High Energy Costs  Preventing  Sustainable Bitcoin Mining in Africa

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Avatar for Richard-M-Adrian
2 years ago

For newbies, cryptocurrency mining is verification of transactions on a decentralized ledger(or the blockchain).  Think of the blockchain as layers of transactions. Each layer contains several transactions. The miner (s) verify each layer of transactions and verification of each layer takes approximately 10 minutes. Until one layer is verified, does the blockchain produce another layer of transactions and so on. These layers of transactions are called blocks. The miner who verifies the layer receives a cryptocurrency reward. In the case of Bitcoin and as of now, the miner reward for each block is 12.5 Bitcoins. Also note the blockchain rewards the miner(s) with transactions fees since they’ve processed the transactions. 

Energy for Growth suggests 78% of business firms in Africa experienced a power outage in 2019 . On average, these firms experience interruptions in power supply more than 50 hours per month.  A factor that contributes to nearly 25 days of economic loss annualy.   A study by Tenda-partners indicates Africa’s rate of industrialization is heavily dependent on the quality of existing infrastructure. Such infrastructural facilities include Water, public transport and electricity  - all of whose insufficiency, economists have cited as the cause of lagging industrialization.  This post discusses the potential implications of Africa’s  high electricity costs with sustainable cryptocurrency mining.

Intersection of Energy Costs, Crypto Mining Operations and Bitcoin Prices

UK Researchers  found out the volume of power consumption for mining bitcoin stretches beyond the total power consumption in 173 countries.  This study dates back to 2018 and the numbers have long surged due to increasing interest in Bitcoin. 

As interest rises, more miners get into the scene. Which makes it even more complex to solve the mathematical puzzles needed to verify a block.

 Usually, and unfortunately the capital requirements for setting up a mining rig are high. The few with the ability to build a basic mining rig have to contend with high elecricity prices. 

According to the World Bank Organization, Africa faces critical shortcomings in the costs of small-scale electricity supply, operational efficiency and overeliance on costly oil-based energy generation. Consequences of the mentioned shortcomings include high industrial production costs ,  low revenues and frequent blackouts.

African Powerhouse Economies Taking Centre Stage in Mining

Besides high energy costs, tough government regulations and hot climate in most African countries make mining an unsuitable economic opportunity. Mining cryptocurrencies in hot climates makes it mandatory to invest in cooling equipment. 

Therefore, increasing the overhead costs for taking part in sustainable cryptocurrency mining.  Furthermore, a certain country might have a few factors in favor of mining operations and only one limiting factor. 

For example Egypt has a thriving community of miners owing to its low electricity fees. Despite this, miners in the country have to keep their operations a secret due to strict cryptocurrency regulations. Mainly, this is because Cryptocurrency activities are technically banned in Egypt. 

South Africa, which is Africa’s major crypto mining hub has all odds in its favor. The government has relaxed regulations against cryptocurrencies.  Electricity fees in the country are also relatively low, plus a favourable cool climate. In fact, the Central Bank of South Africa is conducting feasibility studies of the blockchain and plans to roll out a Central Bank Digital Currency (CBDC). 

The potential of high infrastructural costs to hold economic development is a big problem in Africa. The social and economic losses are enormous and African governments should find both short and long-term solutions.  

For instance, governments could redraw regulations and directly supply industrial firms with premium energy. Some firms remain vulnerable to power outages, hence the importance of deliberations between energy suppliers and enterprises.  

Kenya has set an example with its power company , KPLC , introducing a tariff for specific large scale consumers. The country is also among the five leading bitcoin hubs in Africa. 

Other countries such as Morocco,Uganda and Sycheless are investing in solar power plants. Morocco has already partnered with the African Development Bank to build an 800MW solar-powered plant.  Such investment in energy infrastructure will eventually instigate sustainable mining operations.  

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Avatar for Richard-M-Adrian
2 years ago