Bitcoin however is money. As well as being a payment system.
The correct comparison would be to compare the cost of Bitcoin to U.S. dollars or gold. Gold requires hundreds of dollars per ounce and untold energy to extract. U.S. dollars require the existence of a powerful economy and trillion dollar military to keep the currency secure and desirable.
[1] http://www.sciencedirect.com/science/article/pii/S2212567115... [2] https://litigation-essentials.lexisnexis.com/webcd/app?actio... [3] https://motherboard.vice.com/en_us/article/xwwv83/cryptocurr...
Also these articles fail to mention that volatility is quickly decreasing, thanks to increasing market depths: https://mobile.twitter.com/lsukernik/status/8649208737189519...
No it isn't- the energy cost of bitcoin is ongoing and depends on the volume of transactions. Each time money changes hands, it costs energy to verify it. Comparing it to VISA or ACH makes the most sense, because those also incur ongoing costs per transaction.
Volume or value of transactions has nothing to do with the energy expended.
The energy is needed to calculate a mathematic proof that makes sure your transaction cannot be reversed or tampered with.
This mathematic proof on average is calculated every 10 minutes, with no correlation to the number of transactions.
You make a transaction, and if the bitcoin network has expended 1TWh after you sent it, at least 2TWh are needed to reverse that transaction (and/or any other transaction). You can see how over time it becomes impossible, even with unlimited money, to reverse one.
I knew it was wasteful, but this article is really putting it into perspective. And because of the proof-of-work system, the wastefulness is intentional; you have to prove you've wasted enough time and energy to be allowed to mine a bitcoin.
Wait, what? That's not correct at all.
The energy cost is based on the "difficulty", which is derived from the moving average of the hashpower in the network. Bitcoin effectively forces the network to take a specific amount of time to mine a block irrespective of the number of mining nodes. The transaction volume has nothing to do with it.
You can look at the current Bitcoin energy costs as the startup cost to establish a new gold mine or a new country with its own currency.
A valid comparison. Gold mining is spending resources to increase the amount of gold in existence, without delivering any other value.
> U.S. dollars require the existence of a powerful economy and trillion dollar military to keep the currency secure and desirable.
Not a valid comparison. Outside of a few relatively inexpensive activities at the US Mint and inside banks, no resources are being spent specifically on increasing the money supply. The value of the dollar is the byproduct of economic activity that exists primarily to achieve other things.
Bitcoin mining exists to timestamp transactions so that the network can achieve consensus on the state of the ledger. It is designed to use as much energy as possible, so as to make it expensive to cheat.
Bitcoin is not money as we think in a modern way. If you think of money a way to exchange goods then yes Bitcoin is money. Modern money (printed piece of paper labeled in currencies in its materialized form. Just a sequence of digits on your bank account) is dept. That's why currencies have interest rates (IR). It is also possible to create money out of nothing. IR and volume are adjusted according to the economy. Bitcoin is closer to a commodity in the sense that it is finite and requires work to be extracted.
Bitcoin could be forked in the future to become inflationary. It has no permanent rules, things can change through consensus.
It isn't like gold (gold can be devalued through poeple losing faith in it, etc., but the supply of it doesn't inflate other than through discovery/mining).
Ecological concerns aside, this puts a bit of a perspective on the overhead costs of maintaining a currency.
Fiat currencies require a stability of power of course, which is impossible to quantify.
The gold you trade is already almost all extracted, I doubt there's 1B$ a year in gold extraction investment but maybe there is.
>U.S. dollars require the existence of a powerful economy and trillion dollar military to keep the currency secure and desirable.
All currencies require a relevant economy using them to be valuable so that's not a real requirement. As for a trillion dollar military that's doubtfull. There are plenty of currencies with the market cap of Bitcoin that don't have nearly as much of a military backing them.
New mining increases gold stock 1-2% per year, but very dependent on market conditions.
Gold has double the volatility of equities with less total return than U.S. treasuries. It doesn't really belong in most people's portfolios.
However bills cost 4.9 cents/dollar for $1 bills and half a cent per dollar for $20 bills. So the vast majority of money is much, much cheaper than a bitcoin.
[1]: https://www.usmint.gov/wordpress/wp-content/uploads/2016/06/...
You have to compare Bitcoin to the concept of money, like U.S. dollars, but not literally the paper. A comparison to bars of gold is OK however since that is money and not a representation.
Bitcoin is a payment network with its own currency. Visa is the same thing, but the currency is linked to dollars. It is the most apt comparison.
Still, let's hope Bitcoin moves away from wasting energy soon.
Blockchains can operate without all of those.
What does "exist" mean? The currency exists, but the amounts transfered over visa and other systems is not related to how much physical banknotes exist.
I haven't touched a banknote or coin in over a year. If they didn't exist I wouldn't have noticed.
You could argue that puts me in the hands of banks and visa/mc and you'd be correct. They know more about me than I'd like. But I hope the energy cost of my transactions are pretty low. More and more stores no longer accept cash, meaning they have no transports for cash.
The currency I use is not backed by a large gold reserve nor a huge military. Just a regular national bank of a small country.
So visa isn't money, but a central bank, commercial banks and visa can maintain a currency without the need for a lot of physical money, and hopefully with reasonable energy use.
All-in sustaining costs for mining an ounce of gold (worth $1,293.70) is between $1,100 and $1,200.
http://blog.zorinaq.com/bitcoin-electricity-consumption/
and the author of that has specific criticisms of the BECI calculation:
Also note that BECI overestimates the consumption: http://blog.zorinaq.com/serious-faults-in-beci/
https://en.wikipedia.org/wiki/Primecoin
Generally, to have a useful PoW, it needs to meet some criteria:
1) Easily verifiable
2) Necessary work on the problem is easily quantifiable and estimable
3) Problem can be programmatically generated from random data.
One model might be NP-complete problems. Users feed in problem instances they want solved, with a bounty. You find out how many guesses it should take. A valid proof of work then requires solving enough such problems, combined, to exceed the difficulty threshold. (You'd also need to solve one based on the current known transaction history.)
The problem there is that it's hard to know if a given NP complete problem instance is "one of the hard ones" and to find such instances.
It would be great if it ever became profitable to mine this.
If a transaction is confirmed by 1 TWh of proof of work, that much energy is required to alter it, meanwhile the bitcoin network has expended even more energy.
It is still young, and the exponential growth in energy consumption is going to stop as an equilibrium is reached.
The difference being that a bitcoin does not entitle you to some unit of energy or work produced from it. The energy used to verify bitcoin transactions is just lost.
Thats about $20 in the US.
If a transaction is that expensive, how can this system even work for transactions with a value of that order? Are large transactions "sponsoring" small transactions?
What happens if more people use the system for small transactions? Will BTC become unusable?
Put another way, this is saying it is estimated to take about $800M it keep $40B of bitcoin secure.
This is probably a bit expensive in terms of comparing to fiat currencies (But then we are probably not covering all the real costs of those currencies)... but bitcoin is still in the technology adoption life-cycle and has not yet become a currency.
When the inflation of BTC has declined and it has become fully adopted (assuming this happens) then the numbers will likely start to make a lot more sense.
Also, the vast majority of transactions in about 2 years will likely be happening off chain using lightening network and the like.
Those transaction fees will happily be covered by merchants who are currently paying %2-%5 per transaction to Visa et. al. and will be more than happy to pay %1 or less to Bitcoin to manage a lightening channel.
Really, it will be companies disrupting Visa building payment networks out of lightening channels and they will have to keep fees really low because LN is open source and anyone can compete with them.
This doesn't mean that merchants wouldn't switch to a lower-cost payment system if it were available and there were enough customers using it, but it does mean that you can't just assume that Visa, et al, would not lower their prices if they felt the competition was serious enough. What their actually cost is, in such a circumstance, is harder to say. Their basic payment processing cost is probably quite low, even accounting for the people who maintain it, but they also provide fraud protection and frequently kickbacks to customers (cash back, airline miles, points); whether they could switch to chip-and-pin exclusively (in the US) and severely curtail kickbacks while still offering a desirable service to customers as well as merchants...
[Their credit services are presumably well-funded through their high interest rates.]
People holding bitcoin are essentially sponsoring all transactions, if you want to look at it that way, because miners are making money both from fees and from new bitcoin that is created, which dilutes the value of all existing bitcoin.
Electricity price in the US is also irrelevant. As the article shows just over 0% of blocks are mined in the US, or a rounding error. Bitcoin mining chases cheap electricity.
Sure China and Ukraine is cheaper but not that much.
I'm hoping someone more knowledgeable about bitcoin can comment - is it likely that this will continue as the mining reward decreases? How expensive will transactions be after that happens? And if smaller rewards reduce total mining and power consumption, how vulnerable does the blockchain become to attack?
What i'm wondering is if transaction costs in the 'end state' of bitcoin can be competitive with centralized competitors like credit cards, paypal, etc. given this level of power consumption?
I'm hoping someone more knowledgeable
about bitcoin can comment
bitcoin can be competitive with
centralized competitors like credit cards
If there will be a cryptocurrency that can handle as many transactions as Visa, it will be something else then what we currently call Bitcoin.
It's kind of insane if you compare to other payment services (if that's how you use BTC). Not only do you pay $5-$10 per transactions, but that transaction also consumes 20,000-30,000 times more energy.
As the network grows, the demand for transaction grows too. The fees will not increase because the reward decreases. Simply miners will stop mining as it is no longer profitable. But this will happen in 2090-2140. So it is very far.
I think in the future, lightning networks and centralized wallets will be the way to go. The blockchain will be used by only a few big guys and transaction costs will be over $100/tx.
The reason for the recent Bitcoin Cash fork, was that miners are terrified of losing control given the substantial investment required to maintain profitability. I don't think Satoshi ever thought mining would become so profitable, centralized, and political. If Satoshi had, he or she may have rethought the mining aspect of Bitcoin.
It's the end of days for mining as we know it.
POS will not work. you need to back Bitcoins value with something, and its electricity. Gov backing with gold.
PoS will succeed. It already has, we've set all the pieces. The thing is, you don't want to live in a world where Bitcoin and PoW dominate our financial transactions. That world is not livable.
Bitcoin transactions are secured by spent electricity. PoS transactions are secured by cryptographic signature schemes and reputation of operational security. It's how the world already functions, just more replicated.
The fact that real world energy is expended is the thermodynamic guarantee of the irreversibility of a transaction.
If you have access to the VISA database, and change something, you cannot have the cryptographic proof that it has not been tampered with. At the very best, you trust a VISA root key.
With Bitcoin you trust math and physics, telling that if the whole network has expended 1TWh after my transaction, at least twice that energy will be necessary to reverse it, and the only data i need to prove that, is the blockchain.
Surely even fans can agree there's a level at which it just doesn't make sense any more.
I believe the bitcoin mining market is efficient enough already that we're more or less there.
It's already fixed with PoS... IMO the winner of the cryptocurrency-race will be a PoS-based coin.
You also trust totally mundane things like internet resilience against phishing attacks, web browsers and other basic tools, the https standard, dns and certificate authorities, etc. etc.
https://github.com/bitcoin/bips/blob/master/bip-0050.mediawi...
Please note "The right people were online and available in IRC or could be contacted directly."
This motivated me to research and publish a more precise energy comsumption estimate, and I have been published in Bitcoin Magazine: http://blog.zorinaq.com/bitcoin-electricity-consumption https://bitcoinmagazine.com/articles/op-ed-bitcoin-miners-co...
I always like to remind people that Bitcoin miners consume about the same amount of energy as Christmas decorative lights in the US. Kinda puts things in perspective...
https://digiconomist.net/re-serious-faults-in-beci
The second piece contains a lot of cherry picking that I asked about in these emails as well, but never got a response to (instead my emails were quote mined to support those false statements).
Nothing else to say to you. Everybody else is welcome to ask questions and discuss as usual.
So Bitcoin is constantly using more than enough power to make Doc Brown's eyes bug out.
Miners will crank whatever handle they can crank to increase their payout, up to the point where they spend more marginal effort cranking the handle than the corresponding marginal payout is worth. In PoW (in bitcoin) that handle is SHA256. In Proof of Stake, it's more obscure, but they will find it, and they will crank it, and you'll just be back where you started.
I'm not convinced PoS is a practical improvement on PoW.
[1] C. Decker, Information Propagation in the Bitcoin Network: http://www.tik.ee.ethz.ch/file/49318d3f56c1d525aabf7fda78b23...
This would be fatal in case of a remote crash vulnerability, because an attacker could partition the network at will.
Or a nation/state could cut internet access.
Without real world energy, you lose byzantine fault tolerance.
Some people wonder if pure proof-of-stake is even possible. Ethereum is likely going with DPOS, yet to see a single solution to the nothing-at-stake problem.
PoS can be superior to PoW in every way except the problem of initial wealth distribution. PoW solves this problem elegantly. PoS currently has no meaningful alternative to this distribution method.
What Ethereum is doing with using PoW to bootstrap wealth and then transition to PoS looks like a winning combination.
Anyone have any sense of how accurate either of those is?
In the US, "Class C" fire extinguishers work on electrical fires:
From Fire_class#Electrical:
https://en.wikipedia.org/wiki/Fire_class#Electrical
> Carbon dioxide CO2, NOVEC 1230, FM-200 and dry chemical powder extinguishers such as PKP and even baking soda are especially suited to extinguishing this sort of fire. PKP should be a last resort solution to extinguishing the fire due to its corrosive tendencies. Once electricity is shut off to the equipment involved, it will generally become an ordinary combustible fire.
> In Europe, "electrical fires" are no longer recognized as a separate class of fire as electricity itself cannot burn. The items around the electrical sources may burn. By turning the electrical source off, the fire can be fought by one of the other class of fire extinguishers [citation needed].
Watching television probably uses up even more energy. And I would argue it has a negative impact on life quality. But who am I to decide what people should value?
Just because you don't like bitcoin doesn't make it a "waste" of energy, any more than mining gold is a "waste" of energy if you don't like gold.
On another note: a very large fraction of all bitcoin mining is happening in China and electricity cost there is quite different compared to the USA.
So I seriously question the prime assumption leading to the quoted energy consumption.
The one that surprised me the most
The bleak picture painted on the article is an incomplete one by far.
The PoW is quite expensive, but remember that mining is a subsidised activity amounting to billions of dollars worth of rewards for the miners, many of whom make extensive use of hydro-electric and solar power.
There's the question of wether we need all this hashing power to protect the billions of dollars worth of bitcoin market cap. The truth is that ASICs mining was not anticipated and neither was the "arms race" that made mining into a profession. With Proof of Stake consensus algorithms taking front stage in Ethereum, EOS and other blockchain projects, PoW is bound to be abandoned or significantly changed.
"[As] the network grows beyond a certain point, it would be left more and more to specialists with server farms of specialized hardware." https://www.mail-archive.com/cryptography@metzdowd.com/msg09...
"We should have a gentleman’s agreement to postpone the GPU arms race as long as we can for the good of the network. It’s much easer to get new users up to speed if they don’t have to worry about GPU drivers and compatibility. It’s nice how anyone with just a CPU can compete fairly equally right now." https://bitcointalk.org/index.php?topic=12.msg54#msg54
By the way, 10 TWh/year is about 1.21 GW.
https://en.wikipedia.org/wiki/Proof-of-stake
Maybe there's a better or more up-to-date introduction elsewhere.
Most bitcoin heavyweights who have researched proof of stake have concluded that it's not viable, and not worth further research in the context to trustless and decentralized systems.
(Gold is industrially and medically useful, IIUC)
See also:
"So, clean energy incentives" https://news.ycombinator.com/item?id=15070430
Edit: title seems to be fixed.
I mean, it's either "work" or centralization, so that's the trade off bitcoin makes. The work is the disincentive against cornering, right?
This is a crash waiting to happen
So if it becomes less profitable, some miners give up, the mining rate falls, and the difficulty is adjusted so that it becomes cheaper, hence more profitable, to mine.
"Bitcoin causes global warming"
If I look at the US currency as a technology that enables trade and cooperation, I notice:
- falsifiable; see the North Korean super dollar;
- pieces of metal alloy; coins are a souvenir from the past we shouldn't be bringing them into the future.
- porous fibre carry bacteria; See here: http://www.newsmax.com/health/Health-News/paper-money-germs-...
This makes me doubt if I can trust it and unlikely that I'll carry it on me.
On the other hand Bitcoin and other cryptos are currencies from the future that we all can buy and use today.
These are currencies designed to assure trust between unknown parties, so they are most definitely a means of exchange with no significant counter-party risk.
As a store of value, they suffer from the same speculative price fluctuations all too common in the FX markets, as we can see with the GBP over the last year or so. In crypto, this natural movements are amplified because there are no jurisdictions and very low barriers of entry, so when the coin supply doesn't increase to meet the demand prices go up, as they should. And lets not forget that several countries have already moved to recognise crypto-currencies as legal tender, so demand is increasing by reaching wider portions of consumer market.
As for crashes, to the best of my recollection, all major ones were caused by panic selling following news of major hacks (https://storeofvalue.github.io/posts/cryptocurrency-hacks-so...) or rumours of impending legislative crackdown in China and now in the US.
The intrinsic value of crypto-currencies is in the platforms that support them, so not only the market cap but also what the project stands for and what it can deliver in terms of market proposition, for instance:
- Ether is used to pay for resource utilisation on the Ethereum platform which I use to develop smart contracts, but the Foundation is re-inventing the internet so that's how I value the currency.
- Monero, ZCash are in the forefront of cryptographic research and are some of the most accessible and privacy protecting financial instruments available so that's how I value them.
- Bitcoin is all about economic resilience and self-sovereignty, unfortunately the in-fighting is bound to decrease its usefulness.
(edit: formatting)
And I don't think a one-off article changes that since you can find one-off articles about practically anything. It seems weirdly specific to talk about bitcoin's energy cost this way when we don't single out, say, Clash of Clans or facebook posts about the Ice Bucket challenge and lament their specific energy costs. And I think the reason for the difference has to do with the idiosyncratic culture surrounding bitcoin rather than bitcoin being a unique harm in terms of electricity usage.