Bitcoin is unsustainable, according to Vice

[russian_pete]

http://motherboard.vice.com/pt_br/read/bitcoin-insustentavel

Bitcoin’s power usage per transaction isn’t remotely sustainable as a wholesale replacement for the conventional financial system.

The year is 2018. After a rough Greek exit from the eurozone, economic malaise has spread to Italy, Portugal, Spain, and France. Nervous citizens across Europe look for a way to get their money out as currency traders hammer the weakening euro, banks impose withdrawal limits, and their purchasing power plummets.

Enter Bitcoin.

Compared to the euro, the peer-to-peer decentralized electronic currency has now become a relatively stable digital asset. Fiendish buyers trade their euros en masse online for Bitcoin, and soon, depositors worldwide join them. The price of Bitcoin rises, prompting more user adoption by spenders and speculators, and recognition from governments and populations alike.

The above scenario sounds like a nice piece of prepper-bait from conspiracy site infowars.com. But could (or should) Bitcoin actually take over? Some of the more enthusiastic Bitcoin advocates argue that the currency is ready for prime time—in other words, ready to replace national currencies, or perhaps replace global banking’s creaking clearinghouses. Would this be good for the world?

From an environmental point of view, it certainly wouldn’t be good news. Unfortunately for Bitcoin advocates, the currency uses too much electricity right now—way too much: According to my calculation, a single Bitcoin transaction uses roughly enough electricity to power 1.57 American households for a day.

All that energy expenditure has an important purpose: it secures Bitcoin from attacks by speculators, criminals, and other evil-doers by raising the price of the computer power needed to gain control of all transactions on the network. The computers that make up the Bitcoin economy’s backbone are constantly ensuring security and verifiability for the network by solving cryptographic puzzles. This process is called “mining.” Those who participate in this network maintenance are rewarded in Bitcoin, incentivizing them to bulk up their machines so they can mine more efficiently.

There is potential for Bitcoin to become more efficient by stuffing more transactions into the mining process. But at the end of the day, if Bitcoin sees increased adoption and price and many more useful transactions, power consumption is almost guaranteed to grow.

Motherboard has previously covered how big Bitcoin mining operations can get. So how much electricity are we talking about?

Let’s take this Bitcoin mine in China as an example of the scale of today’s operations. It is supposedly running at 6 PH (quadrillion hashes) per second, according to a Chinese Bitcoin company CEO posting in a Bitcoin forum, with the aim to scale up to 12 PH per second. That would give it about 3.3 percent of the total power on the Bitcoin network. Because the Bitcoin network is set up to dole out around 3,600 BTC per day to miners, this mine would rake in about 118.8 BTC per day, or more than $30,000USD at the time of writing. That’s not a bad haul when your electricity costs are among the lowest in the world at 3 to 6 cents per kw/h, about a third of US prices.

Bitcoin’s power usage per transaction isn’t remotely sustainable as a wholesale replacement for the conventional financial system

Computer cooling firm Allied Control estimates the total power consumption of the Bitcoin network at 250 to 500 Megawatts. Looking at the total hashrate, which is the number of calculations the network can perform per second, and applying a generous miner efficiency of 0.6 watts per gigahash, we can estimate our own back-of-the-envelope Bitcoin network constant power draw at just under 215 MW, although this figure is always in flux (it’s important to note that many of the variables in my calculation are constantly changing slightly). That’s around enough zap to power 173,000 average American households’ daily electricity usage.

With about 110,000 transactions per day, that works out to 1.57 households daily usage of electricity per Bitcoin transaction. Yes, every time you buy something in Bitcoin, you could be using as much electricity as 1.57 American families do in a day.

“The actual figure is likely worse, given that a large number of transactions are exchanges and miners moving bitcoins around and other low-value ‘dust’ transactions,” said Matthew Green, a cryptography expert at Johns Hopkins University. “So each transaction where there’s an exchange of goods or services happening is really representing even more electricity.”

As climate change becomes a more pressing concern for humanity every day, this huge level of energy use is difficult to justify for a currency wanting to improve on the current arrangement.

“It appears there are significant challenges to ensuring that Bitcoin’s growth minimizes environmental impacts,” offered Jeremy McDaniels, a financial system sustainability expert with the UNEP. “Energy footprints could be an issue of major scale-up is achieved.”

There is hope that Bitcoin may be able to reduce its footprint, however.

One important thing to understand is that the electricity demands of Bitcoin mining won’t scale up linearly with increased usage or transactions. Bitcoin miners use special hardware to guess over and over at solutions to computational problems for each “block,” which records transactions into a permanent ledger. The first problem-solver “wins” the block and the reward: brand new bitcoins.

Bitcoin can currently handle up to 360,000 transactions per day given current limitations built into the technology, according to Jorge Stolfi, a computer science professor from Campinas University in Brazil, so there’s some headroom left before things bog down.

It would be possible to bring down the average power cost of each transaction by modifying the underlying Bitcoin protocol, but that’s no easy feat. The Bitcoin community is currently debating a big change that would mean the network could theoretically handle about 7.2 million transactions a day on a comparable level of electricity consumption, according to Stolfi. That would require a majority of the people mining Bitcoin to agree to the change, however.

Keeping power consumption high in general also makes the network more secure by making it harder for any one entity to gain control. “The right way to think about this is that the energy expenditure provides a level of protection against attacks—it establishes a price floor, currently in the many millions, to launch a 34 percent or 51 percent attack [where an attacker can block transactions and double spend bitcoins as they please],” Emin Gun Sirer, a Cornell professor and blogger at Hacking Distributed, explained in an email.

However, that same level of security could be maintained while allowing for more transactions, he said, shrinking the cost per transaction.

All that needs to happen, then, is to expand the userbase so we have more transactions, right?

Unfortunately for Bitcoin, if user adoption spikes, so will price—and so must power consumption. Bitcoin mining leads to an arms race among miners to grab a slice of the fixed rewards doled out by the network, Stolfi said. The higher the financial rewards, the more miners will invest in powerful equipment to keep up with the competition. The Bitcoin protocol will continue to increase the difficulty of the cryptopuzzles to keep rewards constant, continuing the arms race until the last block is mined.

That makes Bitcoin about 5,033 times more energy intensive, per transaction, than VISA

The bottom line? Price = energy. “The total revenue of the mining industry is Bitcoin price times BTC revenue in USD/day, independently of anything else; and the electricity consumption, also in USD/day, is some large fraction of that,” concludes Stolfi.

Green agrees: “Almost everything in Bitcoin is flexible, but that dynamic isn’t. Miners always have the incentive to throw as many hashes [requiring power] at the job as the price dictates.”

Of course, it wouldn’t be fair to knock Bitcoin’s electricity consumption without comparing it to payment systems most people use today. Let’s take VISA as an example.

According to Network Computing, the VISA network can process more than 80 billion transactions per year or 2,537 transactions per second, using two mirrored data centers, each capable of running the entire network. The larger data center is currently pulling enough power for 25,000 households’ daily electricity, so we’ll double that to account for VISA’s total draw. In 2013, VISA’s investor reports say the company processed 58.5 billion transactions.

Working off these (admittedly imperfect) figures, each VISA transaction consumes around 0.0003 household’s daily electricity use. That makes Bitcoin about 5,033 times more energy intensive, per transaction, than VISA, at current usage levels.



Both networks use a lot of houses worth of daily juice, but one of them processes millions more transactions. Image: Motherboard
Of course, VISA runs call centers, offices, and a whole lot else on electricity as well, which isn’t counted in this comparison. But those hardly matter due to the extreme difference between the two figures.

In a rosy 2014 Bitcoin sustainability study, Bitcoin analyst Hass McCook concluded that “Bitcoin has 99.8% fewer [carbon] emissions than the banking system,” which we can treat as a rough proxy for energy use. The study neglects to account for the vast size difference between the Bitcoin economy and the conventional money system, however—the world banking system’s market capitalization in 2010 alone was over 1,989 times bigger than today’s total Bitcoin valuation.

In light of the above analysis, Bitcoin’s power usage per transaction isn’t remotely sustainable as a wholesale replacement for the conventional financial system. In the future, Bitcoin could massively gain popularity, pile on millions more transactions, and still be unsustainable due to the arms race between miners.

In an email, Bitcoin expert Piotr Piasecki added some context to the comparison: “With the increase of the block size, there will be more transactions included in the block, so the cost per transaction should go down. While it might not reach such low levels as Visa, we are talking about two somewhat different systems. One is a database entry in a single system, another one is an immutable record of history in a decentralized ledger.”

What do you guys thing? is this barrier being solved by the improvements in the blockchain technology?

[jonald_fyookball]

mostly FUD.

"cost per transaction" is a dumb metric at the moment because transaction volume is low,
relatively speaking.   With bigger blocks (or __insert your favorite scalability solution here___)
we could be about the same level of hashing power but be doing more transactions.

Even the article admits that.

 

[Lauda]

The idiocy in this article is beyond the level of acceptance. With solutions LN this 'unsustainable' thing goes away and their "metric" that doesn't properly apply to Bitcoin. Even with the use of their metric, Bitcoin becomes the most efficient system out there.

With about 110,000 transactions per day, that works out to 1.57 households daily usage of electricity per Bitcoin transaction. Yes, every time you buy something in Bitcoin, you could be using as much electricity as 1.57 American families do in a day.

Makes zero sense because the electricity would be spent regardless of transactions being done or not.

[wayniac30]

“With the increase of the block size, there will be more transactions included in the block, so the cost per transaction should go down. While it might not reach such low levels as Visa, we are talking about two somewhat different systems. One is a database entry in a single system, another one is an immutable record of history in a decentralized ledger.”

The most important conclusion in the whole article... i agree it might be unsustainable now but once more transactions (yes a lot more) get included in a block we need to re-calculate it all.

[StevenS]

Comparing the Bitcoin energy use to VISA's is comparing apples to oranges. The energy used by Bitcoin miners is used to secure Bitcoin itself. Networks like VISA, by contrast are secured not only by the energy used in its data centers, but by the banks themselves. This includes the energy used by the bank CEOs to take airline flights, the energy used in all bank branches, etc. I.e. there is a lot more energy securing the VISA network than just that used in their network and data centers.

The emphasis on efficiency makes this argument more complicated. The simple fact is that the Bitcoin network is designed to pay miners a total payment that today is 3600 BTC + transaction fees per day. Every student of economics know that when the payment is fixed, the market will automatically adjust to the most efficient use. This means that the energy and other resources used will be automatically equal to something around 3700 BTC per day. (The transaction fees are part of this, and will become a bigger part after each halving.)

This amount of BTC, the miner compensation, will be spent on several things: equipment, rent, personnel, and electricity. The electricity use will depend on how much it costs in comparison to the other factors. If the price of electricity goes up, then it will be more of an advantage to pay more for equipment that is more efficient.

VISA, on the other hand, pays more of its costs in equipment and personnel (including R&D).

The point is that the cost of mining will always be what is paid to the miners, and this is determined mostly by the price of bitcoin. In the far future, when the mining subsidy is much less, the transaction fees will be determined by the market, but it won't change the fact that the electricity costs will end up being exactly what the miners are paid.

[hollowmines]

There seems to be an awful rush to declare bitcoin dead/unsustainable/scary of late - even moreso than usual. And none of it's been particularly credible or convincing so far.

[bargainbin]

Comparing the Bitcoin energy use to VISA's is comparing apples to oranges. The energy used by Bitcoin miners is used to secure Bitcoin itself. Networks like VISA, by contrast are secured not only by the energy used in its data centers, but by the banks themselves.

No, Visa transactions are secured by VISA.

This includes the energy used by the bank CEOs to take airline flights, the energy used in all bank branches, etc. I.e. there is a lot more energy securing the VISA network than just that used in their network and data centers.

That's just silly. By your reasoning, it follows that we should add airline flights by folks like Danny Brewster to Bitcoin energy costs. And brick & mortar offices of Bitpay & the flights taken by its employees. And Bitcoin exchanges and their owners etc., etc.

The emphasis on efficiency makes this argument more complicated. The simple fact is that the Bitcoin network is designed to pay miners a total payment that today is 3600 BTC + transaction fees per day. Every student of economics know that when the payment is fixed, the market will automatically adjust to the most efficient use. This means that the energy and other resources used will be automatically equal to something around 3700 BTC per day. (The transaction fees are part of this, and will become a bigger part after each halving.)

Either we're severely overpaying to secure Bitcoin now (~10% of total BTC in existence per year), or Bitcoin is not going to be sufficiently secure after the halving. Take your pick

[Dalkore]

I would not declare Bitcoin dead but as we go along, energy usage will become a large issue that does not have a easy solution.   Bitcoin mining is a zero-sum game, difficulty determines profitability and profitability determines the health of the network.  One thing is for sure, the Bitcoin network will centralize like Visa so that only a handful of large mining interests or ASIC chip makers will control the network.  This will come much sooner than people expect.  

[Meuh6879]

mostly FUD.

Bitcoin network is the most (and big) transparent thing in the world ... and the bankster system ? The right opposit ... it lies in every part of his number, it's black order book and DEBT against citizen.

I prefer an open network.
Bankster network is not open AT ALL !

[bargainbin]

...
I prefer an open network.
Bankster network is not open AT ALL !

What does "transparency" mean, when I don't know IRL identities behind BTC addys? Coins are tumbled all the time, coins are stolen all the time, exchanges claim hacks (GOX, Inputs, Cryptsy, etc.), Bitcoin businesses vanish without a trace, where are all these coins?
And I don't mean taint analysis of thousands of addys, that's useless.

[RodeoX]

It's so much greener to put a check in the mail so that it can be driven to the recipient. The recipient can then drive it to the bank and the bank can fire up their computer and enter the data.   

[Meuh6879]

What does "transparency" mean, when I don't know IRL identities behind BTC addys?

transparency is trusted network.

i can't sell my car in the actual (FIAT) system ... even the bankster network don't verify the FIAT account before i receive the payment !!! (Eurozone, Wire can be "delete" after 3-5 days ... on your account if sum is corrupt)

in Bitcoin network, this can't append after 2 hours.
if i receive a payment, it's real and usable money ... trusted and verified 6 times (!).

i don't want the identity of the bidder ... i want money ! 
that's why bitcoin is better over all solution ... because it don't NEED KYC ...

[CuntChocula]

It's so much greener to put a check in the mail so that it can be driven to the recipient. The recipient can then drive it to the bank and the bank can fire up their computer and enter the data.   

Actually yeah, by far.  Let me break it down for you:
An average block contains 2.7 * (takes 600 seconds to mine a block) = 1620 transactions. At most (some blocks are mined empty, as in "no* transactions).
For this, miners receive 25 BTC, which, at current rate, is roughly 12,000 dollars.
Meaning ~$7.40 PER TX.
Assuming that 1/3 of that is electrical cost (let's be generous), that's about $2.50 in energy cost, PER TRANSACTION.

Unless you think US Post Office is spending $2.50 in gas alone to deliver a check...

[bargainbin]

What does "transparency" mean, when I don't know IRL identities behind BTC addys?

transparency is trusted network.

i can't sell my car in the actual (FIAT) system ... even the bankster network don't verify the FIAT account before i receive the payment !!! (Eurozone, Wire can be "delete" after 3-5 days ... on your account if sum is corrupt)

in Bitcoin network, this can't append after 2 hours.
if i receive a payment, it's real and usable money ... trusted and verified 6 times (!).

i don't want the identity of the bidder ... i want money ! 
that's why bitcoin is better over all solution ... because it don't NEED KYC ...

Speed/irreversibility of transactions is transparency?

[calkob]

What an absolute load of dung designed to confuse and put of the average punter,  probably written by someone who used to work for Visa......  

[franky1]

they quote 110,000 tx per day..??(764 a block??)
um try triple that
which then makes the transactions per household 4.71 per household

and so a world wide currency that uses the equivalent electric of just 170,000 houses...... thats actually good,
seeing as there are 94,725 FIAT bank branches, which have equivelent floor plan of ATLEAST 4 houses (680,000 houses)
lets not forget the skyscapers and private office buildings of wall street.

lets not forget how many ATM's there are..

in short there are far more fiat buildings, using far more electric then the measly 170,000 household electric consumption.. yet fiat funds are not inflation protected not circulation controlled. not protected by as much security..

[commandrix]

When you really think about it, the "mainstream" financial system is also unsustainable. Look at the number of times Wall Street and the banking industry very nearly derailed the economy. If the amount of electricity used to maintain the Bitcoin network is a concern, why doesn't the energy sector invest more in "green" renewable energy sources that don't rely on fossil fuels?

[Meuh6879]

Speed/irreversibility of transactions is transparency?

yes, you have money or not. 
in FIAT system, it's ... perhaps ... eventually ... wait a little week to be sure. 

[Meuh6879]

If the amount of electricity used to maintain the Bitcoin network is a concern, why doesn't the energy sector invest more in "green" renewable energy sources that don't rely on fossil fuels?

true, but actual system of money even kill the scientific futur ... to derive the mathematic genius to ... create algorythm in financial crap reality.

they are rich ... but they don't evolve.

but, Bitcoin change this ... because, when you have a environment in you can't cheat ... you can plan other and evolved study about ... energy for example.

Bitcoin win.

[ATguy]

Unfortunately for Bitcoin, if user adoption spikes, so will price—and so must power consumption.

Not necessary. Bitcoin block rewards halve every 4 years, so if Bitcoin price double every 4 years, power consumption should be the same. If Bitcoin price doesnt double in 4 years, power consumption should decrease correspondigly.