Crypto: A Beginners Guide

by Caitlin Williams

Cryptocurrencies, or “Crypto” are a form of digital currency that exists outside of any government’s authority. Crypto runs on blockchain and has to be mined. There is a lot of hype around Crypto and also a lot of concern about the environmental impact of Crypto mining.

The idea of cryptocurrency was created by an anonymous computer programmer called Satoshi Nakamoto because of the concern that traditional forms of money were too reliant on banks, government, or “middlemen.”

Cryptocurrency “coins” can be used to pay for goods or services. Each coin transaction gets recorded on a public ledger and broadcast to the entire network on a “block.” Each block gets added to a “blockchain,” which is a series of blocks containing recorded transactions.

Crypto cuts out the middlemen, aka banks, who take a transaction fee or banking fee, by opening transaction verification to the public. Miners can be anyone in the public with a computer capable of solving the equations. Miners want to do this work because cryptocurrency organizations, such as Bitcoin, reward the fastest miners with their own bitcoins to spend and use.

This current speed-based verification system rewards those with the highest performing computer centers (which are the most energy intensive). Additionally, as more people vie to verify transactions, the algorithms to solve increase in complexity, again rewarding those with high-energy computing centers.

Each time crypto coins are used to pay for something, a series of energy intensive computations must be done to verify the transaction. It’s a feedback cycle – as coins are used, miners verify the transaction to earn coins, then they spend the coins, which in turn requires verification, which in turn creates more coins to spend, which makes the coins more popular, which makes mining more popular, which makes the equations needed to verify more complex, which requires even more computing,

Cryptocurrencies are finite, most have a hard limit on how many can exist. Ex. Bitcoin has a cap of 21 million coins.

Fast Facts

The US Dept of Energy usually estimates that 1 MW of power can serve 1000 households.

Georgia is the number two state for cryptocurrency mining operations in the US. Second only to Texas.

As of April 2023:

A Dalton, GA facility was matching the power usage of 97,000 nearby households

Combined Core Scientific facilities, Dalton, GA 195 MW

A Sandersville, GA facility was matching the power of 49,000 nearby households

Combined CleanSpark facilities, Sandersville, GA 110 MW

For perspective: 1 plant Vogle Reactor can serve approximately either 1,000,000 (1 million) households or 6 (six) Dalton facilities.

Why do people want to mine crypto coins? What’s in it for them?

People want to mine crypto “blocks” because it gives them an opportunity to earn crypto coins. The faster they can solve equations in “blocks” the more they are rewarded with new coins. This is why crypto miners have “mining farms” which are facilities that house hundreds of computers and high-tech equipment whose sole purpose is solving hashes and discovering, or earning, the new crypto coins.

What is the difference between a Crypto Transaction and Crypto Mining?

A transaction using cryptocurrency, like buying something with Bitcoin, is a way to virtually pay someone for a provided good or service. Sellers can provide a link or QR code that takes you to a page where a person can use cryptocurrency to make a purchase—the crypto, or “money”, leaves their crypto wallet and goes straight to the seller. Buying something with Bitcoin is like using Apple Pay, except your money is not connected to a bank account.

Crypto mining is the act of verifying the purchases made using Bitcoin, or other cryptocurrencies, to ensure transactions are trustworthy and correct.

How is a Crypto Mine different from a Data Center?

Both crypto mines and data centers are large, temperature controlled, warehouses filled with computers. Data Centers support multiple commercial uses such as e-commerce and cloud computing. They support multiple businesses and customers. Crypto Mines are dedicated solely to crypto mining and support only the owners of the crypto mine.

Why is crypto so energy intensive?

A single Bitcoin transaction, which includes its verification on the blockchain network by miners, requires approximately 1449 kWh, which is equivalent to about 50 days (about 1 and a half months) of power usage for the average US household.

The process of Proof of Work (PoW) is how miners unlock blocks on the blockchain. PoW is energy intensive to prevent attacks and hacks.

Crypto mining is energy intensive because the computers are running 24 hours a day, crypto farms have hundreds of computers going at the same time which requires lots of power, produces lots of heat, and require lots of cooling. It is possible to use renewable energy sources for “greener mining,” but crypto mining would still remain as a high energy consumption process.

How can crypto become more efficient?

To reduce the energy consumption of crypto mining energy efficient mining hardware and technology should be used. Proper cooling, including liquid cooling solutions, would prevent overheating and energy loss.

Using Proof of Stake (PoS) instead of PoW could decrease the consumption of energy because PoS reduces the amount of redundant calculations, i.e. power-using computing cycles, performed.

Glossary

Blockchain: The blockchain is a “link of blocks” where each block contains a specific amount of cryptocurrency. To unlock a new block, complex math equations must be solved to validate the new block and add it to the block chain. Blockchains ensure someone cannot randomly pick a block to mine, they must progress linearly. As new blocks are identified, they are added to the cryptocurrency ledger.

Cryptocurrency Ledger: massive file containing records of which coins have been mined, when they changed hands, and who is involved in the transactions. This ledger is accessible to anyone.

Crypto Transaction: A transaction is the transfer of cryptocurrency from one owner to another (i.e. a financial transaction where money is exchanged for goods and services). A transaction is recorded in the blockchain and ledger. A transaction can be verified by anyone with the reward for verification being payment in a cryptocurrency coin.

Crypto Mining: This is the process of creating new units of cryptocurrency, referred to as “coins.” Crypto mining involves computer processors doing complex mathematical equations also known as “hashes”.

Crypto Mine: Crypto Mines are computing centers focused solely on cryptocurrency mining, including validating transactions and creating new coins. The focus is on coin identification rather than data protection. Texas has a deregulated energy market and has become a hub for crypto mining because those who operate crypto mines opt for the cheapest mining locations to set up their energy-hungry equipment. The crypto industry is young and lacks established standards.

Data Center: Data centers are centralized hubs for managing, processing, and storing data. Data centers host servers, databases, cloud services, websites, applications, etc. They are used for everything from online shopping to off-site data backups to high performance computing. Data centers have established industry standards for design and construction.

Proof of Work (PoW): Decentralized system used to verify accuracy of transactions on blockchain network. Requires hashes to be solved. It is open to anyone who is willing to perform the hashing calculations and speed is rewarded. It favors large Crypto Mining facilities.

Proof of Stake (PoS): Allows randomly selected coin owners to participate in block verification (confirming transactions). To be considered for selection, validators must “stake” a number of their existing coins. By removing the emphasis on speed and randomizing who gets to collect fees, there is less incentive to build high-energy computing facilities.

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