Last Updated: 2/13/2025 | 19 min. read
- Bitcoin can function as a global digital money system because of Bitcoin mining: the competitive process used to update the blockchain and align economic incentives across the network. Today the Bitcoin mining network operates at an enormous scale, producing “hashes” at a rate of more than 700 quintillion every second. [1]
- Bitcoin miners earn revenue from new Bitcoin issuance and network transaction fees. They incur expenses from capital equipment, electricity, and other operating costs. Many miners also hold Bitcoin on their balance sheet, and increasingly miners are diversifying into artificial intelligence (AI) and high-performance computing (HPC) services.
- Grayscale Research estimates that Bitcoin mining accounts for only 0.2% of global power use; clean energy also likely accounts for a higher share of the electricity consumed by Bitcoin mining than other industries. Bitcoin mining may help accelerate progress toward environmental goals, particularly in areas like methane emissions.
Bitcoin is a decentralized and open-membership computer network that secures $2 trillion in value.[2] This modern marvel is only possible because of Bitcoin mining: the process by which network participants compete for the right to append the next block to the blockchain and earn its rewards. Today, Bitcoin miners operate at an incredible scale, transforming real resources into digital security. The computational power used to secure the Bitcoin blockchain is its digital “vault door”: the mechanism by which an autonomous computer network can be used as a global digital money system. The technical expertise, capital spending, and ongoing operating expenses required to run a Bitcoin mining facility, as well as the highly competitive nature of the business, help keep the Bitcoin network decentralized and cost prohibitive to attack.
Investing in publicly traded Bitcoin miners provides access to the revenue from block production and potential growth in revenue from rising network transaction fees over time. In practice, most listed Bitcoin miners follow diverse business models, with many retaining mined Bitcoin on balance sheet or even purchasing Bitcoin in the open market. Bitcoin miners have also begun to diversify into operating data centers for AI and high-performance computing (HPC).
A Modern Marvel
Although technically complex, the process of Bitcoin mining is conceptually simple. Specialized computers compete to guess a random number, and the machine that guesses the correct number first earns the right to update the blockchain (“mine the block”). The winning miner is rewarded with newly issued Bitcoin and transaction fees (the “block reward”).[3]
There are no shortcuts in this race — e.g., no algorithm that can help find the correct number any faster — and Bitcoin miners compete on brute force. The process can be thought of as a game of chance. Miners make repeated guesses until the correct solution is found — like rolling a many-sided die until the desired number comes up. Therefore, the probability of winning is a function of the number of guesses (“rolls of the die”) a miner can make every second. The operator with the largest number of machines and/or the most efficient machines will make the most guesses and have the best chance of earning the block reward.
Technically speaking, the winning result is not just the random number but a “hash” of this number combined with other data. In computer science, a hash function is a mathematical operation that transforms any arbitrary data into a string of letters and/or numbers called a hash. For example, using the same hash function found in the Bitcoin network, the hash of the word “Bitcoin” is:
b4056df6691f8dc72e56302ddad345d65fead3ead9299609a826e2344eb63aa4
The purpose of Bitcoin miners is therefore to rapidly produce hashes: guess a random number, calculate its hash (combining the random number with other data), and check if it is correct.
Today an estimated 5-6 million Bitcoin mining machines[4] produce hashes at an incredible scale (Exhibit 1). Over the last 90 days, Bitcoin miners have collectively produced hashes at an average rate of 765 exahashes per second (EH/s).[5] An exahash is equal to one quintillion (10^18) hashes. Therefore, in plain English, Bitcoin miners are guessing a random number and calculating its hash more than 700 quintillion times per second on average. To put this number into context, estimates suggest there are approximately 7.5 quintillion grains of sand and 10 quintillion living insects on Earth.[6]
Exhibit 1: Bitcoin miners produce hashes at an enormous scale
Producing all these hashes is expensive — and that is the whole point. To compete for the rewards, a mining operator needs to acquire specialized machines and other hardware and to pay for ongoing electricity and maintenance costs. Therefore, by producing the correct hash, miners are offering a “proof of work”: demonstrating that they have spent economic resources and can be trusted to update the blockchain (for a comparison to Ethereum and Proof of Stake consensus, see From Miners to Stakers: How Staking Secures the Ethereum Blockchain, Grayscale Research, July 2024).
Attacking Bitcoin means overpowering the existing Bitcoin mining industry. Theoretically, a malicious actor could disrupt the network (e.g., double-spend Bitcoin or censor certain transactions) if they controlled 51% of the network’s hash rate and could therefore mine a majority of blocks. In one paper, researchers estimated that a one-hour 51% attack on the Bitcoin network would cost between $5bn and $20bn as of February 2024 (depending on how the attacker acquired the mining machines).[7] In practice, no actor has an economic incentive to spend these resources, and in any case the network has additional defense mechanisms beyond mining.[8]
The Business of Bitcoin Mining
Bitcoin miners earn revenue equal to the rewards from mining new blocks, and they incur operating expenses from the electricity used to run their machines and produce hashes (plus potentially other operating expenses like maintenance, pool fees, etc.). Therefore, the goal of a Bitcoin miner is to produce the largest number of hashes per second at the lowest possible cost.
In 2024, miners collectively earned about 230,000 Bitcoin valued at nearly $15bn (using contemporaneous prices).[9] This represents an increase of ~19x from 2014, or a compound annualized growth rate of 34% (Exhibit 2). The rate of newly issued Bitcoin declines every four years in an event known as the Bitcoin halving (for background, see 2024 Halving: This Time It’sGrayscale Research, February 2024). Despite the decline in issuance in Bitcoin terms, mining revenue has increased over time due to Bitcoin price appreciation in U.S. Dollar terms. In the future, growth in mining revenue could result from both Bitcoin price appreciation and/or growth in network transaction fees.
Exhibit 2: Bitcoin mining revenue has grown over time
Miners incur operating expenses, primarily in the form of electricity used to run the machines.[10] Each operator negotiates its own power purchase agreements, which will vary widely around the world. For heuristic purposes, we can create a simplified picture of aggregate Bitcoin miner economics by using an assumed electricity cost and ignoring other costs. For example, Exhibit 3 compares Bitcoin miner revenue to an estimate of total electricity costs at an hypothetical power price of $0.05 per kilowatt hour (kWh). The difference between revenue and electricity costs can be thought of as a simplified measure of miners’ operating profit margin. Miners benefit when the Dollar value of the block reward increases and suffer when the Dollar price of producing hashes increases.
Exhibit 3: Miner operating margin reflects the spread block rewards and electricity costs
Given the differences in electricity costs faced by miners around the world, a more intuitive measure may be the Dollar value received for a given amount of power consumption—e.g. miner revenue per megawatt-hour (MWh). Mining industry participants often refer to the closely related concept of “hash price”, which is calculated as a ratio of daily miner revenue to network hash rate. Although very similar in concept, hash price will have a tendency to trend lower as miner efficiency improves. Therefore, miner revenue relative to power consumption may more accurately reflect changes in miner economics over time. Exhibit 4 shows daily Bitcoin miner revenue per MWh. This estimate has been broadly steady over the last two years, albeit with significant volatility around the 2024 halving.
Exhibit 4: Miner revenue per MWh has been broadly stable over the last two years
Investing in Bitcoin Miners
Investing in the shares of publicly traded miners can offer exposure to the Bitcoin economy through an equity market instrument. Bitcoin miners may have increasingly diverse business models, but all are involved in the core business of producing hashes, mining blocks, and earning block rewards. Due to differences in electricity costs, non-electricity operating expenses, and other factors[11], each miner earns block rewards at different effective prices. During Q3 2024, the largest publicly traded miners produced Bitcoin at an average cost of $34k to $59k (Exhibit 5). This compares to an average Bitcoin price during the quarter of $61k.
Exhibit 5: Production costs differ across miners
Bitcoin miners differ in their approach to holding Bitcoin on balance sheet. Some miners immediately liquidate block rewards, some retain (or “hodl”) block rewards, and some even purchase additional Bitcoin in the open market. Naturally, the differences in balance sheet policies could have a meaningful impact on the relative financial performance of listed miners when the price of Bitcoin changes (Exhibit 6). That being said, many factors affect the risk profile of individual miners, and those with relatively high Bitcoin balance sheet holdings are not necessarily riskier than those that liquidate their block rewards.
Exhibit 6: Some miners hold (or “hodl”) Bitcoin on balance sheet
More recently, Bitcoin miners have begun to diversify into other AI and high-performance computing (HPC) services, where demand for data center infrastructure has increased rapidly. For example, research from Goldman Sachs[12] estimates that data center power demand (excluding crypto) could increase by 160% between 2023 and 2030. Bitcoin miners may have a competitive advantage in supplying the AI/HPC market because they have secured access to low-cost power and related infrastructure. In early 2024, Core Scientific, the third-largest publicly traded miner by market cap, announced a long-term contract with CoreWeave, a specialized AI infrastructure service provider.[13] Since the announcement of the Core Scientific/CoreWeave deal in June 2024, several other publicly traded miners have taken steps to diversify into AI/HPC.
Bitcoin Mining and Sustainability
Bitcoin mining consumes real economic resources — electrical power — to create decentralized digital security. Bitcoin’s success as a digital money system means that mining now consumes a significant amount of electricity. Bitcoin is a unique energy consumer that already uses a significant share of clean energy resources, and Grayscale Research believes it could positively contribute to the green energy transition over time.
Using data from Coin Metrics’ MINE-MATCH algorithm, we estimate that the Bitcoin network consumed electrical power at a rate of about 175 terawatt hours (TWh) over the last 12 months.[14] This is comparable to the estimates from the Cambridge Centre for Alternative Finance (Exhibit 7). Based on data from 2023 (the latest available year), Bitcoin’s energy consumption amounted to 0.2% of total global power use (after accounting for electricity lost in the transmission process).[15] According to the Cambridge Center for Alternative Finance, data centers consume about 200 TWh of electricity per year, and projections suggest data center energy consumption could rise due to AI model use.[16]
Exhibit 7: Bitcoin mining consumes electricity to create digital security
Bitcoin is a unique energy consumer compared to the typical residential or commercial users. Bitcoin mining is modular and portable, location agnostic, interruptible, and highly responsive to changes in power prices. As a result, miners can often operate in locations with low-cost clean energy resources. Estimates suggest that roughly 50%-60% of the electricity used by the Bitcoin mining industry comes from sustainable sources (including nuclear).[17] For both the United States and the world as a whole, the sustainable share of electricity generation is about 40%.[18] Using data from 2023 (the latest available year), and assuming a sustainable share of Bitcoin electricity consumption of 50%-60%, we estimate that Bitcoin mining accounted for 0.2%-0.3% of global CO2 emissions related to electricity generation.[19]
Grayscale Research believes that Bitcoin mining can help accelerate adoption of renewable energy production over the coming years. Because of its unique attributes, Bitcoin mining incentivizes investment in the development of renewable energy infrastructure, particularly locations without transmission to major popular centers. Bitcoin mining can also help stabilize electrical grid demand — which otherwise fluctuates due to consumption patterns and weather — as it has in Texas within the Electric Reliability Council of Texas (ERCOT) system.[20] Separately, startups like the Sustainable Bitcoin Protocol have created market-based mechanisms to incentivize clean energy use and reward efforts to reduce methane emissions. Tackling methane emissions could become a particularly important way in which Bitcoin miners can contribute to environmental goals. Methane is released from flared gas, or the burning of natural gas created as a product of oil production. Companies like Crusoe Energy have developed methods for capturing excess natural gas instead of releasing it, which is then converted into electricity and used to power Bitcoin miners.
Growth in the use of technology will create significant demand for electrical generation in the coming years—from digital assets, AI, and other industries. Grayscale believes that Bitcoin contributes to the healthy functioning of global electrical infrastructure and, compared to many other industries, that Bitcoin is uniquely positioned to help accelerate the transition to renewable energy.
[3] This number is known as a “nonce”(number only used once) and is not purely random. See, for example, ”The Mystery of the Bitcoin Nonce Pattern”, BitMEX Research, 2019.
[4]Source: Grayscale Research calculation based on reported network hash rate and an estimate of average miner productivity. For the latter, we use a central estimate of 125 TH/s, which is based on Coin Metrics’ MINE-MATCH data as well as analysis of profitability of individual mining machines at different combinations of hash price and power price.
[7] Nuzzi, Waters, and Andrade, “Breaking BFT: Quantifying the Cost to Attack Bitcoin and Ethereum.” February 15, 2024.
[8] See, for example, “Analyzing Bitcoin Consensus: Risks in Protocol Upgrades”, Ren Crypto Fish, Steve Lee, and Lyn Alden, November 2024.
[10] There are many different types of mining machines running at any given time. Data provider Coin Metrics has developed to identify the types of machines actively contributing hash rate to the network. We use these data to inform our estimates of electricity consumption and the number of active machines on the network.
[11] For example, miners can incur other costs such a pool fees, and revenue can differ depending on fee revenue in specific blocks.
[14] In the 365 days ending January 31, 2025, this methodology implies annualized power consumption of 177.8 TWh; this should be considered an estimate with a wide range of uncertainty.
[17] Source: See, for example, the Bitcoin Energy & Emissions Sustainability Tracker by Daniel Batten and “Bitcoin Mining Council Survey Confirms Year on Year Improvements in Sustainable Power and Technological Efficiency, Bitcoin Mining Council, August 2023.
[20] Source: US Energy Information Administration.