Calculated: Bitcoin Mining Technology Has No Impact on Its Global Energy Consumption

I often notice a fundamental misunderstanding when it comes to Bitcoin mining. It sounds logical: if you improve the energy efficiency of the hundreds of thousands of computers used for Bitcoin mining, energy consumption should decrease, right? Unfortunately, this is only true in the short term because Bitcoin was specifically designed so that this will not have a long-term impact!

In this article, I demonstrate that the energy efficiency of Bitcoin mining machines has had no influence on the overall energy consumption (which now exceeds 0.3% of global electricity consumption!), and briefly discuss some of the background. This article assumes you have a basic understanding of how Bitcoin works. If not, I invite you to read the long version, which provides a good foundation and includes more details and arguments.

The crux: Current Energy Consumption Is Still > 50% of the Theoretical Maximum

Please consider the following facts:

Since 2011, the energy efficiency of Bitcoin mining machines has increased more than a thousandfold. ( Compare Table 2 here).
In 2011 (and today), the global electricity consumption cannot exceed Bitcoin's Block Reward in the long term, as it "pays" for mining.
As of October 2023, more than 50% of the Block Reward is spent on electricity costs. (Calculation below).

In other words, despite a thousandfold increase in efficiency, the proportion of spending on electricity to the Block Reward has barely decreased, if at all! Therefore, mining technology could not have improved the situation.

Understanding this is critical, as it allows us to infer what will happen if Bitcoin's price continues to rise...

The Detailed Calculation

As of October 2023, the Cambridge Bitcoin Electricity Consumption Index states that electricity consumption for mining is at least 9.5GW (probably more), and a survey among miners found an average electricity cost of $0.05 per kWh. The Bitcoin Block Reward is 6.25 Bitcoin per 10 minutes, equal to 37.5 BTC/h = $937,500 per hour. The electricity costs are 9.5GW * $0.05/kWh = $475,000, roughly 50% of the Mining reward.

By the way, 9.5GW per year would be 83.22 TWh per year, which is 0.28% of the world's electricity production of approximately 30,000 TWh per year. This is consistent with other estimates in recent years: 0.16% and 0.55%.

Why Does This Make Sense, As Long As PoW Is Used?

For Bitcoin to function, it's important that no one can easily take control of the blockchain and execute a 51% Attack, to reverse transactions or double-spend Bitcoin, for example. Bitcoin's current strategy is the "Proof of Work" scheme, which would require an entity to control at least 51% of the global Bitcoin mining hash capacity for at least an hour. The enormous resource consumption makes this prohibitively expensive in practice.

Why Is Global Electricity Consumption for Mining Tied to the Block Reward?

This is one of Bitcoin's ingenious tricks. The value of the Block Reward, which goes as payment to the miners, is proportional to the Bitcoin price (except for the halvings). As long as the miners' costs are small compared to the Block Reward, it becomes profitable for new miners to enter, ensuring that global mining costs eventually settle just below the Block Reward. This automatically ensures that the cost of a 51% attack rises in tandem with Bitcoin's market capitalization.

Consequences

The current energy consumption for mining might still be bearable, but what if Bitcoin rises to $200,000, as some predict? Then energy consumption would trend towards several percent of global electricity production, and political inaction would no longer be an option. And action can be taken. Restricting Bitcoin mining is notoriously ineffective. But if you consider the impact that rumors about ETFs and SEC actions against crypto exchanges had on Bitcoin's price, you can perhaps imagine what a ban on commercial use of PoW Bitcoin by the EU and the USA would mean for the price. At least the EU was already considering such a step to force a transition to more modern and less problematic methods than PoW, although it has not been implemented (yet?).

Alternatives and Solutions

The transition of Ethereum to a "Proof of Stake" variant shows that there are alternatives that essentially achieve the same goals. There are many alternative proposals. I find it very important to confront the problem with open eyes and seriously look for solutions before panic action is required to save Bitcoin.

If you agree or disagree with me, please contact me!