November 30th, 2017

Illuminati

On Bitcoin, electricity usage, and economic incentives

Bitcoin mining produces one new block every ten minutes. (Give or take - the difficulty of mining is adjusted to get it reasonably close to every 10 minutes).

That gives you six new blocks per hour. Or 144 per day.

Looking at the cost of the transaction fees (which go to the miners), there's another 200-odd per day on average.

So miners are getting paid, between all of them, 344 bitcoins per day. Let's round it to 350.

The price of a bitcoin is varying a lot right now, but it's definitely been at least $10,000 a fair bit of the last few days. And that gives us a nice round number.

So that means that three and a half million dollars per day is going to bitcoin miners.

Basic economics would dictate that if people are making a lot of profit at mining then others will move in to the market, spending more until the cost of making bitcoins is similar to the cost they can sell them for.

This means that people are going to use three and a half million dollars of electricity per day to generate bitcoins, in the hope of making a sliver of profit. Or more than that, if they think the value is going to go up.

And this will carry on until the reward next halves, in 2020. At which point those base 144 bitcoins per day will become 72 per day. And if various projects come off the transactions will also be a lot cheaper. Which, between them, will reduce the incentive to mine, and reduce the amount of electricity being used by a lot.

Unless, of course, Bitcoin is worth a lot more by then. In which case the incentive will still be sky high, and it'll take several of the four-yearly halvings to bring it back the electricity back down to the level of a small country, rather than the same amount as Ireland.

If anyone is interested in how Bitcoin actually works, by the way, then I recommend this explanation, from a few years ago.



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Illuminati

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