The Real Price Of Bitcoin

J. Macodiseas
Feb 13 · 7 min read

We all — crypto’s critics, as well as the supporters — have been debating the wrong things for decades: as long as people have a reasonable chance of a material gain from participating in something, they will do it, and none of the bigger financial, political, regulatory, technical or environmental concerns will stop them. This is why crypto is here to stay. But crypto’s biggest strength as an asset is also its biggest problem: its incentive structure.

Some of cryptocurrency supporters are idealists, and believe that cryptocurrencies will lead us into a better future by avoiding the middlemen, government regulation, and the current banking system. Some believe it will reduce the energy consumption by eliminating the physical banking and eliminating real-world gold-mining infrastructure. Its critics believe that it is evil because it undermines the government’s ability for regulation and taxation, pollutes the environment, or is a political tool to push neoliberalism. Yet others see it as a purely financial instrument akin to the stock market or financial trading tools, something mostly detached from reality but with a possibility to make a buck. All those camps are missing the point.

Unfortunately, I have to briefly get a little technical to describe the basis of the problem. I will try to keep it accessible for everybody, because it is important to understand what crypto incentivizes, exactly.

Most cryptocurrencies, including Bitcoin and old Ethereum, use an algorithm called “proof of work” (PoW) to maintain the network integrity. It is a competition to be the first to calculate a random number that matches certain, very hard to compute, criteria. Those numbers are calculated by the so-called “miners”. The miner who wins the competition, gets to sign the next block on the cryptographic chain where the transactions are stored, and gets rewarded a certain amount of cryptocurrency for their service. Everybody else gets nothing — this time — but gets a chance to compete for the next block.

A new block is supposed to be generated at set intervals — 10 minutes for Bitcoin — but since it is really generated as soon as the competition completes, the difficulty of the computation is automatically adjusted: the more miners join the network, the harder the puzzle gets. This competition is supposed to be fair to all participants — everyone can compute a number that matches the set criteria — but in reality provides an advantage to people with more computing resources, by allowing them to calculate a matching number more often.

In theory, you could do this with your spare CPU cycles on your work computer. It is not doing anything most of the time anyway, right? In practice, only one miner — worldwide — gets rewarded for signing a block, every 10 minutes. You are competing against every other miner out there, and for an average person the chance is about as high as winning the lottery. There are pools that help with that, but there you have to split the proceeds with every member of the pool. This means, in order to actually make money as a Bitcoin miner, you need equipment that can run as many of those calculations as possible, as quickly as possible. Which, in practice, means that your little laptop is competing against places like this:

A warehouse full of bitcoin mining equipment, probably in China.

Good equipment, of course, costs money. But it is a trade-off, because you are making money with it. The best equipment to mine cryptocurrencies, apart from dedicated machines built for the task, happen to be graphics processors — GPUs, for example NVidia graphics cards. Which leads to serious cryptocurrency miners buying them all up. If you are a gamer, and can’t get that new shiny graphics card you wanted, thank crypto.

Another thing that you need to mine cryptocurrencies, is electricity. The PoW computation takes a lot of CPU cycles, and every cycle converts electrical energy into heat and radio waves. How much electricity? Apparently, just Bitcoin currently consumes more than Argentina. If it was a country, this would place it at the 30th place in regards to energy consumption, right behind Norway. Given that it can only serve a maximum of 7 transactions per second, this makes about 550 Kilowatt-Hours per transaction. For comparison: one Bitcoin transaction could fully charge a Tesla 40 times over.

But won’t the efficiency improve overtime?

  • It is a competition for the fastest computing resource, with the prize being a newly-minted crypto coin.
  • The difficulty of the computation automatically adjusts — it gets harder, the more computing resources join the network.

People will join the competition as long as, on average, they get enough coins to cover their equipment cost and electricity bills.

Let’s look at how those things connect to each other for a moment, to understand where this is going.

  • The cheaper electricity gets, the more miners you can run for the same electricity bill.
  • The cheaper the equipment gets, the more equipment you are willing to buy (the cost will amortize overtime).
  • The higher the price of the particular cryptocurrency you are mining, the cheaper it is for you to expand your mining farm.

In the opposite direction, a high Bitcoin price leads to

  • People buying up more equipment = higher prices for computing equipment)
  • People running more miners = higher electricity demand, ie higher prices for electricity.

Ergo, crypto incentivizes high equipment cost and high price of electricity.

It will also consume as much electricity as we can produce. There can never be enough electricity, because miners convert it into money (and low-grade waste heat). Similarly, there can never be enough computing equipment, because miners can convert it into money.

As Elon Musk said in an interview —a few years before Tesla bought Bitcoin worth 1.5 Billion USD — people are very good at following incentives. Bitcoin incentivizes using up scarce resources. It doesn’t matter how many computers we build, or how many powerplants — as long as the crypto prices are high enough, all of the equipment and electricity will be consumed by Proof Of Work mining. Because it makes the miners money. They have no reason not to do it. Their arguments vary from “but we are just using excess electricity because you can’t store or transmit it” to the — a lot more honest — “have fun being poor.” After all, they are just doing what Proof Of Work incentivizes them to do. If one individual doesn’t do it because he gets second-thoughts about it, it will be someone else in his place. Someone to whom the money matters more than some abstract ideal.

Want to charge your EV? Want to grow some plants indoors? Want to run protein folding calculations to find a cure for cancer? Sorry, you are now competing for electricity and computing resources against a trillion-dollar industry that produces nothing except waste heat. No matter if you want to rent the computing resources or to buy them, it is going to cost you more. And it is not just that. Everything you use, all the food you eat, every form of transportation you use, every Google search or Instagram picture that you load, uses some form of energy and computing resources along the way. What that means is, everything is going to cost you more, simply because Bitcoin exists — how much more, just depends on the price of Bitcoin that day.

What that means, is that mining Bitcoin, and similar PoW currencies, creates artificial resource scarcity. Not just scarcity “of Bitcoin”, but scarcity of everything. The real price of Bitcoin is our future as a post-scarcity civilization: it is simply not going to happen, because creating scarcity is the whole point of the Proof Of Work algorithm — it is in Satoshi Nakamoto’s original paper.

If you extend this into the future, it puts a cost on everything we do. It puts a cost on every human off-world settler, because they are consuming electricity that could be used to mine some Bitcoin. Do you use that solar energy to make oxygen for your habitat on the Moon, or are you going to use it to mine some coin? Grow some food on Mars, or mine some coin?

Proof Of Work asks you the question: do you want to create and support more life, or create more heat? Heat is the lowest form of energy that you can’t re-use — basically, entropy, the antithesis of life. Energy in the universe is finite. Harvesting energy requires equipment. How we decide to use that energy is on us, but we have our incentives, and we follow them. If you are one of those people who think that life is the highest good in the universe — then giving sentient beings a self-perpetuating incentive to burn their own source of sustenance directly into heat is as close to pure, universal evil as it gets. (Which makes someone who says that consciousness is the highest good, while supporting crypto, at the very least a hypocrite.) If we create an AGI that can actually think for itself and grasp the implications, the invention of PoW cryptocurrencies is going to be its reason to wipe us out, as a danger to all consciousness in the universe.

Most of my bitcoin articles feature the puzzle box from Hellraiser as their logo. The box is an enigma waiting to be solved, but by solving it, you open a portal to hell and will be punished for your curiosity. If you are evil enough, you will attain great power among the cenobytes. If not, you will just become fodder for the Leviathan. It is, in my opinion, the perfect analogy for crypto.

“Satoshi Nakamoto” opened the box. We came. Luckily for him, he didn’t leave a return address.


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J. Macodiseas

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Science Fiction, Tech, sarcasm, and philosophical ramblings about the Universe.



A community of people who are curious to find out what others have already figured out // Curious is a new personal growth publication by The Startup (

J. Macodiseas

Written by

Science Fiction, Tech, sarcasm, and philosophical ramblings about the Universe.



A community of people who are curious to find out what others have already figured out // Curious is a new personal growth publication by The Startup (

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