.