His findings are not completely accurate, but also not completely wrong either. My own formal well-documented estimate is that Bitcoin used 0.09% of the world's electricity as of January 11th, 2018 (http://blog.zorinaq.com/bitcoin-electricity-consumption/). After 4 months of growth I estimate we are around 0.15-0.20% today. Therefore reaching 0.50% by the end of 2018 is plausible; not likely but plausible. That said, overall I think Alex de Vries's figures are rather inflated because he makes two errors. Firstly, his model assumes that manufacturers sell at cost and make zero profits, which allows miners to spend more on electricity. In reality we've seen Bitmain, the largest manufacturer, make billions of dollars over the last few years. No one expects them to make zero profits by the end of 2018. Secondly, de Vries makes the mistake of assuming that all cryptocurrency mining chips produced by TSMC on behalf of Bitmain end up in Bitcoin mining machines. In reality many chips are fabricated for cryptocurrencies other than Bitcoin. This altcoin sector is rapidly growing. It wouldn't be unreasonable to assume that Bitcoin mining machines will represent less than half of Bitmain's sales by the end of 2018.
What model are your forecasts based on? From what I could tell, the featured paper’s model allows us to forecast future consumption but your research only presents a current-day lower bound (Jan 2018 in this case). I may be wrong though
This is on par with historical increases documented by mrb (325 TH/s in late Feb 2017 to 640 TH/s in late Jul 2017, an increase of 100% in 5 months). If we see an average growth of 100% each 4 months, then we will easily surpass 100 PH/s by year-end, which is around 10GW, or around 0.4% of the world energy production.
For the second point, he’s fairly careful to specify that these are estimates from a third party (Morgan Stanley) and does not explicitly specify that he expects all of them to be Bitcoin mining rigs. The estimate of power consumption he produces here, 8.92 GW, is used merely as a check on his main figure of 7.67 GW obtained through the economic analysis; he does not directly rely on the Bitmain production figure. Plus, he also notes that this 8.92 figure doesn’t take into account the ~30% of the market not owned by Bitmain.
Yes, but given this convergence hasn't happened in years, it is unreasonable for de Vries to suggest it might happen in 7 months.
For the second point, he definitely assumes 100% of the production ends up in Bitcoin mining machine. His source says "cryptocurrency" chips, but de Vries assumes "Bitcoin" chips.
Blockchain ONLY exists to decentralize and validate.
This is useful for currencies, voting, timestamps, and maybe a few other niches.
Centralized applications are cheaper and faster than blockchain. You wouldnt use blockchain unless you needed the decentralized validation worth paying for.
Users like OP mentioned doesnt understand what the Work is doing. Most people who 'know' crypto, have no idea what blockchain is.
The only people worth listening to are ones that spend crypto and have developed. Everyone else are parroting myth.
Also you're not considering the potential benefits of on-chain governance/smart contracts.
When this fad dies, it will have been historically significant in terms of pure waste.
tldr; Weaponized Game Theory.
That might save money in its own merit.
Transaction clearing between banks isn't particularly fast, but that's because of legacy legal issues more than it is anything technological. The actual transfer of large sums can happen very quickly.
Most of the things that crypto proponents tout as features (transaction irreverisibility, lack of inflation, etc.) are in fact bugs, and they just don't realize it because they don't realize how finance and economics actually work.
Tapping your watch and wondering "why isn't everyone using crypto already??" is never going to yield useful results, so you do actually need to address these issues.
These are not inherent features of cryptocurrencies, there are cryptos with reversible transactions and inflation.
I always wonder if we were taught inflation was good, or if inflation is actually good.
Im going with the first, because logically I dont agree, but the government kept telling me it during public school.
They weren't bugs for the thousands of years when gold was used.
> they don't realize how finance and economics actually work.
You probably mean the last 40 years of finance and economics, since our modern monetary system has really only been around since Nixon took the US off the gold standard after the US over spent due to the Vietnam war and Charles de Gaulle started to exchange his dollars for the quoted rates of gold.
Inflation in its current form didn't really exist. The exchange rate for gold of a country's currency didn't change much, if at all. The dollar went from $20 per ounce, to $35 per ounce during FDR, then lost the vast majority of its value, getting us to over $1,300 per ounce that we have now.
Physical money requires the person giving it back physically. Crypto currencies have a chain of transactions, you can just send the balance back to one of the addresses it was sent from. There isn't much difference there.
Growth rates during the Dutch Golden Age were about 0.2% a year, with very brief peaks of up to 1%.
When crypto currency miners poured into the city, the power grid got overloaded and the local authorities had to raise prices drastically. The city finally decided to ban all mining but there are still many rogue miners left, operating from basements around the city. They let the local population foot their costs by mining for cheap and leave when prices need to rise to support the grid.
Mining crypto currencies is morally corrupt and hurts our environment more than anything ever before without generating any value.
I agree with your point about the local issues caused by this. It doesn't refute the idea that miners are using energy that would otherwise be unused.
Seems like a bold claim. Is running an electric space heater morally corrupt? Is mining while using the heat morally corrupt?
Do you think crypto currency mining is worse than meat farming, actual raw material mining and all uses of the combustion engine?
As for value, right or wrong, the markets disagree.
Your comment is like saying you're baffled that shooting someone is immoral because it's just "moving metal around".
Slightly related to my question:
Instead of energy consuming work, you could have a cryptographic lottery.
I think DAG coins could be a lot more efficient, but I'm not totally solid intellectually on how they achieve consensus on conflicting spends so I'm not sure it will work as a general solution. The only one I've used, nano, has I believe no mining reward, and I think consensus is achieved based on a voting process weighted by proof-of-stake among online nodes -- the incentive for participating in the system is that the system has value for you in other ways. I'm not closely following ETH PoS research, but it will be interesting to see what they can accomplish, it could create a huge reduction in energy consumption.
None, since players would devote their energy to influencing or becoming the third party instead of playing these games.
DAG coins just distribute the mining work across the entire network including edge nodes. That's not necessarily more efficient but it is more decentralized. Of course it remains to be seen if DAG systems can be robust against attack. I'm familiar with several attacks against DAG-type cryptocurrencies that don't seem to have really good answers.
Or are you referring to proof of stake?
If this is correct then if we had a cryptographic lottery players would devote the same amount of "work" to attempting to game the lottery that they presently burn by pumping electricity into mining ASICs.
It's possible to define a decentralized objective consensus without PoW and make it unprofitable to use sybil attacks and other methods to game the system.
I don’t know how much gold is actually shifted around physically, but the trading volume in a year is several times the actual amount of gold that has been mined, so I suspect the proportion of that which involves physical movement is tiny.
total USD transaction volume according to above about $1.3bln
trading volume, according to https://coinmarketcap.com/ - 6.7 bln
most bitcoin volume is virtual, not generating actual transactions, by 5 to 1 margin. Not sure where you got your numbers
Physical currency probably takes more energy, but printing is an old and cheap technology, so I doubt it’s comparable.
Bitcoin's mkt cap is ~$140B . The world's GDP is ~$127T . If we assume:
1) BTC market cap is representative of its economic output in accounting terms, or is at least an upper limit
2) Energy use by product should be proportional to its output
Then at 0.11% of world output, Bitcoin is at least ~5x more energy intensive per unit of value than the average product.
(This is obviously not wholly accurate. For one, market cap != annual value. If accounted for, that might make Bitcoin several orders of magnitude less efficient. And assumption 2 is probably a linear approximation to a highly nonlinear relationship. But I propose this as a fun thought experiment that questions the energy-value relationship.)
If it used proof-of-stake, then it should be a negligible amount compared to what it uses now.
(Disclaimer: proof-of-stake is still being researched. Many altcoins presently claiming to be proof-of-stake rely on centralization (peercoin), likely have issues, and/or are underverified. I'm cautiously optimistic about the Ethereum community's thorough research into proof-of-stake.)
Not every ability and option is positive-value to have. Cryptocurrencies are not only a negative-value option, but also waste vast amounts of electricity and computer hardware in order to provide it.
And just because something can be used in a harmful way, doesn't mean it should be illegal.
And I agree with you there. State action is useful primarily to solve coordination problems and handle negative externalities. The existence of bitcoin markets is a pretty significant negative externality due to the coercion it facilitates.
> bitcoin markets is a pretty significant negative externality
You know for a fact the benefits of bitcoin outweigh the positives? Could you share some of this data perhaps?
I'm not sure what 'economic model' makes him able to predict that mining will triple from where it is now.
This would also imply 6.7 Billion dollars per year just to buy the btc that the miners generate and around 6 million mining rigs running at 1300W.
A prediction in mining going up is a prediction of the price going up.
... than fiat must according to the same line of reasoning also consume resources when it is placed in circulation. That's because if new money $X has value Y, then players in the economy will spend up to Y in resources to be first in line to get $X when it is issued.
One way this may occur is via wasteful government spending (proof of waste?) since the usual path involves the purchase of government debt with newly issued currency and then its entry into circulation via government spending. Another mechanism might be complex financial shenanigans to extract small gains from the cascade of economic transactions (HFT, etc.) that occur as $X is initially lent by banks.
All these activities consume vast amounts of energy. I'd like to see someone calculate the energy consumption of the entire fiat currency system including central banks, the financial industry, and government enforcement for starters.
Furthermore according to the reasoning put forward in the above essay this activity must be "useless," or its usefulness would be priced into it and X more of it would be done where X is the value of its utility. How useful is high frequency trading? How useful is government spending on weapons we will never use? These activities are as useless as Bitcoin mining and may be more harmful in other ways. Warfare kills people.
In other words if the reasoning in the above article is correct then money may be intrinsically expensive. Gold is issued via gold mining, etc.
Tangent: if this is true then this explains the apparent political and economic impossibility of small government under current regimes. We need a monstrous, bloated government to burn the work required to issue money.
And I'm not talking about money going in, just resources used to maintain it.
Tangentially, it's really interesting and fun to read about real historical bubbles and scams. For example: