
Bitcoin is an Energy Hog - EdwardIrby
https://medium.com/@adaburrows/bitcoin-is-an-energy-hog-bd0a69e8ae89
======
xg15
I find this thread quite hilarious.

With PoW + self-adjusting difficulty, bitcoin is quite intentionally
_designed_ to encourage ever-higher energy consumption to "secure the
blockchain". Yet HN is trying to "well actually"-away the fact that bitcoin is
an energy hog.

~~~
nlperguiy
Yet our /glutinous/ gluttonous diets, irrational heating-cooling patterns
waste magnitudes more energy.

Let people be wasters, nothing wrong with that. If Bitcoin experiment succeeds
it's going to be better than the Internet. I hear no one complaining that
Internet servers waste magnitudes more energy than Bitcoin, serving porn, FB,
flash games and all other wasters of life.

------
toomim
Preface: I'm a 2.25MW bitcoin miner myself (see
[https://toom.im](https://toom.im)).

This author is getting the causation backwards:

> Is there a correlation between power consumption and the cost of bitcoin.

Yes, of course there is a correlation, but he's getting the causation entirely
backwards.

The profitability of mining is directly proportional to the price of bitcoin,
because you're paid with 12.5 Bitcoins per block. But your costs are fixed in
USD -- you pay for electricity costs, per kilowatt. Therefore as the Bitcoin
price goes up, it's profitable to run that many more miners, to produce that
many more hashes, until you fill up the profit with electricity costs again.

So the price of Bitcoin determines the hashrate, not the other way around,
like he's presuming here:

> If this correlation is strong enough, it means the Bitcoin will always be
> bounded by the cost and availability of electricity.

This guy also assumes that miners are paying the average electricy price in
the US and China. Miners pay nothing like that. California electricity rates
are around 15¢/kW. Central Washington is 2-4¢. That's 6-7x cheaper. The same
is true for China.

~~~
amigoingtodie
Insightful. Thank you.

------
electic
Yes, it is an energy hog. There are a lot of industries that consume more
energy than bitcoin mining.

The reason none of this matters is because the market says it doesn't matter.
The market is finding enough value from Bitcoin to keep running the network.
Going forward, I think energy consumption won't matter because we are now
producing more power than we can consume. For example, Germany had to pay
citizens to consume power because there was a glut. Another example recently
was in California where the state had to pay Arizona to take their excess
capacity.

The same is happening in China. China is heavily investing in alternate forms
of energy and when you boil it down, it is still cheap to mine a 14,000+ USD
bitcoin. In other words, the market says it's ok.

~~~
whowouldathunk
The market is ignoring externalities.

[https://www.newyorker.com/cartoon/a16995](https://www.newyorker.com/cartoon/a16995)

~~~
another-one-off
None of the things my grandparent mentioned are externalities.

The cost of energy consumed is directly borne by the people mining the
bitcoins. The costs of the power gluts should be being directly borne by the
customers (I'm pretty sure it is in Germany, I don't know about California).

The energy market is distorted by government interference, sure, but the costs
are clear and (unless the regulators are doing something really stupid) being
borne by parties with skin in the game.

~~~
whowouldathunk
The cost of electricity is artificially low because it doesn't include the
cost of the associated pollution.

~~~
baddox
Probably so, but that doesn’t affect Bitcoin mining any more than any other
usage of electricity.

------
zaroth
The latest ASIC miners run at about 100W/TH. That means the entire hashing
capacity of Bitcoin (15 EH/s) on the most efficient hardware would draw
100,000 kW.

That’s about 80,000 US households of power. Or to put it another way, ~$21
million per month in electricity.

Obviously average mining power efficiency is currently much lower, so this
isn’t much more than a thought exercise.

But the point is there are a lot of uses for electricity. The only real
problem is if the price of electricity doesn’t actually cover the cost of the
externalities of generating it.

In many places, you are paying not only for externalities but also
infrastructure upgrades throughout the grid as well as subsidizing low income
use, so in that sense Bitcoin is _funding_ these positive programs and
investments.

If the electricity is being sold below real market cost, don’t blame Bitcoin
(or incandescent bulbs) blame the fucking electrical pricing regulations.

~~~
xg15
> _The only real problem is if the price of electricity doesn’t actually cover
> the cost of the externalities of generating it._

We don't even _know_ all the externalities of generating it, let alone adding
all of them to the price.

E.g, nuclear waste and depleting fossil fuels are two well-known externalities
which we currently consciously choose to ignore. Climate change is an
externality which until about half of a century ago wasn't known at all.

~~~
baddox
Sure, we don’t know all the externalities, but some of those externalities
could be positive. The fact that we don’t know doesn’t mean the true public
cost of electricity is even higher than the market price.

~~~
xg15
Yes, you can say that about everything. "Maybe polluting the air and driving a
mass extinction event has some surprising positive consequences we just don't
know yet. We should go on and see if we discover them!"

There are plenty of hints that we don't correctly account even for the known
negative externalities. There are also incidents of new negative externalities
showing up we hadn't known about before. I don't know about hints for positive
externalities in the same order of magnitude.

------
oli5679
This is an interesting theoretical implication of cryptocurrencies'
decrentralised mining process. The welfare of monopoly vs. competitive markets
are the opposite to traditional micoroeconomics, because a currency's social
value does not increase with mining effort.

Any central bank can use their monopoly over the creation of currency to
increase reserves whilst incurring a cost less than those reserves. For
example, suppose the US economy grows by 50% over 30 years, but that the
country's payment infrastructure doesn't change otherwise, and so the typical
American wishes to have a higher real value of cash in their wallet, to buy
more luxurious office lunches, or spend the cash in other circumstances.

In a situation where everyone uses a traditional fiat currency, minted by a
central bank, the central banks monopoly over the production of these
additional currency reserves will allow them to spend significantly less than
the value of the currency in making it. Today, a $100 bill costs 12.5 cents to
make, plus some additional transport and monitoring costs [1].

However, with the decentralised nature of a crypo-currency, a competitive
market dictates that in order for it to be created, miners must spend the
entire value of the cryptocurrency in energy costs, otherwise they would be
forgoing risk-free profits. Suppose the economy uses cryptocurrency. If the
market allows for miners to spend only $90 of energy, hardware and labour to
mine $100 of currency, then a less efficient entrant can come in with costs
between $90-$100 and make a positive expected profit. This means that even if
there are not technical difficulties preventing a crypocurrency from replacing
a traditional fiat currency, it's adoption reduces the social surplus
generated from the minting of new currency.

[1] [https://www.marketwatch.com/story/new-100-bill-
costs-60-more...](https://www.marketwatch.com/story/new-100-bill-
costs-60-more-to-produce-2013-10-08)

------
XR0CSWV3h3kZWg
There's quite a few problems with this article.

First if you are going to say something is correlated it'd be nice to provide
an R^2 or something to quantify the correlation. Then given that price of
bitcoin and cost of electricity goes back much further than what is listed.
Has the correlation been consistent? (given the fact that bitcoin has been
growing exponentially I would be surprised)

Second if you are trying to predict what will happen to the price & hashrate
at the next halving it might help to look to previous examples. This has
happened twice to bitcoin alone and many more times on various different
coins. This will also affect other SHA256 PoW coins such as bitcoin cash,
which is ~9000 blocks ahead. Interestingly it's halving will happen ~9 weeks
earlier, not much lead time, but it should give an indication of what will
happen to BTC.

Lastly:

> To compute cost of creating one Bitcoin, I established a correlation between
> the number of TH/day and kWh/day as value conv in TH/kWh. To compute the
> value use: 60 _60_ 24 _TH_s_ conv*energy_cost/1600

Huh?

Where does the 1600 value come from? There are currently 1800 new bitcoins
minted every day, is that what it is supposed to be? If that's the case that
is the cost to get one of the newly minted bitcoins.

Furthermore it's an extremely common misconception that if you spend X
electricity you produce Y bitcoins. Saying that there is a specific
electricity cost for creating a bitcoin could easily reinforce this idea. It
looks like the author understands how it actually works, but the wording used
seems like it could easily reinforce that misconception.

------
defgeneric
I've been a holder and believer since 2012 but this is one thing where I've
always disagreed with the community--not so much the ecological aspect but the
value argument based on production. Bitcoin's overwhelmingly libertarian user
base had no time for this kind of discussion because it was too close to the
labor theory of value.[1] But if you work it out you can actually get a solid
argument for a current "intrinsic" value, taking into account expected future
returns, etc. We're starting to see this with the markets for mining contracts
where the unit is (mega/giga) hashes per second. Seems to be homologous to a
forward contract.

But in any case the production aspect seems to have been totally ignored when
it comes to valuation whereas with every other commodity--oil, corn, cotton,
copper, etc.--it means everything.

[1]
[https://en.bitcoin.it/wiki/Help:FAQ#Where_does_the_value_of_...](https://en.bitcoin.it/wiki/Help:FAQ#Where_does_the_value_of_Bitcoin_stem_from.3F_What_backs_up_Bitcoin.3F)

------
pedrocr
The title of the article is yet another stab at the bitcoin energy usage
calculation but the content is actually much more interesting. There's an
assertion, that I can't validate, that there's a point at which mining becomes
unsustainable because the energy cost becomes too expensive and thus the
network crashes. Anyone have a rebuttal for that?

~~~
alfiedotwtf
If mining becomes too expensive, then people stop mining.

When people stop mining, competition for mining falls, making it easier to
mine.

If it's easier to mine, mining becomes cheaper, so people start mining.

GOTO 1

~~~
felipeko
Does the transaction price go up when fewer people mine?

~~~
AgentME
No. (Well, in the short term as miners leave, the block time increases, which
increases the block pressure and increases fees, but the block time re-
normalizes itself regularly as the mining difficulty adjusts.)

The only thing that the number of people mining directly affects is the cost
for an attacker to perform a 51% attack on the network.

------
ouid
>The next halving could cause a transient effect in the network where the
number of machines mining on the network drops dramatically. This may have the
effect of miners selling off their Bitcoin and the value falling.

This is not how markets work. Anything knowable about the future is reflected
in the _current_ price.

~~~
Tyrek
Only under efficient market hypothesis (EMH), which is not _necessarily_ the
true state of the market. Under EMH, 2008 would never have happened, because
all the (unforeseen) risk would have been priced in as 'knowable' \- the risk
of default was mathematically provable, even if no one ever took the time to
do the math.

~~~
ouid
Risk isn't the same thing as expected value.

~~~
mcguire
Risk also isn't the same thing as uncertainty. Also, markets can have a short
attention span.

------
aphextron
This argument comes up practically every day now with the same lack of
comparison to existing financial systems. Bitcoin is an energy hog; so what?
Lots of things require enormous amounts of energy. The question should be what
_value_ are we deriving from that energy usage, and is it greater than the
status quo? How much energy is expended running bank servers? How much energy
is expended mining gold and keeping reserves secured?

~~~
foepys
Bitcoin is estimated to use about the same energy as the whole country of
Denmark[1]. Denmark has over 790 million cashless transactions with "Dankort",
a local debit card, per year alone[2] - excluding other payment methods.
Bitcoin can handle about 2,000 transactions per block[3]. 2,000 transactions
times 6 blocks per hour times 24 hours in a day times 365 days in a year
equals 105,120,000 transactions per year.

Congratulations, you just used the energy of the whole country of Denmark with
_everything_ in it (housholds, heavy industry, etc.) to process less than a
1/7th of Denmark's cash-less transactions with a _specific_ (albeit widely
used) debit card.

You see, your argument is simply invalid. "Traditional" banking is more energy
efficient by multiple orders of magnitude.

1: [https://arstechnica.com/tech-policy/2017/12/bitcoins-
insane-...](https://arstechnica.com/tech-policy/2017/12/bitcoins-insane-
energy-consumption-explained/)

2:
[https://www.nationalbanken.dk/en/publications/Documents/2011...](https://www.nationalbanken.dk/en/publications/Documents/2011/09/MON3Q_P1_2011_Payment%20Habits%20in%20Denmark.pdf)
(page 125)

3: [https://blockchain.info/en/charts/n-transactions-per-
block](https://blockchain.info/en/charts/n-transactions-per-block)

~~~
baddox
There are some very huge differences between Bitcoin and Denmark’s payment
system. It’s perfectly fine for you to dislike or scoff at those differences,
but some people find Bitcoin’s differences extremely appealing, and it’s
disingenuous to say that the payment systems are accomplishing the same thing
just with different energy costs.

------
carlob
I just saw this "you have to articles" thing for the first time. Is medium
putting up a paywall or am I being A/B tested? Or maybe this was announced
before and I'm out of the loop.

------
mlinksva
Stiff carbon tax long overdue.

------
joering2
OT: A friend of mine is trying to enter into crypto-market with slightly
different idea/project but related to blockchain. I'm not a crypto expert; if
anyone feels like helping with reviewing his basic idea, please feel free to
reach out via email in my profile. This could be somewhat paid small (few-
times) gig. /OT

