The Crypto Community Needs to Get Smart(er) on Energy
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Note on the Ecological Impact of BTC Price Increases
Mining BTC is akin to participating in a lottery. At the current price of $45,832 per BTC, the reward for generating a block (“winning the lottery”) is $286,450. This can be equivocally stated as, “the expected global investment in the BTC lottery is roughly $286,450 per block” otherwise participation would have net positive expected return, and more people would be driven to participate in the lottery (collect the free money).
Participation in the lottery is accomplished by pushing electrons through ASICs to perform a useless but otherwise unfakeable calculation. In other words, lottery tickets are printed by burning electricity and managing the waste heat in data centers.
With a block reward of $286,450 and assuming 60% of the miner’s budget is electricity (probably it is higher) and miners pay $0.05 per kWh for their electricity, we can easily calculate that BTC miners must burn 3,437 MWh of electricity for every block, and at 52,560 blocks per year, 180 TWh of electricity per year (roughly 5% of total US energy usage) is consumed playing the Bitcoin lottery.
To put this in alternate terms, the current total energy cost of a single Bitcoin transaction on the Blockchain is roughly 2,000 kWh.
If the price of BTC appreciates by 10x, the value of each block reward appreciates by the same. Miner profitability drives new entrants into the lottery until equilibrium is again reached. Energy usage therefore necessarily increases/decreases directly in proportion to price, e.g. a 10x increase would drive Bitcoin Mining energy consumption up by 10x to 1800 TWh, roughly 50% of total US usage by comparison, assuming energy prices remain constant.
The true increase in wasted energy would of course be mitigated by a significant rise in baseline energy costs, as overall energy consumption outstripped supply. In addition, increased government intervention in the forms of tariffs and outright bans would drive up energy cost specifically for crypto-mining to effectively limit the amount of energy which must be wasted printing “lottery tickets” in order to reach market equilibrium.
The obvious conclusion is that to the extent that the world can redirect the cost of playing the lottery into their general purpose fund instead of buying baseline electrical generation, mining payments need not be “wasted” paying energy suppliers.
The trick is, mining is highly portable, so if certain regulatory environments don’t successfully capture the lottery cash flow, playing the lottery is cheaper in those economic zones and all mining will move there.
Is it? I think of this the same way I think of the empty public bus. The bus consumes the same amount of gas on it's route no matter how many people are on it. Empty or full...same energy usage (or at least a negligible difference).
But since there’s a hard limit on the number of passengers, it’s appropriate to make the division showing a best case scenario of gallons per passenger-mile, or in the terms of Bitcoin, kWh per transaction.
If the number of passengers or transactions was unbounded, we could still say there’s a weighted average ROI in terms of passenger-miles or transactions carried on the bus / that were actually carried on the bus/block.
Note that while the only utility of the bus is to carry passengers, blocks also distribute newly minted coins which is useful on its own right / even if the block is empty.
The main point is that the energy usage is obscene not because it has to be, but because the simple economic function driven by the mechanics of the lottery — it must always balance the block reward against cost to participate in the lottery in a PoW system.
(This is also a utility argument, but more nuanced than the nocoin argument. It leaves open the question of whether the market forces are sufficient to give ideal outcomes for society.)