Bitcoin Forum

I'd like to start a discussion about the viability of bitcoin in the future on basis of energy.

Bitcoin is set on a path that requires increasing amounts of computation to function.
Moreover, it requires the internet (or some other high speed network) to operate.
All this computing and communicating costs energy.
Growth of the bitcoin network implies more nodes communicating with more nodes. The posibility space for transactions will grow faster than the number of nodes.

I wonder if our global energy production can keep up with this requirements to get bitcoin settled as a solid world wide coin.
For one, i don't expect the hashing algorithm to become much more efficient. It will become a limit at some point so in the near future you can only increase hash rate by increasing energy consumption by the same amount.

The obvious question is, how will the energy requirement of running the bitcoin network (including the communications over internet) develop over time given a certain growth rate of transactions?

So what would be the best way to judge the energy consumption of bitcoin?
Knowing the energetic cost of a single transaction seems like a good starting point, but it would have to be based on some mean which i don't have.
But we propably will need to separate some parts of the process. There is the initiation of the transaction that requires that you have downloaded (some part of) the blockchain, there is the processing of the transaction by the network and there is the receiving and reading of the blockchain at the other side of the transaction.
The cost of downloading the blockchain is also somewhat separate.

I will try looking for some concrete figures but any help would be appreciated.

No, not on a large scale. Even SUV's are not viable on any real scale.

So one of my concerns is that bitcoin will become energy bound because that would put a pressure on the price of transacting a small ammount. Transfering small amounts is required to make bitcoin a currency. It costs you very little energy to carry cash or a bank card. Bitcoin requires multiple computers and a whole lot of actual computation to even do one transaction. It is much more expensive energy wise than any other form of common currency.

Please see: Liquid fuel Thorium reactors.

Very original thought...

I think in the near future (10-50 years) ASICs at 10nm-1nm will be energy efficient enough.

Also, I do not think that Bitcoin requires infinitely increasing number of nodes to function, only needs large number of nodes with sufficient hashing power to prevent someone from mounting a 51% attack.

The currently established model, having few large pools containing majority of the hashing power, I think will be an adequate match to the network's growth challenge to quite a degree.

No, the free market will use up any available energy because energy is the stuff that gets things done.
We, as a human species, already use much more energy than is provided by the sun and bitcoin makes an increasing contribution to this energy consumption.
Nuclear energy is basically out of the question for some time. The old reactor designs are breaking apart, we produce more nuclear waste than we can reasonably let cool down and new designs are expensive because they do not operate on the byproducts of keeping a nuclear arsenal.

Maybe i could rephrase the question.

How much can bitcoin grow before becoming too heavy for the free market to carry?

Beauty of free market is that it can carry anything.

I don't see how quantum mechanical effects could be suppressed to make 1nm technology viable. Expect it to stop on a few nanometers.

Bitcoin will need to keep growing its computational power because the bigger it gets the more value it has to succeed in a 51% attack. So the pressure to break the network will increase with its market cap.
It is effectively an arms race.
So while it is true that we only need enough power to prevent an attack, the attack severity will also increase.

But i was interested in the energetic picture.
Not sure how the model of pool operators helps clearing that up.

You know, you could just google 'Dyson sphere'.  ::)

You are making this mathematics and physics tutor *very* annoyed.

I don't see mining as a real issue. Probably with very wide adoption one party can't easily reach 51% and most of mining is done, by financial institutions to keep their fees down.

Real issue in my mind is the cost on network from traffic viewpoint. If individuals can use their own clients and everything is highly connected the needed throughput could be quite large. Though likely even this isn't an issue. 10MB blocks is around 1MB/s which is 1,3Mb/s. For 70 000 000 clients(1 client for every 100 people) this is 91.4Tb/s. Which is quite large amount of traffic, on other hand it could be done by using such techniques as multicast... So not bad for future...

Energy spent on mining will dwarf all other costs.  Also, this energy is easy to predict, because energy spent on mining is a simple function of Bitcoin price and total block award.  This is because mining has very low barrier of entry, and this ensures that as long as it is profitable, new miners will join, until the most inefficient miners are at the break-even point.  And the most profitable miners will try to expand their operation.


This makes it that each block costs somewhere around  (0.5 * block award * price) to (0.75 * block award * price).  And since awards are paid in Bitcoins and electricity is paid in local currencies, this makes the situation that all mining costs hit the exchanges every day, and push the price down.


This can currently be estimated to be $150.000 to $250.000 each day (using price of $90), and this amount of fresh money must enter the exchanges every day, or the price will go down. 


At this point we have a temporary delay in the "mining difficulty follows price" process , because of the change in technology and delays in deliveries of ASIC miners, so mining is very profitable at this point, and this reduces the selling pressure on exchanges.  This, plus block award halving is why we have this current Bitcoin bubble.

Also, it can be estimated that the total energy cost of mining all 21 million Bitcoins will be about 10 million to 15 million Bitcoins.

I am going to get myself a Dyson sphere to run my mining rig. Then I will have the best mining rig on the plant.

You'll have the best planet on the planet.

I don't see how energy (Joules, Watt) is a function of bitcoin price ($) and block reward ($?).
I'm looking for something like the mean minimum energy per hash, in the future.
Then all i need to figure out is how much hashing needs to be done to sustain a certain size network and i would get a number for the miners.

Copied from "Speculation"




Difficulty grows with total hash rate, it doesn't care about power efficiency per hash.

Once you have the hardware, it makes economic sense to keep mining as long as your costs per one Bitcoin mined are less then one Bitcoin.

And if your cost is, for example 0.3 coins per coin, it makes sense to expand (in a sense of buying new hardware).  And buying new hardware will increase difficulty up to the point, perhaps at 0.5, perhaps higher, where you stop expanding.

Those two incentives create a situation where you will always have some miners that are close to zero profit, and not very many of those that are spending 0.1 BTC to mine 1 BTC.

We can never know the true efficiency distribution of all miners, but if you take a straight line from zero to one, on a chart where you display efficiency of all miners, sorted by efficiency, you would get total surface of 0.5,  and if you start from an assumption that the most efficient miner is at 0.5, you would get total of 0.75 under the curve.  Thus my assumption for total miner efficiency of 0.5 to 0.75.   In practice, it could be higher,  but if it is lower, it would be a temporary situation.

LOL., yeah, sorry about that one. I was thinking about the oil economy and how much energy is captured as organic material that will some day produce fossil fuels.

Ok, but what total hashrate is needed to sustain a network of, say, 1/10 of the world economy/

Why should I pay the electricity with mined bitcoin? I can use fiat to pay the electricity and save the coins, if I believe bitcoin price will rise in long term due to scarcity

Imagine that last year my electricity cost is 2000 USD, and I mined 200 coins, I paid electricity using USD. Now I only need to sell 22 bitcoin to pay back that amount of dollar. If I paid using bitcoin as you suggested, I would have paid 100-150 bitcoins for my electricity cost  ::)

By, "energy spent", I meant "the cost of energy spent".   Now I see that I indeed wrote it wrong, sorry about that.


Miners don't care about how much hashing needs to be done, they only care about their profit.

And if you have a new generation of miners, and your cost is 0.01 BTC per BTC mined, you and other miners have a strong incentive to expand operations.

We are currently in the process of moving to ASICs, and this is going kind of slow, and that is one of the two reasons of the current bubble (the other being halving the award to 25.)

It's not so much the growth rate but the general cost of doing a transaction with bitcoin.
The features of bitcoin cost energy to execute. So i'm wondering how that turns out on a large scale.
It would need to get cheaper to become realy big (or does it?).
But there is a limit to how cheap it can get.
And it is also somehow affected by costs of the internet. You need to pay for an internet connection to be able to use it and your ISP has racks full of stuff churning away. It's not much but it adds up.

True, you can do that.   But that case is the same as if you actually took your USD, and bought bitcoins at the exchange, instead of mining them. (And somebody else mined them).

I'm talking about the things that create imbalances on the exchange.  In your case, the exchange did not see the increased supply of bitcoins, but the cost of mining was still there, you paid it with your USD.

OK, but then there is a limit to what you can get out of a new generation miner. So in the future all miners will use the same amount of energy. There will be no forward competition. So then mining starts breaking down (no more super ROI) and will need to be supported more by fees. So in the end i think the balance will be stable around the actual requirement of the network. There will not be a lot of incentive to do extra mining beyond what is needed and payed for by the users.

There is no such thing as "needed hashrate". 

You can ask this:  What will the hashrate be if Bitcoin had 1/10 of world economy.

And the answer to that is:  It will be whatever you can calculate with energy costing X amount of dollars, and X will be  (average (block award + transaction fees)) * BTC price * FACTOR.

FACTOR being estimated as 0.5 to 0.75.  In other words, the large chunk of whatever miners get will always cover the energy costs.

Yeah, ok, that seems like a way of getting around these kinds of problems.
But then bitcoin would need a more currency-like counterpart to make it big.
FrontCoin?

What do you mean?


Surely not.  Some will be big, some will be small.  Also, energy prices differ around the world.  Mining will tend to move where the energy is cheaper.   Also bitcoin heaters for "free" energy.  Coming shortly for sure.



What do you mean by forward competition?   Mining will not break down, when awards drop, weakest miners will die.   In all I have written, you can assume I added transaction fees to the awards.   Once awards go to zero, it is still unclear if the network can work, and what fees will miners require.  Perhaps the equilibrium will happen with some silly hashrate that attacks will be easy.

I know what a Dyson Sphere is, but my solution is viable within this decade.

Bitcoin is probably the perfect online payment method. Not so good at making in-person transactions. For those, I prefer an older standard:
GoldCoin
https://upload.wikimedia.org/wikipedia/commons/thumb/9/91/Kruger01.jpeg/220px-Kruger01.jpeg
And it's altcoin companion, SilverCoin
http://www.silverdoctors.com/wp-content/uploads/2012/04/Silver-Circle-Rounds.png

Eventually large mining business like Ali-Mining, VISA-Mining, etc., will process transactions and offer competitive fees for subscribers. They will use their own power plants and use the heat generated for other industrial uses. They will operate at near 100% energy efficiency.

Before you get all "hey that's like what we have now" on me, remember that they will be competing with all other corporations and governments for market share of the Bitcoin fee processing.

When the block reward goes to zero, the cost of the network will be the sum of all fees paid. So if people pay 0.01cent fees on transactions, that's the cost of all energy that will be used.

When awards go to zero, and there is only one transaction per block, that transaction will have to pay the fee of 51%, otherwise it will be economical to do the double spending attack.

The same will be with huge transactions.  Huge transactions will be insecure.

wut

I don't think you understand what you're talking about.

I'm sure that situation will never happen.  One transaction in a block, in 2140 when there are no awards.

If all the world is on bitcoin, the mining power usage will be a seesaw, or better say, triangular.

When there are no transactions, nobody mines.  In fact, nobody would mine until total fees in all transaction are above a threshold, which would be different for each miner.  You would start mining when fees to be collected are higher than your expected  cost to mine that block.  Then after more transactions, more miners would join.


Ok, forget about that one transaction per block. :)   Sometimes such puzzles can give some insight.  What would happen if there are no award, and only one transaction would be allowed in a block, and that transaction is always of the same size.  In this totally unrealistic puzzle, how much would a transaction fee be, so that the transaction is safe?

First, some preliminary questions:
Do you know what a 51% attack is?
Do you know how it enables a double-spend?
If the answer to both of the previous questions are yes, Please explain.

There is a trade-off between usage of proof-of-work and general trust in the overall surrounding system.

Face it, if governments

• had been trustworthy
  
• based their monetary policies on any clearly defined standard (doesn't matter whether you're talking of a commodity peg, a constant unchanging money base increment, an NGDP level targeting standard, an export price or a nominal wage level standard)
• and adhered to it through atleast 2 crises

bitcoin would have never picked up.

A positive endgame I can see is that the old order gets severely knocked and people familiar with bitcoin come to power. If the trust in the new order is high enough, then they used Peter Surda's proof of burn protocol to destroy their coins and create parallel coins in a new proof of stake coin, which does not need as much energy to process as a proof of work coin. That is the best case scenario for energy consumption. But this is a task that requires great trust and coordination. Very low probability.

When this happens and transaction fees start skyrocketing, Bitcoin will lose one more of the apparent appeals that it has (number 4):
1) security - yeah, kind of, if your IP is in Russia and you know people in KGB
2) decentralized - as much as Visa - few entities own and process all
3) fast processing - yeah, like it may take you a month to sell your stash on MtGox, due to random choice of withdrawal limits, once Satoshi starts dumping his 60% of all BTCs
4) low transaction fees, bwah, ha, ha, in your dreams but certainly not in your future. Who's gonna pay for all that custom HW and energy bills once it is useful only for transaction fees?

Lemme learn ya:
By this, I assume you mean anonymity? It's pretty anonymous. If you're worried about IP tracing, use Tor.
The security of bitcoin is that it cannot be stolen without access to your private key. If you give someone access to your private key, it wasn't stolen, you were swindled.

http://blockchain.info/pools

Mining pools are just that - pools. actual miners come and go, and shift between the various pools.

But it still only took you ten minutes to get your money to Gox. Compare that to a Money Order, or even Westen Union.

If the transaction fees aren't sufficient to support a large group of miners, then the number of miners will scale back, or the fees will increase, until they are. the fees are not going to "skyrocket," because then nobody will pay them. (and .0001 btc is better than 0.0 btc)

http://www.quantabytes.com/?utm_source=anonymity_blog&utm_medium=blog&utm_campaign=quantabytes (http://www.quantabytes.com/?utm_source=anonymity_blog&utm_medium=blog&utm_campaign=quantabytes)


http://eprint.iacr.org/2012/584 (http://eprint.iacr.org/2012/584)


Isn't Ponzi scheme characterized by how easy is to get in and how hard is to get out? That used to be the way some people were 'proving' that Bitcoin is not ponzi.
 

Yo Boris, somebody just called in saying we have charge 3 times transaction fees of Visa. Damn it Vladimir, see all this hardware? We can melt Chernobil with it. But we still need to keep calculating that damn Satoshi function.

What's your point?


And it only takes 10 minutes to get your coins out of Gox, too.

The fast processing is for bitcoin payments. Not for getting money into or out of bitcoin.

Do you even know how much Visa charges? Or how bitcoin mining actually works?

As I wrote in the first post: few entities own and process all. The article shows it for a fact. Or do you have a difficulty reading it an understanding it?


Right, the latter is totally irrelevant. Why would you ever want to do that, and fast?
Oh yes, I am going to rush and buy 300 hard drives and 70 LCD screens when the price moves not to my liking?
Ever heard of Forex, where you can buy Euro and sell it in USD account in a microsecond?


I know that I am happier with Visa than any Bitcoin service of which 90% are scam and 5% are incompetent.
What is great revelation about Bitcoin mining that makes you know what transaction fees they will be charging when it is the only source of income?
I am listening.

https://bitcointalk.org/index.php?topic=6459.0 concern for bitcoin and the environment
https://bitcointalk.org/index.php?topic=23360.0 Correlation between mining costs and Bitcoin value and ecological nightmare

I seem to remember I read something Satoshi said about this issue. Like he had to design the system in a way that would have a significant impact on world energy consumption. Can't find it now, though.

https://bitcointalk.org/index.php?topic=721.msg8114#msg8114

Heya, thanks!

No, but apparently you do. The article says nothing about processing. It says that someone made a large transaction back in November 2010, and many transactions since have been "related" (ie, used those coins). That doesn't even mean much, since of course those coins are going to be involved in a lot of transactions, they were a large portion of the economy at the time. Nearly every US dollar bill has cocaine on it. Does that mean everyone with a dollar in their pocket is a drug dealer?

Transactions are processed by miners. I could install a program on my PC, that, in a few minutes, could have me mining bitcoins using my graphics card. Just like that, I'm processing bitcoin transactions. That's decentralized.

And indeed, you can trade your Bitcoins for USD and back again in just seconds on Gox or any number of other exchanges - decentralized again - but you might have some problems getting the USD out of the exchange and into your pockets, though that's thanks to banking regulations. Back in the day, it was dead easy - if a little slow - bank transfers take so damn long.

That they need fees. If they charge too much, there will be no transactions. No transactions means no transaction fees. They'll charge what they can get, and not a satoshi more. That's the way the Market works.

Satoshi makes a comparison to gold here.
One oversight he makes IMO is to forget that, unlike gold, once in circulation bitcoin still requires energy in various ways.

Let's compare two cases:

1.
There are only 100 miners which have ASIC mining farm and each of their farm have a hashing speed of 10Th/s, the total network hashing speed is 1PH

2.
There are 1,000,000 miners which have GPU mining rig, average each of their mining rig have a hashing speed of 1Gh/s, the total network hashing speed is also 1PH

In such a case, the difficulty and hash rate is the same, the energy usage could be 100X difference, but is there any reason that the bitcoin value in the first case will be 100 times cheaper than the second case?

OP - I think the premise of your original question is invalid.

The 'energy cost' of bitcoin network does not matter to the network and it never will. Precisely because miners are the ones providing that energy. Miners have already proven that the network hash rate will continue to increase (and thus the total energy expended in the act of mining) until it isn't profitable to increase it.

The goal of 'adoption' is to generate transactions fees that amount to greater than the block reward. There's no way for force an increase except by transaction size and this is completely fair to each user.

Assuming bitcoin is in general (global?) use the network hash rate will grow to any size that it needs to in order to process the volume of these transactions. Once this happens there won't be any disincentive to mining.

So energy is covered...


Now bandwidth, that's a different discussion... and may at some point become an issue... but I'd imagine we'll be able to develop some sort of supernode system or some bitcoin specific protocol to deal with this once it becomes a real concern.

~

Another thing to consider if we assume adoption... some of the big boys (aka other payment processing services) will eventually convert or at least support bitcoin. Once Amazon or Paypal take them directly they'll be contributing to the network as well (at least some fast nodes so they can send payments directly without using another service).

No. But you can make a reasonable assumption that the processing fees will be 100x lower.

But it might matter to society as a whole.

No, its actually a big part of what i'm interested in because all the networking consumes energy too.

I guess you're right, but they do behave differently in this respect.
Bitcoin is supposed to become a currency and so i'd expect it to be transfered around a lot.
With bitcoin the energy expenditure does not depend on the amount transfered.
So even the smallest transactions will use up this energy.
I wonder if this will grow out of proportions and if not, where it will balance out.

But i can indeed see a more stable role for bitcoin as a sort of bulk transaction medium.
Then again, wouldn't that ultimately create bucketshop economies in front of it?

I don't really know why you'd want to try and quantify this. Are you attempting to evaluate how 'green' bitcoin may or may not become? Bitcoin is such a small amount of traffic on the network relative to everything else that's going on there that I can't imagine it ever being an issue. Even if we imagined away all other currency and assumed all those trades were done using bitcoin instead... and scaled up the network accordingly.  it would still be so very minor compared to the bandwidth used by say facebook, google or netflix.

The word 'green' is too political for me. I'd say i want to know the energy footprint of bitcoin.
Imagine a large part of the world is using bitcoin.
How much network traffic will it take for everybody to be up to date with everybody elses transactions?

If a LONG TERM projection always indicate a rise in the exchange price due to limited supply, there will be less and less people sell bitcoin to cover their energy cost, and that trend itself will lift the bitcoin price as a result, can go on for decades

Another thing, your formula is based on that most of the people could always get their hands on the latest mining technology, thus the mining competetion will always be hard. But I foresee a future that only a handful IC companies have the access to the latest engergy efficient mining technology and many normal people with ASIC miners just can not cover their electricity cost, just like what happened after 10 years of california gold rush

This also partly answered OP's question, if the mining technology becomes more and more hidden and centralized, the actual energy cost will be less and less

According to http://blockchain.info/charts/blocks-size we're aproaching 6 gigabytes for the blockchain.
According to http://torrentfreak.com/bittorrent-and-netflix-dominate-americas-internet-traffic-111027/ Netflix is 34% of total...

I can't find numbers on exact transfer rate of the internet. But lets say ~1 exabyte per day (someone got a source to the real data?) so we're looking at netflix transfering 333,000 terabytes per day. This means that even if you had 55,500,000 bitcoiners downloading the entire blockchain every single day... you'd still be consuming less than netflix does on a daily basis.

For real numbers, number of tx * number of nodes * time = transfer rate of bitcoin network  ... feel free to include an estimation of non-current blocks being transfered to out of sync clients.

What long term projections?

I have yet to see one that is not wishful thinking, or a totally unrealistic "There is X total of something, lets divide that by 21,000,000 to see what we get."

And the mining incentives are built in into the system itself, and there is no need for random guesses.  Somebody calculated 2 years ago, that if the price goes to $20.000 you would need something like 60 power plants just for the energy for miners.




Those with access to the technology would always increase the capacity until it is no longer profitable to do so.  The cost of mining per BTC will always be close to one BTC. 




How in the world would you suspend market forces in an open P2P network?

The difficult seems to be that when bitcoin grows the potential for transactions also grows. The more people there are in the bitcoin economy the more there is to transact in the bitcoin economy.
It's related to the problems you get with interprocess communication in networked processing.
I can see that the number of transactions will rise at some exponential number compared to a linera rise in number of nodes.
So the ammounts of transactions wil grow faster than the ammounts of nodes.
If bitcoin becomes anything like important in society then you will pay for your groceries with it, you'll pay for gas with it, you'll pay for the ticket to dysneyland with it. So there will be a lot more transactions per user to be done.
And all these transactions also add up to the block chain, so everyone will need to get the blockchain which includes all the transactions of everyone else in the world.
I can easliy predict that the 6G of chain we have now will be meaningless once bitcoin represents some substantial part of the economy.
The 6Gig will be a daily download for every user at best. It won't take long before you will need to get a gig per minute to be up to date.
We all think the blockchain has been growing pretty fast lately, right?
Well, right now the size is related to about 55000 transactions daily. You need to get up to date with 55000 transactions per day.
Now imagine 1/10th of the world uses bitcoin to pay for their usual things.
We get 1/10th of 7x10^9 = 7x10^8 people participating.
Let's take an average of 5 transactions per user per day. You need to buy gas, you get an icecream, you pay the rent, etc.
(i'm just using some ballpark figures here to see where we get)
This gives us 1.4x10^9 transactions daily. 1.400.000.000 transactions per day.
That means the blockchain will grow about 25000 times faster than it does now.

Lets make an estimate of how much the blockchain grows right now.

In the last 1.2 months the blockchain grew by about a gigabyte.
On average that is about 0.0269 gigabyte per day. This gives us about 27.5 MB per day.
Ok, so now let's multiply this by our projected change in magnitude.
We get 27.5 x 25000 = 672 gigabyte per day !!

So in the situation where 1/10 of the world population does 5 bitcoin transactions per day on average everyone will need to download 672 gigabytes of new blockchain per day to keep up. If you didn't update for 2 days you'll need to download over 1TB . If you didn't touch your wallet for a month you'll be pumping 20TB to get up to date. And all this to be able to use bitcoin as a currency.
After only a year of hoarding blockchain everyone would have about 240TB of blockchain stored locally.

I think this will be problematic from an energy point of view even before the practical problems of storage become too devastating.

But that will happen under circumstances where the gain of these new technologies is diminishing.
It will not be very profitable to invest in developing 0.0003% more efficient mining hardware and any power you think you can excert from your position will be fragile at best.
In the end you will have a lot of people competing over less and less possible gain.
The risks of not getting back your investments from producing new minig hardware will increase.

I agree with your view of daily energy cost. It is a good way to estimate a worst case scenario where every one is having the same mining technology and just break even on energy cost

If each bitcoin worth $20,000, that is $72,000,000 per day, at $0.2/kwh, that is 360,000Mwh per day, about 15,000 Mw output, that is 3 big nuclear power plant


Why should they do that when no one is competing with them? Suppose the rest of the network is 6TH now, I could mine with 6TH with a daily profit of 1800 coins and a power consumption of 200 coins; or I could mine with 60TH, 3273 coins, but 10 times the power consumption of 2000 coins. Is there any motivation for the later? Well you need a chart to find out the optimum hashing power, but it is definitely not higher the better

Once you have majority of the hashing power, there is no point in increasing it, because you are basically competing against yourself. (Also, if you are the only miner you could do it all on one CPU.)

However, no miner is in this position.  You could argue that all the miners could make a pact about the maximum capacity, but, there is simply no way to enforce this on a P2P network.

If a miner can increase his profit by adding more capacity, he will do so. And this arms race has a very easily predictable result.

Yep: That 51% attack is nigh impossible, and the bitcoin network will always have as many miners as can be supported by the fees. (and very rarely - if ever - more)

Take Avalon for example, this time they can deliver 100TH which is 4x the original network hashing power, if bitcoin price is very high they have enough motivation to keep mining for themselves with a little blow a certain fraction of total network hashing power and maximize their profit

Of course this time they sell the ASIC mining rigs to everyone, but there are also companies like ASICminer, they never sell the equipment to public and do not want to expand the capacity, just check their thread

Again, your estimation is based on a situation that most of the miner have access to the latest mining technology. In my opinion this is just a temporary situation in early stage of bitcoin adoption. When bitcoin has reached mainstream acceptance and high valuation, mining might require highly specialized hardware, thus become not feasible for normal users, and several large mining corporations might form some kind of aliance to not expand the capacity to hurt each other's profit and save energy, just like OPEC. Hopefully we are not going to see this day too soon

Your line of thinking kind of indirectly acknowledges that mining will be a low margin business.  Are you still thinking that running costs will not get close to (as in 50% of) total mining income?

As for tech availability,  those chips have a high cost for the masks and tooling and the low costs per unit.  So, once the first batch is done, they get much cheaper.  That means that the will soon be easily available.

Shouldn't shilling for PPCon be in the "Alternate Cryptocurencies" area?

I haven't read all the arguments as I thought I knew the answer until I watched this:

http://www.youtube.com/watch?v=xHGFWWOylJM

If I understood it correctly Paper Money consumes just less than 1% of total GDP energy consumption. (coins obviously more) and HFT's data centers even more.

Some criticism on the video:
1) you can't scale the BTC network transactions at its current energy efficiency to that of a big states current transactions to make the claim.
2) You can't assume Moore's law doesn't apply to Bitcoin hashing (Asics won't replace GPU's and Asics won't become more efficient in the future)
3) you can't not account for the future number of transaction per block increasing. (we will always be limited to 250K or whatever it is)
4) you can't amortise your mining rig as E-waist every year - (my mining rigs only lose fans so my e-waist is a lot less than the example given.)
5) you can't assume the latent wasted heat is not used by the miners, ( this winter my heating bill was $0 as my rigs kept me warm - I have seen setups where Bitcoin rigs are used to power under flour heating.) so 50% of excess energy is not wasted just repurposed.

I liked this, posted elsewhere, a measure for evaluating efficiency, power consumption/production, with an Austrian style free market economy with a fixed money supply, I would tend to think we would be more efficient than we are in our perpetual growth economy.   

Much less in fact, according to the video.
He is comparing 5TWh of the whole EURO ecosystem to the 600TWh that is consumed only in germany. So it probably is at least 5 times less than 1%.

How much energy consumption does FIAT currency take when you account for all energy consumed by banks and all other companies that are necessary for our current use of FIAT? (Visa, mastercard, etc)?

that means bitcoin is fundamentally flawed???? why does noone care about this?????

If each btc has the potential to be valued at $1M and it reaches that value long before the inflation of electrical costs match, then yes.

But you see, I used the word 'potential'. If you're looking for market viability then you're seeing it as an investment. Otherwise you would see it and use terms that would describe it as a necessity.

Sounds more like you are unsure of yourself and your investment strategy. If so, how can any of us advise you? We don't know your hashing power. Your maintenance costs. Your Investment goals.

Fishing in a mud puddle won't get you much for dinner.

I'm noticing a fundamental flaw in most of the last couple pages of posts. Not necessarily the posts, but the posters.

You're crunching numbers to find that crux where it's no longer profitable to mine, with whatever mythical unicorn hardware you can imagine. But it seems you're missing the entire point to bitcoin.

Being completely wrapped up in profits was the reason that all the other currencies failed. Your short sighted view of how btc can change the world is the flaw, in your logic, or lack thereof.

Would it not be advisable to continue to hash away to keep your investment alive?

You sound like a bunch of drunks at the bar who certainly love to drink, but then hate to have to take yourself away from the eye candy to take a leak.

You'll need to see both sides of the bitcoin before you fully understand where this could take humanity. And for crying out loud, leave the last 5,000 years of currency trading at the door. This is a whole new era.

Nothing like that.
I'm pretty sure that energy will put a cap on bitcoin one way or another.
What i'm mostly interested in is how much of the potential can be realized in our energy economy.

I don't think that there is a more expensive money currently in use than bitcoin.
So i'm wondering how big bitcoin could realistically become before the growth is dampened by costs.

Just to be clear, my side of the story is that i want to look at bitcoin as a system. It is not about profits. It is about how accepted bitcoin can become while using this much energy. It becomes clear, for instance, that if bitcoin doesn't change it has no future as a currency. Currencyness is, however, one of the main reasons for the existance of bitcoin.
It is the very first thing people read when they visit http://bitcoin.org/en/ (http://bitcoin.org/en/).

Then how are you able to honestly say that btc uses more energy than any other currency?

That's completely BS. Look at all those countries that have gotten rid of small denominations in their currencies because they are not cost effective to continue to implement. Jeez, how did we ever go from copper, silver and gold to paper?

Can you think for even a moment in how much time, and money goes into just planning and designing paper money? The transportation and green house gases that are emitted just to truck that heavy crap around?

You can't honestly be serious with this analysis... Can you?

Uh... How do you think your credit card works? [Hint: It requires multiple computers and a whole lot of actual computation to even do one transaction.]

Bazinga

It's not bullshit at all.
All currency has a cost.
You can't compare bitcoin to paper money because bitcoin is not in use like paper money.
The fact that some countries get rid of the smaller denominations is completely unrelated to the cost of bitcoin.
Moreover, bitcoin does't have denominations of value. It is a broken comparison, whatever you may have wanted to tell with it.

Another reason why you can't compare fiat to bitcoin is the mechanics of making it work.
Money is re-usable while bitcoins are not.

Planning and designing paper money is something you do once (or once in a while). After that you can use the design as many times as you like.
The main costs of paper money are in the accounting and the energy of transporting it, not in its design or production.
To print a single dollar note of any value costs less than $0.1
After the printing the note can be used may times.
But you have the cars that are transporting them from place to place every day. But even then the transportation costs for these bulk transfers are fractions of percents of the total value transported so its still not much, relatively.

Compare that to bitcoin.
In bitcoin you have to pay every time you transfer value. Right now the client asks for 0.01 bitcoin which is about $1.56 per transaction. And then you still need to wait some time before the transaction happens.
So this is already quite a barrier for use as a currency and this is only the beginning.

And that is besides the fact that there are miners pissing away heaps of energy just to make it all work. The $1.56 doesn't actually cover the network because the fees are nothing compared to the block rewards. In other words, in the future when all income would need to come from fees the $1.56 will not be nearly enough to cover the costs of miners.

I think someone figured that mining a block of 25 bitcoin costs about $40 worth of energy at the moment.
That's about 1% of its current dollar value.
You could argue that a single bitcoin will be worth much more in the future and then the production costs will be relatively smaller.
But this is not true. Bitcoin value follows hashing power. The more energy expended the higher the price goes.
So to make bitcoin more valuable we first need to expend more energy on mining.

Think about these things and expand them to a substantial part of our economy and you may start to see my point.

I'm pretty sure it doesn't work by sending every person that has that type of credit card a receipt of every single transaction happening with those cards.
Also, i'm pretty sure credit card companies don't need to mine their credits before they become usefull entities in the system.
And finally, i'm also pretty sure that any calculations the cc comapny makes does not involve brute force solving a cryptographic puzzle. It would make credit cards prohibitively expensive.
[Hint: way ahead of you.]

Very nice analysis.

I would like to point out that the block reward drops in the future, and so in the distant future it would be accurate to write 

(cost/block) = ((0.5 to 0.75) * transaction fees * price)

My prediction is that in the future the price will be relatively stable, so the cost per block will be determined by the transaction fees. Essentially, we (the bitcoin users) will set how much energy is used by setting our transaction fee amounts.

I realize that. But that does not in any way justify a new currency that uses even more energy.
Besides, the military operations are not to protect any particular form of currency.
They are there to protect the value the currency represents. It is irrelevant what the storage medium is.
I can predict that if any big entity will use bitcoin they will protect their wallet with the same fierceness.
[Hint:Surrounded? A walk in the park ;) ]

If this will be the situation (and i agree this is likely) then i think that bitcoin will become too expensive to use as a regular currency. If i want to buy a bottle of milk chances are the transaction fees will be more then the milk or the transaction will take a very long time. Both would make bitcoin unworkable as a currency for daily use.
It would require a cheaper bitcoin frontend to make small transactions economic.

And this is why I think people predicting ubiquitous use of bitcoins for everything are full of baloney. Bitcoins were from the beginning designed to be more of a reserve currency than an instant payment option. If you want to pay your friend 0.1 mB to cover the cost of a beer, then it is better to use Ripple or some other system than to actually send the tiny amount through the block chain.

But of course! I would even suggest that we need to make these kinds of choices before the treshold is reached.
So we need to think very carefully if bitcoin, in its current incarnation, will be able to justify the resource it will require to operate in the future.
I think this is essential to if bitcoin is to be of any significance in the future.

Well, Bitcoin.org is kindof disagreeing with you:

An open source P2P digital currency

Bitcoin is a digital currency, a protocol, and a software that enables

    Instant peer-to-peer transactions
    Worldwide payments
    Low or zero processing fees
    And much more!


This seems to be very much marketed as an instant payment option.
I agree that this is not quite how it turns out to work, but it is how bitcoin is promoted.

I'm almost certain that if you spent as much time analyzing regular fiat currencies, you'd have answered all your questions by now. I guess my Harvard economics education was a complete waste of time and money.
I'm just here trolling on semantics. yea, that's right. I'm that bored with my life.  ::)

There are people here that are.
[Hint: you've been talking to one]

What is wrong with my observations about bitcoin?
I mean, you took the time to read some posts here, so maybe you really are that bored.

I can think of a few scenarios using Bitcoin and having it utilise vast amounts of energy, and whereby distributing it effectively and utilising the latent heat and capitalising on the distributed energy consumption we have a net benefit, or secondly having concentrated mining facility converting the latent heat in a seconds tear energy economy of heat mining.

All these new opportunities are only viable, if energy consumption of energy in the Bitcoin network can become "unsustanable" by your definition today.  As a result I don't see any motive to over plan, over planning would only be depriving the future of the opportunities we make for them today. In a sustainable eco system waste is food for another system, (nuclear power being the one exception) and by all means I would agree with you if we just stopped at waste and called it done. 

As an engaged ecological and environmental designer, I've observed the waste we create today is not part of a sustainable ecosystem, (it could be argued it is but only over devastating cycles over long periods of time) but for the typical time periods from generation to generation it is in fact just waste, and a result of our economic system, when cryptos supersede fiat and gold, we will start to see a huge transformation.  I would predict we will become vastly more efficient.

Here I find chodpaba idea that money is just a means of exchange with the pulpous of redistribute risk, quite refreshing and appropriate.

Interesting observations!

True, but it does require a whole lot of buildings with a whole lot of people in them, needing a whole lot of air conditioning. And because there's no "receipt" sent to the entire network, they instead have to rely on several layers of security, and just HOPE somebody doesn't figure out a way to gain access to those computers, and drain every account.

Sending a couple of bits of information to the entire network for each transaction isn't particularly data-heavy, when you realize that it eliminates the need for additional security hardware, software, engineers, analysts, consultants, etc, etc.

Not to mention the amount of energy that is consumed by other computers that are dedicated to trying to hack into those systems. Or the regulatory bodies, etc, etc, that are dedicated to making sure that the banks don't just up and run off with all that centralized 'cash'...

You're not looking at total cost, for the system. You're trying to isolate one portion (the transaction portion) and pretend all the rest doesn't really actually matter...

No, i just want to keep things apart as much as possible.
Mining costs are not transaction costs.

I'm sorry, maybe I misunderstood somewhere, but doesn't mining confirm the transactions?

Yes, but the ammount of confirmed transactions is unrelated to the hashing power.

That's limited by block size, correct? And block size is also unrelated to hashing power? Or does a larger block take longer to hash?

Difficulty follows hashing power pretty tightly as far as i can see. So i don't think that difficulty is driven by transactions.
Anyway, isn't difficulty supposed to keep the number of blocks found constant despite hashrate?

Mining costs ARE transaction costs. Transactions and mining costs are inseparable. And once the system reaches maturity, mining costs will ONLY be transaction costs (since there's nothing else to "mine".

You can't say that the transaction costs is all that matters on the traditional banking side, but that the entire system costs matters on the Bitcoin side.

You have to compare apples to apples. Either compare transaction costs only, or compare complete costs (infrastructure and transactions together). Since you can't separate transactions from infrastructure (on either side, honestly), looking at 'total cost' is the only apples to apples comparison that can be made...

Comparing traditional banking as a 'transactions only' issue, to the complete infrastructure of Bitcoin just skews the discussion, and isn't an honest way of addressing it.

So hash power follows price, difficulty follows hash power, and transaction volume follows... ?

... adoption rates?

Not strictly speaking, but I'm sure it's a large factor.

But the vast majority of trading never touches the blockchain until cash-out. it's all just handing stuff back and forth in the exchange's servers.

Yes, all of that applies to trade volume, but not necessarily transaction volume.

Hmm. Good point. Volatility will increase transaction volume, but there's a baseline, for actual buying and selling. How low do you think that is?

(Also: this should go in your sig:)

My house is powered by bitcoin

A hopefully growing fraction. If Bitcoin is only ever about the speculating, we'll never get out of the "tulip bulb in a display case" phase.

So they are, but you won't find any in display cases. ;)

Probably. But I can see "bitcoin heaters" being fairly profitable, or at least popular.

Aah, here i make a distinction between expectations about price and the actual price.
I would agree that expectations lead hashpower. But expectations are future prices, at best.

Does that mean that in the end the hashpower will scale lineary with the ammount of transactions?
If that is the case then it would indeed be better to just count them as one system.
If not then i'll stick with looking at them as two separated but related systems.

Yes and unrealized expectations create either unutilized hardware (reserve hardware) as people stop mining. This is what seems to have happened after the 2011 peek. Or reserve Bitcoins as I think will be the case with asic miners.

@ chodpaba
Can you explain what is meant by crossing over... in bold above?

Didn't you just do that? ;)

I don't think you can conclude that a price component is driving hashrate. I think the data is flawed and that actual hashrate could just as well drive price.
I'm not denying that there is a correlation, tho.

Anyway, to test your claim i had to take a 100 day average to get from price to something that is shifted enough to fall on top of the difficulty data.
The difficulty (and according to the data, the hashrate) is correlated to price so closely that peaks happen even when price changes at that time suggest the outlook is bad. If i look at the 2011 peak i can see that according to the available data more hashrate was added after the crash/hack/turnaround then before the 'crash'. Even better, hashrate and difficulty only peaked when bitcoin was in freefall and already around $10. Difficulty then stayed pretty constant for some time while price collapsed to under $5.

That doesn't make a lot of sense to me. If price expectation was the actual drive then mining would have started collapsing right after the crash and would not have slavishly repeated the peak of the price.  It doesn't make a lot of sense for a node operator to add hashing power after price peaked and is on its way down.
What is much more likely is that actual hashrate was much closer in time to the price movements.
What also seems likely to me is that there is alot of high frequency content missing from the data.

But then again, the graphs fit so well  ;D

You have to remember that back in 2011 everybody was saying "Sure the price has been dropping, but it could jump up again any moment now!" What happens is that as the price rises people see difficulty is not as high as the price, making mining profitable, so they start building a mining rig. That takes time, and there will be people who do not get their mining going until after the price has peaked. But they do not want to have wasted all that energy they spent building this thing, so they start running it anyway. Also, when the price drops, people who are already mining have already done the hard work of getting the thing set up, so they keep on mining and hoping the price will go back up again; if they are still marginally profitable they will keep mining but not add any more capacity.

The other thing to consider is that technology has been improving, and so as more efficient ways of mining come to market the total hash rate will increase even if the price remains constant.

Credit card, and most  of the financial infrastructure we have with the exception of the FED, and bitcoin are not mutually exclusive. The argument that traditional financial industry is much less  resource-efficient than a similarly sized bitcoin-based financial industry may be true but the difference is not that big. You could have bitcoin credit cards once the bitcoin base is big enough and issuing a bitcoin credit card is profitable. Exactly because of the high cost of maintaining the blockchain for a personal node, most lay people *will* use a financial institute of somesort (e.g. an online wallet) to manage their money.  Once people'e income goes into financial institues, all actors of the ecosystem come to live.

Yes, and these are the dynamics i came up with to justify the difficulty graph.

But i cannot understand the 2 month delay in peak of hashpower compared to price.
In those days i think most people mined on GPUs.
2 months is way too long to order and build a couple of pc's with GPU's.
It takes me maybe an hour to get from pc components to a ready to use computer. That includes OS and drivers and all that. Ordering components doesn't take 2 months either.
So at the very least one would expect that there would have been a strong negative effect on the difficulty just past the price peak. People investing in mining rigs could have simply canceled their orders.
I can remember that right after the price peak there were a lot of people forced to sell their rig because price expectations were not met. There was a sell off of sorts. I cannot find that back in the data. It looks as if the miners are completely oblivious to current price and always react to past price with a more or less fixed latency. Somehow the information about past price tunneled its way into the future without being affected by months of negative change just to have a singular effect on capacity in the future. How did this information of past price survive so far into the future?

The timescale of the data suggests that miners must have been ordering en masse after the price peak, while the price was going down.
For me this is a strong indication that the difficulty data is delayed somehow and the actual reaction of miners was much closer to the actual price, possibly even preceding it.
The data does not make any sense to me otherwise. Miners do not live in a universe where they only see an old price and are only capable of reacting months afterwards. Most of them are capable of reacting within a week to market changes but somehow they were incredibly blind and completely irrational when looking only at the price changes.

Another thing that bugs me is that the data is so smooth. I'm pretty sure hat hashrate in those days was much more erratic. There were tests with clusters and stuff like that. None of those show up on in the hashrate data. This suggests that the available data is already averaged (also implying a latency).
As i said above, i needed to take a 100 day running average to get from price to difficulty. 100 days is a loooong time. I see no reason for the network to have such a strong lingering memory of a sentiment from 3 months back.

So while i'm tempted to see the simple side of things there are still some details that don't make sense at all to me. I cannot find a justification for the way difficulty repeats movements with such a high latency and smoothness.

I would say that you need the miners to be a narrow sort of folk much more than i do.

For the peak to be delayed this consistently it would require the bulk of the people that added the hashrate to behave in a singular way.
The data tells us that most miners started adding capacity months after the rise and fall in price and follow the movements of the price of the past. This would require the bulk of the adders to only be able to react to price in 2 months from now. This canot be the reality for the bulk of the miners.

My view is more that of a biologist than a psychologist. There should have been a better distribution and effects of price should already have been visible a short time after price drop because in a natural distribution there are miners that do check the price and do cancel orders. The data suggests that these people are non-existent which i find very strange. The set of behaviours that are needed to go from price fluctuation to difficulty fluctuation as seen in the data is actually pretty narrow.
Can you explain why most miners in that period failed to react to the sudden drop in price?

Sure, the data is the data. And flawed data is flawed data.
All the data i find is some form of estimate.
The interesting question is how this data relates to actual hash rate progression.
And we need the actual hashrates to make causal relations.

Call it what you want, i still find the graph irrational. Most of the miners supposedly decided to start mining some time after bitcoin started going down. The worse bitcoin got, the more people started mining, according to the data.
I can't see any motivation for miners to start investing exactly in that period. Future price looked pretty bad at that time but the bulk of the hashing power didn't react to price despite price being widely available. Even if you assume the bulk of these people were slow decision makers you still would have to live with the fact that none of these people noticed anything about the price collapse (or maybe they just all ignored it). Even if someone takes a long time to make a decision they will most of the time incorporate the latest information available. But what we see here is none of that. We see only that a trend is repeated seemingly without considering information that was already available.
It just does not make sense for the bulk of the people to start hashig after the price has been steadily declining for months.
Price goes up, price goes down. Where is the pressure that will in a few months realize an increase in hashing power? Why would we see a bump in hashrate after the bump that supposedly caused it is already gone?
I think your idea requires most of these miners to be a very particular decision maker that acts on past information and even despite different current price constantly acts on a past price.

It looks much more like the decision making process already took place months before it was registered in the data.

Its like saying a btc mined when it is cheap is more valuable then a bitcoin mined when it is expensive because it has more upside potential. ???

Sure, so with a falling price and a growing difficulty it would make no sense, according to your interpretation, to invest in mining capacity.
Yet this is exactly what the data shows.
Your interpretation does not apply if you assume the data is correct.

I don't think so. Their popularity makes that the minig market will become saturated.
Difficulty will compensate and everyone owning an ASIC will get a portion of the same 25 BTC per same time unit times their portion of the hashrate.
With mining hasrate is not important. What is important is your relative hashrate compared to the rest of the network. In the end the daily reward in BTC is the same (bar reward halvings).
So it is only now that owning an ASIC is a real opportunity.
Once all ordered ASICs are delivered the 100% ROI point for newly delivered devices will be very very far away, if not infinitely.
ASICs are not cost effective in the long run because everyone has access to them.

The interesting thing is that most of these devices were ordered last year, when the price didn't boom yet (the recent peak).
So i can say that the recent price peak was the result of projected hash power.
The recent bubble only started to get traction after Avalon started delivery. At that time Avalon had already sold their second batch of ASICs.
But then BFL delayed and the price fell agian. Avalon could not keep the momentum going and we had a crash.
Once (if?) BFL really starts delivering for real the price will soar.
There was a reaction to price when BFL recently sent out a few units to devs. It didn't hold once people noticed that it's only 6 units and that the rest will come later, much later.

Anyway, ASICs are a completely different game for miners wanting to expand. GPUs were widely available and anyone could get a fairly beefy mining rig within a week or two. With ASICs at this moment most of the already bought hashrate is still dormant.

In this recent bubble is was quite clear that price was driven by hashrate expectations.
And not the other way around, like you keep arguing and making up new things to justify it for. :P
But it's also not purely hashrate, like i was saying before. It seems to be the expectation of hashrate that drives price the most.

I'm sorry but what you say makes no sense.
On the one hand you say that hashrate doesn't drive price, like at all.
On the other hand you don't want to bet against moores law, suggesting that bitcoins value is in hashrate.
Please make up your mind!

Anyway, you won't gain anything by adopting a more efficient technology (besides the small window of opportunity when you have a superior mining device while the rest doesn't yet). By buying the latest tech you only prevent a loss in BTC income.
It's only your relative hashrate that counts because in the end the same 25 BTC per time unit will be divided amongst the contributers, no matter the current hashrate.