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Bitcoin and its energy consumption

Aat de Kwaasteniet
Coinmonks
9 min readMar 17, 2021

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Introduction

There is much to be said about Bitcoin’s energy consumption, and it is being done. Also this story wants to tribute something to the discussion.
There are two camps. The opponents, who think that every kiloWatt-hour spent on Bitcoin is obviously one too much and the proponents who will try to justify any consumption, no matter how high, by arguing that it is necessary for the security of the Bitcoin network to use so much and that it is all green energy that would otherwise not be utilized.
What is notable is that no one calculates how much energy would be minimally required to establish a secure Bitcoin network. Is it possible to say anything meaningful about that?

Current situation (March 2021)

It is often said that the security of the Bitcoin network is the best of all crypto coins. The security is based on the enormous miningpower (Hashrate) needed to be able to mine bitcoins and implicitly the impossibility to attack it that way via a >50% attack.
The amount of hashrate and thus the security of the Bitcoin network depends on the profit miners can make.
The profit and loss of a miner is determined by a number of factors:

  1. The value of bitcoin, a higher value of the bitcoin exchange rate, has a positive effect on the profit of the miners.
  2. The total hashrate, i.e., with how many miners should the cake be distributed.
  3. The amount of bitcoins that can be mined per unit of time. Now that is 6.25 BTC per 10 minutes.
  4. The hashrate of the mining equipment. The higher it is, the more chance of finding a block and thus a higher yield.
  5. The costs a miner has to make. The costs consist of energy costs, hosting costs, operational costs and depreciation.
  6. The efficiency of the mining equipment. The more modern the mining equipment, the higher the hash/energy cost ratio and thus the profitability of the mining equipment.

Since it can be assumed that once a miner has invested in mining equipment, these costs have to be recouped before the equipment can be replaced again, points 4, 5 and 6 are in fact fixed data. Also point 3 is fixed except for the halving that takes place once every 4 years. This means that the profit of a miner is highly dependent on the Bitcoin price and the total hashrate.

We can see a link between price and hashrate, if the bitcoin price goes up the hashrate will increase because more miners sees the profitability of mining Bitcoin and if the price is low the total hashrate will decrease because miners won’t mine with a loss. At each price level there will be a kind of stable point between hashrate (the number of miners) and the price. But it’s always in motion because the miningequipment are getting better and better and new miners will therefore be able to mine with more profit as a result of which shifts will take place.
Also the hashrate development in a rising market will always lag behind the price. After all, it takes time to buy and install mining-equipment. Switching off the mining-equipment can be done quickly so we see that a (considerable) drop of the price also results in a direct drop of the total hashrate but a rise in the price results in a slowly rise in total hashrate

graph 1

We see that after the price peak of Dec. 2017 more and more miners started to mine. Bitmain, one of the biggest suppliers, could not cope with the influx of orders and delivery times of 6–8 months were normal, which is why the top in hashrate was only reached 10 months later. The Bitcoin price was already so far on its way down that the drop in the December 2018 exchange rate from $8000 to $4000 had a direct impact on the hashrate. From April-May 2019 we see a rising line in the price again and a little later followed by a rising line in hashrate. In July 2019 a price top is be reached again while the hashrate will not reach its top until the end of September.
After November 2019 we see in price a stabilization until October 2020, but the grow in hashrate is going further and is caused by the ever-increasing efficiency of the mining-equipment that is coming onto the market, as we will see below. After October 2020 we see a fast rising price and only a steady grow in in hashrate because the mining market is lagging, just as we have seen in December 2017.

Efficiency mining equipment

In order to examine the efficiency of the mining-equipment, all the equipment that came on the market in the past and present has been put in a table. These are all Asic SHA256 miners. The efficiency is expressed in how much power in Watts is needed to achieve a hashrate of 1 Terahash/s.

Table 1

We see that the miners released in 2014 needed more than 750Watt to develop 1 Terahash/s network activity. While the most modern ones need around 30Watt of power to reach 1 Terahash/s. These efficiency figures of the mining equipment are shown as a point cloud in a graph2 except for the miners before 2017 to give a better readable graph and banned out the extremes.

Graph 2

An exponential trend line has also been added so that we can predict something about the future. In april 2024, the next halving date, according to the graph, we will be at an average efficiency of ~12Watt/Th/s if the developments in mining technology continue at the same pace.

With all the above data, we can say something about the installed power of mining equipment and the energy consumption associated with it. It should be noted that not all the miners work with the most modern equipment, because the equipment is of course used for some time after purchase to control the depreciation costs. This calculation is based on the assumption that mining equipment is depreciated in 2 years and that the equipment in the total mining park is therefore on average 1 year old. This means that a substantiated estimate has been made per day of the total mining park’s installed capacity. These values are also shown in a graph(3) against the price background.

Graph 3

We see in graph 3 that the installed power has not increased as fast as the hashrate in graph 1 in the last two years. But it’s stabilizing around 7 GigaWatt. Hashrate is rising while installed power is stabilizing. This is due to the better efficiency of the mining-equipment. But as of October 2020, we would expect also the installed power to rise much faster as the Bitcoin price exploded. That this is not the case is because Mining equipment suppliers again cannot handle the demand just as they did in early 2018. All miners are eagerly awaiting their new equipment. Probably from mid 2021 we see a fast rise in installed power base.

Future energy consumption

It is also easy to get the energy consumption of Bitcoin from graph 3 above. With an installed power base of 7 GigaWatt, Bitcoin consumes about 60TWh per year. These amounts are more or less the same as other studies based on other reasoning, such as Digiconomist’s calculations.
From July 2019 to October 2020, the Bitcoin price hovered around $10000. In these times, miners could consume about 60TWh/year and still be profitable otherwise they would have stopped. Based on the theory that the installed base of mining equipment will always be close to the maximum that is justified from a cost perspective, it is therefore to be expected that, with the current bitcoin price being 6 times higher ($60,000 March 2021), energy consumption will also increase by a factor 6 in the coming year, to a level of around 350TWh/year. If the bitcoin price wille rise further also the power consumption would curve upwards accordingly. If the price prediction of PlanB becomes thruth (1BTC=$288,000) we will then reach in 2022 the huge electricity consumption of over 1 PetaWatt-hour/year. Although, of course, it could be slowed down somewhere by supplier problems or simply power generation problems, so that electricity for mining activities will simply become more expensive.

Network security

The Bitcoin maximalists don’t mind this because it is necessary for the security of the network is the widely held adage. But is so much energy really needed to keep the Bitcoin network secure?

It is difficult to determine when the mining hashrate is sufficient to be safe from a 51% attack. Hence my next proposition which we will next examine for feasibility.
An installed base of 1Gigawatt or 9TWh/year is more than sufficient to ensure network security.
(We assume the installed power and not hashrate because the hashrate depends on the state of the art.)

Reasoning logically: One can ask the simple question: was the Bitcoin network unsafe in 2017 before the first spike? If no, and a bitcoin maximalist cannot say otherwise naturally, then apparently an installed base of 1Gigawatt was then sufficient for safety.

Mathematically speaking: To carry out a 51% attack on an installed base of 1Gigawatts of miners, another 1Gigawatts of equipment must be installed. With the most modern miners, this can be realized with over 305,000 Bitmain antminer S19 pro. Bitmain can produce about 100,000 mining rigs per year. In other words, it won’t work.

Economic reasoning: If Bitmain can deliver or in combination with all the other mining rigs suppliers can be done, then a criminal organization would have to invest over $5 billion in mining rigs / housing / plants and so on alone to carry out a simple 51% attack.

On a rental basis: Renting equipment is not going to do it at all. There is not even 5% of the required amount of equipment for rent.

On a bribe basis: Criminals can try to bribe the existing mining pools and use them for their own purposes. In order to achieve this, at least the 4 biggest pools must cooperate. This is an unlikely scenario as it is difficult to keep this secret and the individual miners manning the pool will probably switch to other pools if something like this comes to light.
By the way, this scenario is independent of the height of the total hashrate or installed power base and thus does not justify the electricity consumption for Bitcoin mining

Conclusion

With this, I hope to have made it clear that the current energy consumption of bitcoin is far too much to guarantee the security of the network and that the current energy consumption is therefore not justified. In its current form, bitcoin uses too much energy and unfortunately it will be probably much more in the near future. It would be good if the developers came up with something other than the standard PoW system that would reduce the energy consumption.

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Aat de Kwaasteniet
Coinmonks

Written by Aat de Kwaasteniet

406 Followers

Pensionado, and crypto-lover

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