
Do we really need to run a power station just for Bitcoin? - jason_neylon
http://www.oditorium.com/ou/2013/11/do-we-really-need-to-run-a-power-station-just-for-bitcoin/
======
dmerfield
Based on an electricity price of $125/mWh and power consumption of
650W/gigahash, Bitcoin costs $9m a day, or about $3.3b a year to run. The
total value of Bitcoin is about $7.5b. Incidentally, the US mint and federal
reserve combined 2013 budget was $8.1b for 2013 and the total value of US
currency in circulation is about $800b.

This raises a few interesting questions: will the logistical cost of running
Bitcoin rise linearly with its total value? If so, are Bitcoin's running costs
too great to make it a viable global currency?

Sources: [http://www.federalreserve.gov/publications/budget-
review/fil...](http://www.federalreserve.gov/publications/budget-
review/files/2013-budget-review.pdf)

[http://www.treasury.gov/about/budget-
performance/Documents/2...](http://www.treasury.gov/about/budget-
performance/Documents/20%20-%20FY%202013%20US%20Mint%20CJ.pdf)

[http://bitcoincharts.com/charts/mtgoxUSD#rg60ztgSzm1g10zm2g2...](http://bitcoincharts.com/charts/mtgoxUSD#rg60ztgSzm1g10zm2g25zv)

~~~
Retric
The fundamental problem with bit-coin is anyone willing to pay for twice the
current mining costs can double spend and destroy the currency. As such there
is no way even 100 billion in mining can protect 10 trillion in value. QED:
the long term viability of bit-coin as a _cheap_ world wide currency is
impossible.

Anyway, the secret service and possibly the FBI one run anti counterfeiting
operations so it's slightly higher than that. Beyond that, I think there is a
fair amount of diplomatic operations that support the USD but it's still far
far cheaper to run relative to value than bit-coin right now.

~~~
rfugger
A 51% attack only gives you the ability to double-spend coins you already
control. It doesn't give you the ability to crack the private keys of others.
So there is no straightforward economic incentive for a 51% attack unless you
own a huge amount of Bitcoin, and thus would be hurting yourself.

~~~
Retric
You can double spend with wallets you own so 1BTC > 2BTC > 4BTC ... any number
you want fairly quickly.

~~~
dllthomas
I think this is false. Double spending doesn't create coins, it screws someone
who accepted a coin. My understanding of the 51% attack is that you can
basically reliably snip the end from the block chain. That doesn't let you put
arbitrary things into it.

------
mistercow
>so why not go for a nice central-custodian system like that run by VISA,
Mastercard, or your friendly neighbourhood bank which is protected by the
state, rather than for one that relies on the fact that protecting it wastes
so much money that every attack will be very costly (if this was not clear, I
have explained this in detail here)

This article brings up a good point about consumption, but this introductory
question is dumb. The short answer is "because that's the entire point".

~~~
dllthomas
That's the entire point for (most? all?) the people involved in creating
bitcoin. It's the central point for many of the people involved in bitcoin
today. But there's a large number of people who just want a cheap and easy
means of electronic payment.

~~~
icebraining
They have that, it's called VISA, Mastercard, etc.

~~~
dllthomas
Bitcoin promises to be cheaper, and to not require blessing of payer or payee.

~~~
icebraining
Yes, and one of the reasons BTC is cheaper is because it's a market, and not
"a nice central-custodian system like that run by VISA, Mastercard" or any
other monopolist.

~~~
dllthomas
Yes, but from the point of view of the people I am describing that is an
implementation detail, not "the entire point."

------
1053r
So the biggest problem with this post is that blockchain.info specifically
says that they assume 650W per GigaHash. This is just out of date.

Modern ASIC miners (which are doing the majority of the mining) are doing more
like 10W per GigaHash.[1]

So we only need 1/65th of what is being estimated.

1) [http://millybitcoin.com/does-bitcoin-mining-use-a-large-
amou...](http://millybitcoin.com/does-bitcoin-mining-use-a-large-amount-of-
electricity/)

~~~
FireBeyond
What’s the source of that - that the majority of Bitcoin miners are using
ASICs? From everything I’ve read they’re new, in scarce supply with lead times
of up to a year, and expensive.

~~~
dllthomas
"The majority of Bitcoin miners are using ASICs" and "the majority of the
mining is being done by ASIC miners" are two distinct claims.

------
tlb
Interesting numbers. Still, it's pretty benign compared to the costs and
environmental horrors of gold mining.

[https://en.wikipedia.org/wiki/Gold_cyanidation](https://en.wikipedia.org/wiki/Gold_cyanidation)

------
asn0
What about the costs of market distortions and mis-allocation of resources
when a fiat currency can be inflated with almost no cost?

How much energy (and other resources) were expended in the dot-com boom, and
the housing boom? Think of all the houses that were built to replace houses
that were perfectly usable, and are now empty? And all the IT equipment built
for dot-coms that died after 6 or 12 months?

Probably need to include at least some of the costs of wars and military
forces, as those are necessary to maintain the "full faith and credit of the
XYZ government" that _is_ the fiat currency.

And definitely need to factor in all of the energy and materials put into huge
volumes of cheaply imported products (including oil), that is only possible
because fiat currencies enable huge trade imbalances. And all of the energy
and materials put into re-creating the manufacturing industry in other
countries, as those products become "cheaper", enabled by fiat currencies. And
all of the energy used by those products, as their "low" prices make them more
pervasive than they would normally be.

You don't have to continue this train of thought too far to realize that the
costs of maintaining Bitcoin are minuscule when compared to the true costs of
using and maintaining a fiat currency.

------
marze
Do we really need to dig massive open pits, extract 3 ppm gold molecules, dump
the rest, cast the gold into blocks and store them in locked vaults to have
gold reserves?

------
kalleboo
The Blockchain.info number he bases it on comes from:

* Electricity consumption is estimated based on power consumption of 650 Watts per gigahash and electricity price of 15 cent per kilowatt hour. In reality some miners will be more or less efficient.

ASICs (which I believe are the majority of the hashrate nowadays) are more on
the order of 10 W/GH (Block Erupter claims 7.5 W/GH/s, the Butterfly Labs 5
GH/s ASIC looks like it's around 6.5 W/GH/s).

------
oditorium
First of all, thank you all for the insightful and civilised discussion of my
recent post, and than you for pointing out that the number on blockchain.info
is off by almost two orders of magnitude. I have updated my post to account
for this.

My main argument was actually slightly tangential to this, in that I am
arguing that Bitcoin still needs the protection of the state to survive. I
have expanded on this topic in my post today
[http://www.oditorium.com/ou/2013/11/what-does-it-take-to-
att...](http://www.oditorium.com/ou/2013/11/what-does-it-take-to-attack-
bitcoin-a-power-station/)

and back in April I have written a more general post on the various threats to
Bitcoin [http://www.oditorium.com/ou/2013/04/fifty-ways-to-kill-
bitco...](http://www.oditorium.com/ou/2013/04/fifty-ways-to-kill-bitcoin/)

So my central point is: those 50MW (or whatever they will be when the
price/hashrate goes up) are simply the costs of maintaining the ledger. As I
have noted in the comments to my post, I agree that this is lower than the
energy expended handling cash. However, and this is crucial, it is probably
about 50MW higher than the cost of maintaining the ledger in a trust-based
system that relies on the courts to maintain the integrity of the ledger.

I am all for running an electronic currency, but IMO the hash-rate protection
feature of bitcoin is redundant and wasteful.

PS. If anyone reading this know the guys at blockchain.info can you ask them
to update their site? It is not helpful if the information on what is arguably
the #1 source for bitcoin related data is off by a factor of 50x for the
better part of the year now.

------
loarake
I don't get the argument. The power requirement of running the entire world's
monetary infrastructure is probably much bigger, no?

~~~
jason_neylon
Yep that is true. The author discusses this here:
[http://www.oditorium.com/ou/2013/04/krugman-bitcoin-
resource...](http://www.oditorium.com/ou/2013/04/krugman-bitcoin-resources-
waste/)

~~~
dllthomas
That's kind of a weird post - it conflates very different things. Mining burns
power to protect against _a specific class of attack_ , not _any and all
attacks._ Bitcoin isn't magically immune to heists, and physical protection
may be slightly easier (in that you don't need physical access as frequently)
but no less necessary for large wallets.

------
ljlolel
The financial industry uses up 20+% of US population (albeit this is more than
just the currency), but it gives you an idea of how many resources need to be
diverted to the process of allocating capital. Many communism nations failed
because (along with many many other reasons) there weren't a lot of people
figuring out the best allocation of resources.

------
Sambdala
The current cost of fraud from chargebacks and identity theft from traditional
credit cards seems like it would dwarf any eventual power consumption of
Bitcoin miners.

~~~
lambda
You realize that Bitcoin isn't immune to fraud, it just puts the fraud burden
on the consumer rather than the merchant, right?

There have already been plenty of Bitcoin frauds; pyramid schemes, merchants
disappearing, computers hacked and Bitcoins stolen, entire exchanges
disappearing, etc.

~~~
Sambdala
Sure; there's a reason I specified chargebacks and identity theft.

These are two areas that are largely solved with a push payment system rather
than a pull payment system.

I'm looking forward to seeing how other types of fraud are addressed in the
future, but it's fairly predictable we'll see further scams and fraud along
the way.

~~~
lambda
Why do you think that Bitcoin fraud would be handled differently that fiat
currency fraud; that is, by offering credit, doing chargebacks, and so on,
just like people do with fiat currency?

I mean, it's not like we don't have options like wire transfers for
transmitting currency without the possibility of chargebacks; but as you
notice, most people choose to use credit cards, which offer the buyer
protection, rather than using wire transfers for purchasing goods online.

Bitcoin isn't a particularly good payment system, and I can't imagine that
most people will wind up sending Bitcoins directly as payment for the vast
majority of purchases. It's more of a replacement of bank transfers or wire
transfers, which are used in particular specialized circumstances but not by
the average consumer.

------
drewblaisdell
Do we really need a power station just for [more popular and frivolous
technology than Bitcoin]?

~~~
dnautics
high frequency trading (e.g.) Why not just throttle the markets so that trades
are resolved discretely, at a human interval, say at 5 second increments?

------
maxk42
How can I be the first one to notice how fucked this math is?

> Blockchain.info estimates the energy usage of Bitcoin miners to be 74,204.76
> megawatt hours for a period of 24 hours. Now 74.2 / 24 = 3.1, so this
> corresponds to a power requirement of 3.1 GW.

------
haberman
I'm sure people have thought about this before, but is there no way for
bitcoin mining to be performing useful computational work? Some algorithm that
is CPU-intensive and verifiable, but _also_ beneficial to humanity?

~~~
Anderkent
Indeed they have
[https://en.bitcoin.it/wiki/FAQ#Why_don.27t_we_use_calculatio...](https://en.bitcoin.it/wiki/FAQ#Why_don.27t_we_use_calculations_that_are_also_useful_for_some_other_purpose.3F)

------
oleganza
You don't need to run a power station if you don't want to. Like people are
not forced to make lolcat videos for everyone's amusement. They do so
voluntarily. What's the problem?

------
neals
Has anybody mentioned the power costs of all the different payment methods? I
mean, datacenters, helpdesk-offices, sales and marketing. I think Bitcoin does
a way better job.

~~~
biot
How is that different for bitcoin? Accepting bitcoin payments for purchases
still requires datacenters as well as support, sales, and marketing staff
given that the products/services being sold don't automagically market, sell,
and support themselves just because you accept bitcoin. It might even be worse
as a transaction needs to be verified by the rest of the network, not just by
a single authority.

~~~
neals
Bitcoin would work perfectly well without datacenters. The client is all you
need, you can run it on your computer.

I'm talking about the people from VISA that have to store and maintain
accountholders data. None of this exists for Bitcoin.

~~~
biot
Each bitcoin transaction needs to be verified by a majority of the network in
order to mitigate the risk of a fraudulent transaction. Does the energy
required to do this exceed Visa's per-transaction energy requirements?

------
Osiris
It does seem a bit wasteful, but companies producing ASICs are fighting for
lower power consumption. I would expect future power consumption per GH/s to
go down.

~~~
dllthomas
Watts/(GH/s) will go down because of ASICs, but that will make mining more
lucrative and they will have to up the difficulty which raises Watts/(GH/s).

~~~
danielharan
While making GFlops/watt cheaper for all number crunching applications, no?

~~~
dllthomas
Not if it's just because we're building bitcoin-specific ASICs. It _might_
help push technology, but it'll also pull brain-power that would otherwise
have been focused elsewhere. It's hard to know what the counterfactual would
actually look like.

------
rfugger
Ripple contains a Bitcoin-like cryptocurrency called XRP that only takes a few
seconds to confirm transactions and does not require mining:

[https://ripple.com/](https://ripple.com/)

[https://ripple.com/wiki/Introduction_to_Ripple_for_Bitcoiner...](https://ripple.com/wiki/Introduction_to_Ripple_for_Bitcoiners)

It also allows accounting in any units.

~~~
oleganza
Ripple moves IOUs based on trust, not hard gold-like asset.

~~~
rfugger
XRP is trustless, like Bitcoin.

------
fnordfnordfnord
How much effort is spent on the equivalent administrative tasks for other
currencies such as the USD?

------
nemochev
"So currently mining Bitcoins requires power levels somewhere between the one
produced by the Hoover Dam, and the world’s larges coal fired power station."

Emphasis on "currently"

Disruptive technologies are almost always costly in some way or another until
more widely adopted.

~~~
bct
Show your work. Why do you expect the power consumption of the Bitcoin network
to go down?

When specific costs of a technology decrease it's for reasons specific to that
technology. Yes, cell phones have gotten smaller & less expensive (as one
example), but that doesn't tell us anything about the power consumption of the
Bitcoin network.

------
fat0wl
what's the conversion rate on unicorns to leprechauns? i'm gonna need a
perpetual motion machine to figure this one out...

