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It is worth comparing this against the cost of minting money.

A brief search showed that the US mint used 694,462.4 gigajoules in 2011[1] (~0.2Twh). The US is ~25% of world GDP, so lets times this by 4 for a naive cost of minting across the whole world.

This gives a cost of ~1Twh annually for minting the entire world's supply of money, with a total Gross world product of ~$80 trillion[2].

Bitcoin is using ~1.3Twh[3] for a market cap of ~$35 billion[4].

Overall this means that bitcoins are ~3000x less efficient than physical money.

After writing this I've realised I should perhaps limit to the cash based economy.

The amount of US dollars in circulation is ~$1.3 trillion[5].

This gives a slightly better ratio of 222x less efficient.

Bitcoin is 222 times less efficient than a physical system of metal coins and paper/fabric/plastic.

[1] http://www.designlife-cycle.com/us-penny/ [2] https://en.wikipedia.org/wiki/Gross_world_product [3] http://blog.zorinaq.com/bitcoin-mining-is-not-wasteful/ [4] https://coinmarketcap.com/ [5] https://www.newyorkfed.org/aboutthefed/fedpoint/fed01.html




This is not entirely true, as cash requires energy after it's been minted. Money transport, cashiers and gold old fashioned vaults all require energy. With that being said, PoW is definitely wasteful, and for crypto-currency to be taken serious on the world stage, another form of consensus algorithm is required. Personally I'm partial to Proof of Stake[0].

[0]https://en.wikipedia.org/wiki/Proof-of-stake#Criticism


Don't cryptocurrency transactions take a lot more time & energy than, say, a credit card transaction?


Depends on the cryptocurrency in question, but yes, a cryptocurrency working under a Proof-of-Work scheme like bitcoin, will use more energy than credit card systems. I'm not sure it'll ever be possible to outperform centralized, digital systems on an energy usage level. What I was critical of, was the comparison to physical money. Energy usage isn't really that important a metric for payment systems though, price is probably more relevant, where some innovations in cryptocurrency might come to be competitive with credit cards.


Yes, but it sounds cooler!


Your calculations are off by a large magnitude because you cited only energy consumption by the US Mint the US Mint only produces coins. Federal Reserve Notes (paper money) are printed by the US Bureau of Engraving and Printing.

And as sibling comments say, cash uses energy after it's produced.


Doesn't bitcoin compete more with electronic money than it does with cash?

That it is person to person makes it like cash, but moving a dollar with bitcoin isn't quite as convenient as moving a dollar with cash, whereas moving $5000 with bitcoin is vaguely comparable to moving $5000 using a bank transfer (the value has to be present at the bank/in bitcoin, etc).


Please add all the energy banks, vaults, transportation and payment channels use where Bitcoin does it by itself.


US dollars are primarily created by banks using the fractional reserve system. So a better estimate, though harder to find, might be the total energy (including human calories) to create a loan.


Why? It's going to cost energy to create a loan regardless of the fiat it's denominated in.


Perhaps this is ignorance on my part, but my limited understanding of bitcoin suggests that new bitcoins cannot be created by creating a loan. It would be impossible to use a fractional reserve system with bitcoins by definition. This distinction is important since over 90% of US currency is created via loan using this fractional reserve mechanism.


Unless people decide that bitcoins are not fungible, then fractional reserve banking is absolutely possible with them. You give me Bitcoin, and I will lend them out at interest, keeping some on hand to give back to you as you need them. The process is identical to banking with a fiat currency, and results in the same money multiplier.

Where there is confusion is because economists accept that money is an abstract thing, backed by people's willingness to accept it, whereas Bitcoin enthusiasts see money as a tangible thing that must be backed by a concrete thing. Thus, when economists say that the supply of money changes with fractional reserve banking, they are referring to dollars in the abstract, not physical dollar bills. When Bitcoin enthusiasts say that the supply is limited, they are referring to the bitcoins themselves, not the abstract availability of bitcoins.


> This distinction is important since over 90% of US currency is created via loan using this fractional reserve mechanism.

No actual US currency is created this way, we just have a strong social convention of treating “the bank owes me $1 on demand” as equivalent to “I have $1”.

So if I make a “deposit” (which is, on point of fact, a loan) of $1, and the bank retains $0.10 in reserve and loans out $0.90 to someone else, we say that I have the equivalent of $1 and the borrower has $0.90, so it seems that $0.90 has been created. But there is really only $1.00 of currency, of which the bank has $0.10 and the borrower has $0.90. I don't have a currency, I have a right to demand (with certain conditions, depending on the kind of deposit) currency from the bank.

Most dollar-denominated trade is actually trade in future claims of dollars rather than actual dollars. Nothing [0] stops a parallel thing from happening with Bitcoin; obviously, such trade would be distinct from exchanges of Bitcoin recorded in the Bitcoin blockchain, just as trade in future claims of dollars are readily distinguishable from exchanges of physical greenbacks.

[0] Except the current immaturity of the Bitcoin ecosystem compared to the banking systems of any developed economy, but that's presumably something that would change were Bitcoin to achieve broad, durable acceptance.


Does this account for the energy that goes into the mining, and transportation, and processing of the ore before it gets to the mint?


Gold might be a better comparison. A ton of energy is spent to extract relatively small amounts of gold.


But gold isn't widely used as a currency. Which actually makes it the perfect comparison for cryptocurrencies, I guess.




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