A Simple Way to Reduce the Bitcoin Energy Waste
Dynamic miner fee for a more environment-friendly Bitcoin
The Bitcoin network wastes a huge amount of energy, and this is a huge problem in the long run (second only to scaling issues). Reaching consensus on transaction order is an important task, but it could be ensured with significantly less power consumption than currently used by proof-of-work (PoW). It is hard to grasp the staggering stats about the energy consumption of the Bitcoin network, currently estimated at the level of the consumption of whole Chile, at over 70 TWh (estimate by digiconomist.net). Dynamic miner fees could be a solution to this problem.
What enables such a waste and who pays the bill? Miners cash in on the miner reward, 25 BTC roughly every ten minutes, which makes a hopping $23M daily. The relatively high value (BTC exchange rate) is making the miner fee high (as the fee is fixed in BTC terms). It is the Bitcoin users and the owners who pay this bill (through inflation-pressure, and still-insignificant transaction fees). The arms race of the miners was intended (to ensure robustness against attacks), but its staggering scale — driven by specialized hardware and high rates — was not.
A lower total amount of computation and energy used for securing the network would be desirable, but it is hard to achieve. Fundamental changes, like switching to other consensus scheme, is very unlikely for Bitcoin. Side chain efforts can solve the scaling issue, but do not affect mining. Mining is inherently competitive, so a voluntary reduction is impossible. Hash-per-watt will continue to improve further, but this does not decrease total power used, only produces more hashpower.
Only the reduction of the total miner reward could lead to lower total computation and energy consumption.
The dynamically adjusted mining difficulty is an ingenious invention of the Bitcoin network. I propose to make the miner reward also dynamic, instead of the fixed reward sum of today (25 BTC, halved according to a schedule every 4 years). The input for a dynamic adjustment must be available in the blockchain — one possible simple solution is to base it on the total amount of transactions over a period. For example, the recent figure of 110 BTC of total daily transaction amount, is 30 times lower than the miner reward!
The value of a bitcoin is an information which is not available in the bitcoin network, but the total transaction is influenced by it. For example, if the BTC value would increase ten-folds in a short period of time, the total transaction amount is expected to decrease also almost by as much. Basing the miner reward on total transaction sum is a scheme relatively robust against the unforeseen changes in BTC value. It also reflects usage, it grows if the bitcoin network is used more.
Such a change would be quite easy to implement in bitcoin: only the fee computation formula has to be updated (from the simple block-chain-number-scheduled fixed sum to a formula with more input). It could be based on the total transaction amount of the last 2016 blocks, with a coefficient, which could have a time-dependent schedule.
Any such change must be gradual, to accommodate the interest of current miners — they are naturally opposed to any decrease, and they have a big influence.
What do you think? Assuming bitcoin will remain the most influential blockchain for some time, should it try to reduce its POWer waste? Could such a scheme work?