E=m*btc^2 ?

[mestar]

we dont rank the value of the internet based on how much power it takes to run,

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.

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[luke.watson]

we dont rank the value of the internet based on how much power it takes to run,

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

[mgio]

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.

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.

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.

[drhobomanxxiii]

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:

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).

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.

[Evo]

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.

[jdbtracker]

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.

[manfred]

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

Bitcoin is not the first currency related to energy consumption.

Kilowatt Cards are "a store-of-value and a medium-of-exchange" that can each be redeemed for 10 kilowatt-hours of electricity.



They solve the counterfeiting/double-spending problems by including a six-character serial number on each card. Before accepting a card, the recipient checks that the serial number is valid. The recipient then crosses off the first two characters and adds two characters to the end, forming a new serial number and rendering the previous serial number invalid. Pretty clever, huh?

The currency still seems to be going strong. More details at their website. Of course it's a centralised currency, so of little interest to us.

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.

[Etlase2]

anything that is tied to overall costs to operate for the entire Bitcoin system gets optimised overtime, some faster than others.

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.

[jdbtracker]

anything that is tied to overall costs to operate for the entire Bitcoin system gets optimised overtime, some faster than others.

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!

[Etlase2]

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,

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.

Hell it will drive a energy revolution for the masses!