Bitcoin miners are boxes of chips that are greatly contributing to inflation by exacerbating the global chip shortage as well as increasing electricity costs and water consumption.  During periods of peak consumption, miners often use their elevated consumption to leverage the prices charged back to utilities who are forced to buy the electricity back for residential use.

Two direct ways that bitcoin mining affects inflation are its electricity consumption and the demand for IC chips. For electricity, the effect is especially acute in periods of high demand, like heat waves. And with a changing climate, heat waves will only become more and more common as the number of days when the average temperature will feel like 100 degrees in the Lower 48 states will more than double, from about two weeks at the end of the last century to 30 days by mid-century, even with some efforts to reduce the greenhouse gas emissions that drive global warming. During these highs, air conditioners consume much of the available capacity, forcing Texas’ power grid operator, ERCOT, to ask businesses and residents to voluntarily conserve electricity, which lead to the Texas Blockchain Council to claim that over 95% of industrial-scale bitcoin mines curtailed their power consumption during peak demand times over the past week. What the Texas Blockchain Council left out in their statement was that their industrial-scale members only reduced the power consumption by 20% and even then received payments in excess of $1.12 per kilowatt hour on electricity they were only paying $0.04 per kwh, a difference that will, of course, be reflected in the retail price paid by home users.

A new Berkeley Haas working paper estimates that the power demands of cryptocurrency mining operations in upstate New York push up annual electric bills by about $165 million for small businesses and $79 million for individuals—with little or no local economic benefit.

Aside from electricity, many people are not aware of the role of bitcoin and ethereum mining on the IC chip shortage where, according to an analysis by Goldman Sachs, the semiconductor shortage affects 169 industries. Industries from steel production to soap manufacturing are impacted by the chip crisis. Car prices are a well documented victim to the chip shortage where the price of a new car is so high that many buyers have looked for used vehicles, which in turn drove the prices of used cars to new car prices. As detailed in a blog by Matt Ranger (https://www.singlelunch.com/2021/11/12/how-badly-is-cryptocurrency-worsening-the-chip-shortage/),  bitcoin mining ASICs accounted for 4% of TSMC’s smallest transistor (7nm and 5nm) manufacturing capacity while ethereum mining consumed 20% of all GPU (graphics cards), but even these statistics understate the roll of lesser chips like those used in the power supplies, ethernet interfaces, memory interfacing, fan/cooling controllers, etc chips that make up a bitcoin miner.

The lack of available GPUs has forced traditional customers to pay outrageous prices double or triple the advertised retail prices. To great fanfare, the transition from POW to POS for ethereum has busted the dam with miners selling their GPUs over eBay and other distribution networks. Cards are now selling at less than half the price they sold for a year ago. Sadly, bitcoin mining ASICs lack any programmability and have no use outside of mining, making the transition from POW to POS much less likely as the chips will have to be disposed. Furthermore, the lack of an after-use market has resulted in kilotons of e-waste. An even less understood problem is that of packaging waste as bitcoin miners purchase thousands of miners are a time, each is packaged like a brand new PC with double corrugated cardboard and lots of styrofoam.

To solve the chip shortage, US tax payers are now on the hook for billions of dollars to increasing chip manufacturing here in the US and allowing Intel to build a facility that rivals TSMC in transistor size. The question many should be asking now is how much of this tax payer capacity will be used for further bitcoin chip manufacturing. Intel’s Blockscale ASIC greatly outperforms the competing chips from Bitmain and MicroBT in terms of power consumption. In fact, bitcoin mining is one of the few premium chip markets that Intel now leads as CPU dominance has lost luster to AMD for x86 chips and ARM for embedded device chips. Bitcoin mining represents a primary growth target. Of course, bitcoin miners never miss a chance to greenwash, and so there have been numerous claims that Intel’s new chips will make bitcoin carbon neutral with their efficient hashing. However, the new Intel chips will simply allow miners to employ more miners inside their electricity budgets. The fact of the matter is that the only way, so far, to reduce the electricity consumption of bitcoin mining is to suppress the price of the coin.