BTC: The Unsustainable Beast
If you accept that an AntMiner S5, one of the most prolific Bitcoin miners out there, draws an equivalent of 445-500 watts, or .445 kWh, for every 1 Th/s, and that the current BTC total hashrate is 19,159,215 Th/s, then that would mean that current mining activity would be consuming a whopping 8,525,850.675 kWh if everyone were using an AntMiner S5.
Not everyone is using an AntMiner S5 though, and that total estimate is probably around 50% higher than the actual total when accounting for the impact of last year’s more energy efficient mining hardware that consumes between 1/2 and 1/5 of that consumed by the AntMiner S5, (AntMiner S5, AntMiner S7, AntMiner S9), so for argument’s sake, I’ll cut those S5 figures in half for this illustrative example.
A conservative estimate based on 50% legacy mining equipment and 50% newer, post 2016, equipment would put total Bitcoin electricity consumption at 102,310,208.1 kWh a day, or 37,343,225,956.5 kWh a year, or 102.3GW and 37.3TW respectively. In USD terms, that’s $10,722,109.81 daily and $3,913,570,080.24 (that's almost $4 billion!) annually at the average U.S. rate of 10.48 cents per kWh.
Now, if there is an average of 1800 new BTC created daily, the average electricity cost for each is roughly $5,956.73, again, using average US electricity costs as our basis. That means that at current electricity consumption levels, the average miner needs a price of at least $5,956.73 just to break even, and the legacy miner (who had state of the art equipment just a little over a year ago) needs almost $12,000!
(And none of that is to mention the fixed costs in hardware and mining installations!)
The question is not the relative amount of electricity that is dedicated to Bitcoin.
The real question is Bitcoin’s underlying economics and its sustainability.
The cost of mining Bitcoin is rising daily as the number of miners grows. At what point will this phenomenon reverse itself? And when will operating costs permanently exceed sales revenue? The breaking point obviously happens when price falls below costs. I don’t think it’s a question of if, but rather when it will happen, and when it does, miners will abandon creating a negative feedback loop that I would not want to get caught in.
Aside from the Iceland operations that have much lower costs, and the pirates in China, the rest of the world is pretty much locked into these mathematical truths. And it’s not just about isolated profit and loss analysis either: the opportunity cost of not moving to something else like STEEM or BitShares is huge! (Especially when taking into account that you’d be able to sell your mining hardware while there’s still time to get something out of it!)
At what point will price no longer keep up with costs and miners abandon? At what point will diminishing returns kick in? It looks like we’re currently playing with these numbers in real time, and, yes, speculation can take an economically flawed instrument even higher - markets are often irrational - but at some point, one fine day, at some still unknown level, the Bitcoin world will be stood on its head, and, voilá, those who are left will be forever trapped in the red.
For further reading on the subject, this is a real nice, balanced, objective and well referenced article that may serve as a primer. http://www.wired.co.uk/article/how-much-energy-does-bitcoin-mining-really-use
Remember, the real answers are in the math itself.
@cryptographic,
My friend installed a mining rig! But when we get power cost, it will take 6 months to make the ROI! When ANT Miners, we got warranty issue as well! Therefore, I prefer STEEM, BTS, EOS!
Coz they are DPoS rather than PoW!
Nice you decided to discuss about it! You gave the clear picture for all of us! Thank you!
Cheers~
Few people around today have first hand experience. Thanks for sharing yours.
the crazy part is you can't even make it use LESS power. the second you invent a more efficient miner for bitcoin is the second the goalposts get moved. it's not like people go, "awesome, now i can mine at half the power consumption!" instead they go, "awesome, now i can set up twice as many miners for the same power as i was using before!"
as long as bitcoin has value, the price people pay in electricity to mine it is pegged to that value :(
More or less, until the people involved get tired of the con - after they first wake up to the fact that they're mining for breakeven, and never even getting ROI on the initial investment. And that's when you get a crisis of confidence.
Really like the goalpost analogy. It really sums things up.
I don't know... but if the energy cost of creating a Bitcoin increases, that should naturally increase the price of a Bitcoin. It's not a case of the price keeping up with the cost of energy... it's just the price of a bitcoin. I think the base energy cost is actually the main tangible thing 'backing' the Bitcoin price. People say it's not backed by anything, but it really is kind of backed by the electricity cost to create one.
Hashrate usually follows price though, not the other way around, and considering the magnitude of the speculative uptrend crypto has been in, it's rather surprising to see that mining activity has actually kept up. That is no small feat. It's really quite remarkable in my opinion. Who would have thought just a couple of years ago that Bitcoin mining would be consuming almost 4 billion USD in electricity today? How much higher and how much longer can this go on? I'm not the one to say, but I will say that sooner or later it hits an immovable wall, and probably sooner rather than later.
True, there may be some point when some kind of ceiling is hit. But I the hashrate will continue to grow for longer than we think possible, just like the price. I think we're creating the largest bubble the world has ever seen!
But, I do hold more altcoins than I do Bitcoin. The PoW energy consumption is part of the reason.
Very good analysis and those questions that you asked us all in your post. It's clear that the general euphoria of earnings is crypto-currency, many are willing to tackle this matter, but the increase in the complexity of production, the rise in price of electricity and the greater volatility of Bitcoin complicate this task. It is possible that in the future, mining will cease to be accessible to an ordinary citizen. Already, this process involved large players who invested millions of dollars in the development of giant farms. From here, in my opinion, I would have thought seriously enough about the profitability of mining and directed funds and forces into alternative currencies and the STEEM in this respect is an excellent alternative! Thank you @cryptographic and ReSteem
You're 100% correct. The sector is much more complicated than many realize, and when you see multi-million dollar investments into mining happening, it can lead people to think that it's only up from here. Thing is, most of the big private mining operations have been in existence for years, and they've already banked big profits. More recent players like NiceHash make their money from their customers and can't really be counted as big farms in the true sense of the word. And the latecomers, like McAfee, may be in for a rude awakening.
warranty of antminers = 180 days. roi of antminers = 5-8 months. mine btc using other miners impossible. therefore, it'll drop eventually. impressive discussion & nice findings @cryptographic
@resteemia
reteemed & upvoted & commented & followed
There's an investment phrase that goes like this: past performance is not indicative of future results.
Any current advertising content referring to ROI is projecting past growth into the future without giving you the disclaimer.
Caveat emptor!
@cryptographic - Sir after reading your valuable blog today & I understood why people keep saying why BTC is not sustainable... Cost & Speed are the two major concerns... But with BTC we can't see low cost, high speed solution... Specially mining consume lots of power & it's not good too Sir...
Nice you decided to talk it... I think Sir you are suggesting us to stay with BTS & STEEM like you said in your previous posts... I'll do Sir... Thank you...
+W+
Yep.
It's really peddling into an extremely strong headwind.
Bitcoin, in a roundabout way, might actually speed up the pace of renewables. It is not uncommon for technology to consume larges amounts of power. Google and Facebook both set goals to have their servers housed in buildings that wer 100% renewable. It simply is too much of an economic incentive.
I would say that places that have a lot of this type of energy is going to see the miners in the future. Of course, the bitcoin people could determine that it is best to change their approach...and then again, they might not.
Either way, the market will figure a way around it. Do not be surprised if some third world countries pick up the slack at some point since they are seeing tremendous solar penetration rates.
This is just an example where the western world, especially North America, will be left behind.
Renewables cost anywhere from 20 to 80 times as much to set up as traditional power sources do - the initial fixed cost (capital cost) is tremendous. Over time that gets amortized, of course, but it's got to show up in price sooner or late (unless it's subsidized by taxpayers, as it is in many parts of the world). If it's not good old hydroelectric or geothermal, the real cost is much higher until fixed costs are covered. https://en.wikipedia.org/wiki/Cost_of_electricity_by_source
Unfortunately for POW, I don't see any possible white knights out there ready to come to the rescue.
True....they might have to alter how they verify which I heard is an option that BTC might have to consider at some point.
It will be interesting to watch.
By the way, hoping my money clears soon, I need a bit more BTS at these levels....hoping the price stays down a few more days.
Yep, this is simply too much! I have a question on the other side. When you say
Shouldn't this be 102.3GW?
I think a Megawatt is one million watts.
No, you're right. I see my mistake. Will edit.
Thanks!
It is, but since the first number is in Kilowatts then the second number should be in Gigawatts, isn't it?
You're absolutely correct. I just fixed it. Thanks again.
I am glad I could help!
It's much appreciated. When writing, I'm always afraid of making mistakes (especially when number crunching), so I double check, triple check, quadruple check and sometimes I still make mistakes - often when they're the stupidest of mistakes - so I can use all the help I can get. 😆
Again, many thanks!
According to Eric Holthaus, who writes on Grist.org website, the electricity consumed by BitCoin in July 2019 will go beyond what the US uses today. In February 2020, more electricity will be consumed in the production of bitcoin than the world now consumes. These estimates may be true or false. But I think bitcoin is not sustainable if the technology used is more efficient, ie it does not consume less energy. The greatest reason for this is that mathematics never lies. If there is a mistake, it is caused by man.
That's why AntMiner in BTC production is doing more business. BTC's long-term future depends on it.
The writings are really helpful. Only the Upvote is not enough. @cryptographic This post needs to be seen by more people. That's why Resteem
Many have questioned the assumptions and the data used there. That's why I posted the additional reading suggested at the end of the post, which, by the way, addresses some of those same assumptions and data.
Here it is again: http://www.wired.co.uk/article/how-much-energy-does-bitcoin-mining-really-use
Oh, and, right, AntMiner is doing more business. No doubt about it, and it's all being done without mentioning any of the possible drawbacks, of course. Could we expect it to be any other way? They've got a product to sell, and they're going to make it as rosy as they can. As I've said here in another comment already, buyer beware!
Definitely I agree with you.
The seller applies multiple methods to sell a product. It does what it needs to do. We are the buyers. We know enough about the product. I personally do not have a big investment. I do not know too much. But here the depositors of very high mines should look into the expiry date of the product they received. Thinking about the end of this. They have to invest in seeing their fluctuations. Here you are entering the circuit. You inform people. Many thanks for that
Bitcoin is inherently sustainable. As mentioned the work to produce a given coin is adjusted to the total amount of work being done to produce a coins at a relatively linear rate. The profit in mining is constrained by the price of electricity. Should the price of electricity exceed the average revenue per unit time being created by mining, then mining becomes unprofitable. All that means is that the system constantly yields an equilibrium. It only grows when such growth is sustainable. And if the growth, somehow, turns out to be unsustainable - then the required amount of work to produce a coin would automatically be adjusted downward as the work input declines. There's no sustainability issue whatsoever. As for the power usage, I would argue that an extrinsic drive on individuals, companies, and even countries to provide ever more power capacity at ever lower prices to be something very positive - especially as we are entering into an era where renewables are reaching grid parity.
To summarize, might you just say that it's sustainable until it isn't?
You know that DPoS doesn't have that problem. There may be others, way down the road, like bandwidth, but energy use issues, other than the theoretical, are non-existent on a practical level with DPoS.