What is mining? The energy crisis behind Bitcoin's hash power competition

Many people have heard of Bitcoin, but they only have a vague understanding of “what is mining.” In fact, Bitcoin mining doesn’t involve shoveling in the real world. Instead, it refers to miners using computers to perform complex mathematical calculations to verify and record transactions, and to earn new Bitcoin rewards. This seemingly simple activity has become a notable global energy consumption phenomenon.

According to a 2021 research report released by Cambridge University, the annual electricity consumption of Bitcoin mining has reached 134.89 terawatt-hours. If it were a country, it would rank 27th in the world in energy consumption, equivalent to Malaysia’s total annual electricity use. This number is shocking, but the reasons behind it are not simply due to computer operations.

Understanding Bitcoin Mining: From Home Computers to Professional Mining Rigs

To understand what mining is and why it consumes so much energy, we first need to grasp Bitcoin’s basic design logic. Bitcoin’s creator, Satoshi Nakamoto, published a white paper in late 2008 titled “Bitcoin: A Peer-to-Peer Electronic Cash System,” aiming to break the financial control of the dollar through digital currency. In January of the following year, the “genesis block” of Bitcoin was officially created.

In the early days of Bitcoin, Nakamoto used just a home computer to successfully mine 50 Bitcoins, with minimal electricity consumption. But times changed, and Bitcoin’s fate evolved. According to the protocol, the total supply of Bitcoin is permanently capped at 21 million coins. Miners find a new “block” (a set of transaction records), and are rewarded with a certain amount of Bitcoin. The initial reward was 50 BTC, but after every 210,000 blocks, the reward halves.

This halving mechanism has a key consequence: as more people join mining, the difficulty of mining new blocks is automatically adjusted upward. In simple terms, initially, one computer could mine a Bitcoin in a day; later, it might take two computers two days; eventually, four computers four days. The difficulty doubles, and so does the energy consumption.

To stay competitive in this “hash rate race,” mining farms have to constantly upgrade their equipment. From initial CPU calculations, to GPU mining, and now to specialized “ASIC” mining machines, the evolution of hardware itself is a history of increasing energy consumption. These mining rigs require enormous amounts of electricity to operate, and the heat they generate needs to be dissipated with fans, further increasing power needs. Currently, a single mining machine consumes about 35 kWh per day; a medium-sized mining farm’s daily electricity use can meet a household’s annual electricity needs.

Why does mining consume more and more electricity? The difficulty adjustment mechanism reveals the secret

Mining, at its core, is about performing calculations in an environment where difficulty keeps increasing. This isn’t a flaw in the design; rather, it’s a carefully crafted feature of the Bitcoin protocol to maintain network security.

As Bitcoin’s market size expands, the number of participants and mining entities grows exponentially. Before May 2021, nearly 70% of Bitcoin mining farms worldwide were located in China. Miners exploited China’s cheap hydropower during flood seasons in regions like Yunnan, Sichuan, and Guizhou, then shifted to coal-fired power in Inner Mongolia and Xinjiang during dry seasons. Based on data at the time, China’s annual Bitcoin mining energy consumption could reach the equivalent of three and a half Three Gorges Dam’s electricity output.

In addition to the direct power consumption of CPUs and GPUs, other factors include: hard drive read/write energy, cooling energy for chassis and power supplies, and backup power systems. These auxiliary systems collectively make the entire mining operation a huge energy sink.

This process will continue until around 2140, when all 21 million Bitcoins are mined. Imagine, just 13 years after Bitcoin’s birth, it has already caused such staggering energy waste. Future consumption is unpredictable.

The true value of Bitcoin and investment risks

After understanding what mining is and its energy costs, a deeper question arises: what is all this for? How much real value does Bitcoin have?

To answer this, we need to look at the historical background. In 2008, the global financial crisis erupted, and the Federal Reserve launched unlimited quantitative easing, causing the dollar to depreciate continuously. Against this backdrop, Nakamoto proposed a rebellious idea: replacing traditional currency with an electronic currency not controlled by any central bank.

In its early days, Bitcoin was little known, circulating mainly among programmers. A famous story is that a programmer bought two pizzas with 1,000 Bitcoins. But because of its rebellious spirit, Bitcoin gradually gained recognition among tech enthusiasts, and was used as a virtual “dollar” on dark web markets for various transactions.

As awareness and usage expanded, Bitcoin’s price soared from a few dollars to $3,000, and in 2020, after the Fed’s “money printing,” it broke through $68,000. Behind this price, however, lies an inconvenient truth: Bitcoin has completely deviated from Nakamoto’s original intent.

From a Marxist labor theory of value perspective, Bitcoin’s value is essentially “zero.” First, society doesn’t truly need Bitcoin—it is not a necessity; second, the mining process cannot be measured by traditional labor value; third, Bitcoin has never truly integrated into the commodity circulation system but has remained outside the economy.

In short, Bitcoin’s high current price is merely a speculative bubble. Unless its technical attributes like decentralization and anonymity are recognized as inherently valuable, it cannot be properly priced. Ironically, if Bitcoin reverts to being a real currency, it would face suppression by traditional financial systems.

Global perspective: Why are countries cautious about mining?

In mid-2022, China issued policies reaffirming its crackdown on virtual currency speculation. The central bank summoned major financial institutions, emphasizing the fight against crypto hype. But this decision wasn’t emotional; it was based on strategic considerations.

First, energy security. Bitcoin mining’s electricity consumption will only increase, exponentially. If allowed to proliferate domestically, it would compete with other industries for power, severely impacting economic development. China previously experienced huge energy waste and resource loss due to Bitcoin mining, making regulation inevitable.

Second, financial security and crime prevention. Bitcoin’s anonymity makes it a tool for money laundering, drug trafficking, and scams. Cracking down on Bitcoin is part of fighting illegal activities and cutting off illicit capital flows.

Third, and most importantly, maintaining national monetary sovereignty. Global economic instability means Bitcoin’s volatility could trigger financial risks. Even a small country adopting Bitcoin as legal tender might face bankruptcy.

In September 2021, El Salvador became the first country to adopt Bitcoin as legal currency, causing a stir internationally. However, as Bitcoin entered a bear market, the government suffered losses of tens of millions of dollars, and some analysts predict it could become the first nation to go bankrupt due to “speculative trading.” This case illustrates that for any economy, “playing the crypto game” is akin to gambling, eroding national work ethic and draining economic resources.

Therefore, whether for individuals or nations, understanding what mining is and its risks is essential for making informed decisions. The cautious attitude of countries toward Bitcoin is fundamentally a rational form of self-protection.