It has been several months of little new content on the Digiconomist blog, but a lot has been going on in the background.Significant effort has been directed towards getting the methodology underlying the Bitcoin Energy Consumption Index anchored in peer-reviewed academic literature. As of today, this has become a reality with the publication of a new paper in the latest issue of Joule. The full text of the accompanying press release has been added below. The paper itself can be found here.
Bitcoin’s burgeoning electricity demands have attracted almost as much attention as the cryptocurrency’s wildly fluctuating value. But estimating exactly how much electricity the Bitcoin network uses, necessary for understanding its impact and implementing policy, remains a challenge. In the first rigorously peer-reviewed article quantifying Bitcoin’s energy requirements, a Commentary appearing May 16 in the journal Joule, financial economist and blockchain specialist Alex de Vries uses a new methodology to pinpoint where Bitcoin’s electric energy consumption is headed and how soon it might get there.
“We’ve seen a lot of back-of-the-envelope calculations, but we need more scientific discussion on where this network is headed. Right now, the information available is pretty poor quality overall, so I’m hoping that people will use this paper as a foundation for more research,” says de Vries, who is the founder of Digiconomist (@DigiEconomist), a blog that aims to better inform cryptocurrency users.
His estimates, based in economics, put the minimum current usage of the Bitcoin network at 2.55 gigawatts, which means it uses almost as much electricity as Ireland. A single transaction uses as much electricity as an average household in the Netherlands uses in a month. By the end of this year, he predicts the network could be using as much as 7.7 gigawatts—as much as Austria and half of a percent of the world’s total consumption. “To me, half a percent is already quite shocking. It’s an extreme difference compared to the regular financial system, and this increasing electricity demand is definitely not going to help us reach our climate goals,” he says. If the price of Bitcoin continues to increase the way some experts have predicted, de Vries believes the network could someday consume 5% of the world’s electricity. “That would be quite bad.”
Bitcoin is dependent on computers that time-stamp transactions into an ongoing chain to prevent duplicate spending of coins. Computers in the network perform calculations continuously, competing for the chance, once every ten minutes, to be appointed to create the next block of transactions in the chain. The user of the computer that wins is awarded 12.5 new coins—a process known as “mining” Bitcoin. But all the time, even the users that don’t win are expending computing power. “You are generating numbers the whole time and the machines you’re using for that use electricity. But if you want to get a bigger slice of the pie, you need to increase your computing power. So there’s a big incentive for people to increase how much they’re spending on electricity and on machines,” de Vries says.
It’s figuring out when that incentive stops paying off that is at the heart of de Vries’s estimation method. Economic principles suggest that the entire Bitcoin network will eventually reach an equilibrium where the costs of the hardware and electricity used to mine equal the value of the Bitcoin being mined. And that information can approximate the total amount of electricity that the network will use at said equilibrium.
Other researchers have used the fundamentals of this method before, but de Vries goes farther. He uses production information about Bitmain, the biggest manufacturer of Bitcoin mining machines, to estimate both how much of a miner’s costs are associated with hardware rather than electricity and when this equilibrium might be reached. And while he does have confidence in his estimates, the problem with this method is that these manufacturers are extremely secretive. “Sometimes the best information we’ve got is really shaky eyewitness accounts. That’s the stuff we have to work with,” he says.
Still, he believes that getting a good estimate is important in determining the sustainability of cryptocurrencies moving forward and in helping shape policy around them. Some states in the U.S. have already started to put restrictions around Bitcoin mining. “But you need to base your policy on something. And I think that my method is important in that regard, because it’s very forward-looking. It’s focused not on the now, but on where we’re headed. And I think that’s something you really need to know if you’re going to draft policy about it,” he says.
He also points out that there is plenty of room for discussion of his method. “I think everyone agrees on the minimum energy consumption. But the future estimate? That’s actually quite debatable. We don’t really have a common approach to getting to a future estimate of electricity consumption right now, which is why I am hoping to get this conversation started. I’m doing this research, but a lot of people should be doing it.”
What a load of crap. How much are you prepared to pay for your freedom? But I suppose those who are responsible for this “study” is part of the oppressing 1% whose sole objective is to enslave the rest of humanity with their “War on Terror”, “War on Drugs” and “War on Environmental Destruction”. The real terrorists who destroys our environment is the 1% super rich who cares stuff-all about anybody else and whose money making (stealing) stops for NOTHING.
And Bitcoin is contributing to making the rich richer too. https://digiconomist.net/bitcoin-raises-inequality Plus it does so at high environmental cost. A lot is wrong with the world, but Bitcoin isn’t the solution we need at this time (in its current form).
How about ending energy subsidies instead?
Mines will dry up if countries rise the cost of energy.
And it will lead to more balanced budgets.
What freedom gets you bitcoin? You must still rely on the rest of society for building the computer and producing the electricity? At the first power cut, no coins.
Furthermore I doubt that the researcher who wrote the paper is a “super rich.” He just works, indirectly, like probably you and I, for those super richer. The freedom is in education, thinking and the ability to chose not to participate, as much as possible, in the systems that maintains the oligarchy and technology-will-solve-all-our-problem dogma. Bitcoin is just an illusion.
So I’m curious about how energy consumption can be “regulated” when crypto can be mined anywhere. Isn’t this more like a “money pump” situation where the cheapest (=subsidized) electricity will be ruthlessly overexploited, to the point where the subsidies need to be ended? The alternative (extra supply) is no solution, as that would merely put off the inevitable.
So the end-game is clear, but what about the intermediate game, i.e., where countries and systems are put under stress and break, passing the burden along to the next-cheapest (transaction costs aside, but they need to be discussed) destination
I’ve not read the paper, but I think you could have a nice paper on this process. Why not present (unless you have) at Bitcoin Wednesday in A’dam?
It is obvious for me, after reading this article, the amount of electricity that is used for that mining.
I know a damn Bitcoin is a lot of money, but the people mining bitcoin are also using lots of supercomputers that use at the same time lots of energy, they really should change that usage or produce themselves that energy with panels or other renewable methods.
The problem I say, as a energy engineer, is not the amount of energy, but the sources of the energy, if that energy is mainly nuke or oil, then we may have a trouble, mostly because the bitcoin mining is using more electricity than Africa would be using…
And the price of the bitcoins is so high just for especulation, and governments should stop that right now.
Would it be correct to assume that you are referring to GWh, not GW, as you use the word consumption and not capacity? Would you mind quoting the sources for the reference consumption in Austria and Ireland?
I can not access cell.com on which the “paper” is hosted
In order to secure a decentralized network, block producers need to be trustworthy. This trust can be either provided by PoS (Ethereum) or PoW (Bitcoin). Unfortunately, the capital cost of staking small amounts in PoS networks, which additionally use sharding, is much lower than acquiring the ASICs to 51% attack a PoW network like Bitcoin. In a PoW chain the entire equipment becomes useless after a double-spend attack because the mining algorithm is changed. In a PoS network with enough liquidity the malicious actor will simply convert into another currency. This problem becomes even more severe with increased liquidity through atomic swaps and other cross chain solutions.
I find it a bit strange that the entire site does not mention the security aspect regarding PoW in Bitcoin. Furthermore, aspects such as administrative financial energy costs are often not taken into account in evaluating our current financial system.
Rewards in Bitcoin also reduce over time. Therefore, one cannot simply extrapolate into the future. If transaction costs become more important and Layer 2 solutions become mainstream energy consumption growth will most likely decrease.