The crypto segment in the financial industry is widely unregulated and its mining process is feared to be contributing to the disruptions in the energy markets as well as diverting resources from the electrification of emerging markets. The cryptocurrency demand witnessed a good jump in 2021 and this reveals increased consumption of global electricity.
Earlier data reveals that crypto mining consumes about 0.4 percent to 1 percent of global electricity. This is the reason most jurisdictions are looking for a greater crypto market regulatory oversight and limit the risks to energy utilities.
The cryptocurrency is sensitive to electricity prices as the main mining cost is electricity, about 90 percent. The crypto mining farms are usually located near low-cost energy and particularly in such areas where the electricity prices are state-subsided.
Cryptocurrency is just over a decade old and lately many cryptocurrencies have ditched the initial desktop set-up and embraced sophisticated equipment that cost some thousands of dollars. The equipment is easy to establish as well as relocate.
China banned cryptocurrencies in 2021 due to various reasons and one is the electricity cost. About two-thirds of global Bitcoin mining used to take place here. New mining farms in some locations have caused overloading of energy networks and supply outages too.
Bitcoin is the first cryptocurrency in the world and was launched in 2009. It witnessed rapid growth in 2021. It became more diverse and the need for electricity increased.
Bitcoin's share in the cryptocurrency market is about 40 percent and its yearly demand for power is estimated to be about 125 terawatt-hours.
It is argued if the segment is not put in check, the demand for energy may disrupt the power sector. Countries like China and Russia have started announcing bans on the currencies in their respective countries. Many more countries are expected to bring regulation.
The cryptocurrency market is learned to be counted in the mainstream in the future and the mining methods may be put under a regulatory framework. The energy-intensive methods should be transformed into less energy-intensive like the proof-of-stake mining on the Ethereum platform.
Further, the regulations may require appropriate registration of the mining datacenters and the locations should be near to abundant renewable energy sources.
Cryptocurrency is a digital currency and works as a medium of exchange with the help of a computer network. It is decentralized and not reliant on any government, bank or central authority. The ownership of the coin are recorded in a digital public ledger. It is highly volatile and mostly unpredictable.