Bitcoin Forum

I may be wrong but is bitcoin the first example of a currency being directly related to energy consumption?

The currency value depends on a distributed network that depends on miners that depends on energy. Seems to me that as bitcoin becomes more accepted this relationship will become more important. Any others concur before I spill my guts on the possibilities?

When you need industrial power this will be a problem for you if you dont live in the cheapest area. https://i.imgur.com/2576Gwz.png

You mean the relationship where the bitcoin price creates a direct target of miners' energy usage, and in reverse, energy usage creates downward pressure on the price because miners have to sell to pay for the same energy usage?

Bitcoin cares nothing for energy. If computation cost next to nothing in terms of energy, the price of Bitcoin wouldn't go down. Bitcoin is useful because it has a payment network attached to a mint and a bank and the equivalent of a secret service agent validating that every transaction is not counterfeit. The more computational power securing this whole process, the better, regardless of the electric bill.

You mean bitcoin can somehow suspend market forces?  No new miners will join until it is no longer profitable to do so?  How in the world is bitcoin going to do that, being a P2P network?



So, when miners sell some bitcoins to pay for their electric bills, where does the money come from?

bitcoin's value is directly linked to energy consumption.

this has been discussed pretty extensively here by now and is regarded as a 'public secret' to 'bitcoin believers' because it has not yet been solved. It is more desirable to bitcoiners to not have this be well known as it is a huge design error.

Yes.

Their paychecks. Which are paid in government currency.

I see a direct link between energy and currency pretty revolutionary.

Take the problem of negative pricing at certain power nodes, due to the power on the grid constraining the system, that generators will pay a counterparty to take the power the plant is generating.

Suppose you have setup next to each generator a ton of bitcoin mining rigs, that can create "x" amount of btc per MW of generation provided. Generators can optimize their excess power by generating bitcoins with them which can then be sold.

How much energy use banks for their luxurious buildings ?
How much energy is used to build a skyscraper where resides a bank ?
How much energy is used to print fiat money ?
Only if you know this values also can you say which one is more energy efficient.

No. You seem to confuse mining with the actual market value of Bitcoin.

It costs pretty much zero energy to have, store, use, or pay with Bitcoin. And in no way does Bitcoin somehow represent some amount of energy. Just like gold doesn't represent some amount of digging labor.


Oh, I know this value: it's much, MUCH more (https://en.bitcoin.it/wiki/Myths#Bitcoin_mining_is_a_waste_of_energy_and_harmful_for_ecology).

It's not zero consumption, Bitcoin needs computers which means power, when loading up a wallet it can easily eat up one core of your CPU for a few minutes. As the blockchain gets bigger and bigger and more transactions flow in and out of your wallet, which also gets bigger, the more time it will take to verify it's balance and as such it will require more processing power. When syncing from Block 0 to latest block, Bitcoin will consume more I/O operations and CPU cycles that you would otherwise use in a few months.

As such, it isn't very wrong to think what OP is saying.

Energy for computation is the underlying "asset" that gives bitcoin its scarce attributes. So, of course there is a relationship.

I wouldn't say that it is a design error.  It's simply how bitcoin is made to function.  The beauty of it that it will be a self correcting system where price adjust to the levels where the cost of energy used is comparable to the value created by the bitcoin network. 

This hidden cost can also be said to be a nice marketing for the whole system, because, hey, free transactions.

So, when miners *sell some bitcoins*, it comes from their paychecks?

No, it will become LESS important as time goes on.

Presently people mine with GPUs and FPGAs. They are relatively inexpensive with the price of electricity being a not-insignificant portion of the cost of mining.

We are beginning to see a switch to custom ASICs. They are much faster and consume far less power but the price of the chips themselves are expensive.

As time goes on we will see hardware that is more expensive and consumes less electricity. The cost of the hardware will dominate over the cost of electricity.

Nice try, but that will not happen.  Today, all the fastest CPUs hit the power limit, the amount of heat generated limits how fast they can run.  Mining chips will have the same problems.

Currently, ASIC products are too expensive, but that will go down, the first batch is the most expensive. 

Even Google in its data centers switches processors every couple of years, not because they get more speed, but because how much they save on power usage.

And in bitcoin world, total awards and fees limit how much electric power you can spend, and no chip technology will change that.

Here is a deal, you control as many bitcoins as u like, i control as much energy as i like.
Lets see who is emperor without clothes.

Very true. Thanks for pointing this out.


Here's my estimation: https://bitcointalk.org/index.php?topic=181759.msg1913572#msg1913572
Bitcoin has the potential to use a lot more energy than the whole banking sector of the world.

Energy consumption for mining has a high correlation with bitcoin exchange rate to fiat currency. Because variable costs of mining are dominated by electricity price, the economic equilibrium for the mining rate is reached when global electricity costs for mining approximate the value of mining reward plus transaction fees.

This fundamental rule is unfortunately not yet widely understood.

And there's more conclusions directly following:

• more efficient mining gear does not reduce energy use of the bitcoin network. It will only raise the network difficulty
• cheaper energy linearly increases mining energy use of the bitcoin network
• the same conclusions apply to all proof-of-work based currencies (i.e. Litecoin).

I'm sure people are aware that every second they run their lights/computer/dishwasher/fridge/car/television/lawn mower etc that they are using electricity and fuel I wouldnt call it a design error, it's how it functions, and how it works. Bitcoin is introduced as a peer to peer electric currency, it's not something swept under the rug, just not something of utmost importance, we dont rank the value of the internet based on how much power it takes to run, nor a currency based on how much the trees cost to make the paper

We would if you could trade that "internet" on an exchange, and also if the electricity used by "the internet" was directly correlated with its price.

You are paying a bit for the cost of electricity for the miner but you're also paying for the miner to invest in equipment and also paying some more so they can profit

There was an article saying something like all the bitcoin miners use $150,000 of electricity a day, I also saw a post on reddit saying that every day around $450,000 worth of bitcoin are produced per day

The price of bitcoin will be based upon the electricity that was used but also for a factor of other things


The point about the internet earlier actually made no sense so you can ignore that

That is not a valid comparison because bitcoin mining ASICs are ONLY useful for mining bitcoins. Therefore they will remain a specialty chip and their price will not drop as much as you believe. CPUs and GPUs are commodities with many uses. In fact, ASIC prices will go up as the price of bitcoins go up and mining becomes more profitable. Furthermore, faster and faster ASICs that consume less power will continually be developed and a miner is going to have to reinvest every year or two in order to keep up. The continual purchase of new mining hardware will be a bigger expense than electricity is today.

The piece that most people miss from this analysis is that the value of mining is imputed from the value of the product of mining, not the other way around. To those unfamiliar with the terminology, this means that the value of bitcoins is what sets the equilibrium for the rate of mining according to energy costs.

Brenzi explained this in the following quote:

Essentially, the way the market equilibrium will work for mining is that the rate of mining will trend towards the cost of electricity, network bandwidth, and hardware investments (both in new hardware and repair of broken hardware,) such that the amount mined (Created BTC plus Transaction Fees) equals this cost.

What must be added is that this market is actually much more complex than just the relationship between electricity costs and the value of Bitcoins. There are several other markets at play that work on a higher level of this structure of production.

One such market is that of transaction fees. If transactions aren't going through the network very quickly, this will tend to increase the market rate of transaction fees, thus increasing the return on mining investments. Such a case might come about by a shortage of network bandwidth, a factor in the cost of mining. With a higher network bandwidth, the miner will be able to handle more transactions, thus increasing the supply of available transaction processing, thus lowering the market rate of transaction fees.

Other markets include the cost of upgrades to hardware which will consistently lead to a moving target for the rate of mining = amount mined equilibrium.

Electricity is definitely a variable; but not that important. What drives the bitcoin is it's supply to demand ratio, and what people are willing to pay due to many variables.

What if people start investing in Solar Power? or Wind energy for their homes to power their units, there for saving money in the long run?

People are motivated to maximize their return slowly but surely all factors that negatively affect earnings will be perfected; That would include the mining Technology, Energy Consumption, network efficiency, Ram consumption, Cost of material to build the ASICs / GPUs / FPGAs , time to setup miners(how easy they are to setup), Shipping costs for replacement units, Product quality, anything that is tied to overall costs to operate for the entire Bitcoin system gets optimised overtime, some faster than others.

Great link went to the website and its interesting reading. Thank  you

Energy and Bitcoin is like a Slave-owner and Slave relationship. Dont like the look of those big whips.

Optimizing isn't free (neither are solar panels). And any time the actual costs of running these systems to secure bitcoin goes down, more people will buy in as there is an "investment opportunity!" which will in turn reduce the profit for those who haven't optimized, forcing them to upgrade, repeat ad nauseum.

Of course optimizing is not free, it is an investment for the long term; The realization that those solar panels are going to save me $200+ dollars a month for the initial $15,000.00 dollar investment, yes I will have to maintain it and probably replace panels once in a while but the infrastructure for my house will be setup. 

so at $15,000.000 dollars to invest with a monthly savings of $200.00 dollars = $2400.00 USD/year in savings.

now if my mining setup is 10 Gh/s I'm pretty much operating at almost zero loss overtime, this makes me $2400.00 USD/year more profitable without affecting the over-all difficulty of the network, I've scaled without upgrading and introducing a net loss of revenue on my part. :)

and even if bitcoin fails I'm still saving electricity, not only that think of the thousands of Bitcoin miners that will do the same thing, driving down the price of solar panels, advancing the technology, making it more accessible to the masses... + 1 for Bitcoin. Now there is no invisible whip to reign in bitcoin, until the figure out how to charge by the photon, I think we will not be in a Master-Slave setup, because of this technology.  Hell it will drive a energy revolution for the masses!

As others have mentioned, if this technology is available to you, it is available to someone else. They may start mining for the first time and lower your profitability by increasing the difficulty. The only time you could reach a steady-state is if everyone in the world were mining.


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