Correlation between mining costs and Bitcoin value and ecological nightmare

[ElectricMonk]

Obsessed by this topic today but did some digging around (pardon the pun) regarding gold price and extraction costs...

http://www.moneyweek.com/blog/what-is-gold-really-worth-00301

It would seem that extraction costs of Gold are about $600/oz. So within an order of magnitude and not far from the previously relatively stable gold price.

So the question is... what's stopping me from going and buying myself a piece of this money farm? We'll I'm guessing the actual cost of extraction for a new entrant would be close to the current gold price or why would the current owner sell their mining land, equipment and knowledge to a new entrant? Seems to me that mining difficulty proably hasn't changed that much in the last few years and therefore it must be the dollar losing value.

Interesting. It suggest that the BTC price probably wouldn't be too far from the cost of mining it and thus the major factor in the mining cost will drive the price. At the moment, the BTC mining cost is the labour, knowledge attainment and opportunity costs.

[TiagoTiago]

Someone should launch a pool that directs a percentage of the fees towards carbon credits...

[Gabi]

But... i like carbon!

[datafish]

Flug's point is an important one, but nonetheless there are few ways to avoid power consumption, ceteris paribus.

Bitcoin's value is because it is difficult to fake. As more and more wealth gets into the network, every possible exploit will be found. ASICs and FPGAs will drive GPUs out. But if the tech is shared or parallel tech is developed, then power usage will be back to where it used to be. Hash rate will be at a level where ordinary people won't be able to touch it, but power consumption will continue be correlated. Even if something incredibly power efficient like DNA based computing is developed, there will be a large temporary dip, but the power consumption will go back to a high level.

This is because of an exceedingly simple reason - Every automatic way of making money in the world will eventually be tried out. Mining is an automatic way of making money in the bitcoin world.

Money is the fulcrum of the world economy. Billions of people decide what they want to do daily based on money. It is the ultimate coordination mechanism. Many people see this power consumption as wasteful, but I see true agoric commerce as a wonderful new way of coordinating society.

We wish we could trust everyone to the extent that their word is enough, but in reality, we don't.

We need proof of resources, which translates into the world of the internet as Proof of Work.

I wish to nominate this for post of the week.  Extremely erudite.  There is no shortcut to creating/securing value.  There is no "nightmare."  Consider all the ecological damage associated with propping up the dollar and the U.S. political system.

[ne1]

I've thought about this myself, (using the generated heat for another purpose).  In permaculture, this is called stacking functions.  In regards to max temp on the chips not being high enough for a heater, I wanted to point out that the lower temperature heat could be used to preheat a water system, then another source could be integrated to raise it to the desired temp.  I've been considering using waterblocks on my 3ghash mining setup to preheat water for my home brewery.

[phelix]

I've thought about this myself, (using the generated heat for another purpose).  In permaculture, this is called stacking functions.  In regards to max temp on the chips not being high enough for a heater, I wanted to point out that the lower temperature heat could be used to preheat a water system, then another source could be integrated to raise it to the desired temp.  I've been considering using waterblocks on my 3ghash mining setup to preheat water for my home brewery.

room heating is very easy. one dude used his watercooled rig for floor heating.

[flug]

There is no "nightmare."

If the BTC price goes up to $10,000 in the next year, mining earnings will be 50*6*10,000 = $3,000,000/hour

@10c/kWh, this is 30,000,000kWh/hour = 30GW = 6 power stations

Is this a realistic scenario? If so, is this a nightmare?

[wareen]

There is no "nightmare."

If the BTC price goes up to $10,000 in the next year, mining earnings will be 50*6*10,000 = $3,000,000/hour

@10c/kWh, this is 30,000,000kWh/hour = 30GW = 6 power stations

Is this a realistic scenario? If so, is this a nightmare?

What's the point in restating the same question this thread has been about the whole time?
There have been dozens of good arguments regarding this question so please - anybody who wants to contribute something: read the whole thread before you do.

And flug: really, what's the point? More than two weeks ago you said:

Yeap, I'll go with that. It was bugging me that I'd seen a potentially serious problem, and it wasn't being sufficiently acknowledged. As long as we're all aware of it, and factor it in to our predictions for the future of Bitcoin (i.e. Bitcoin is not infinitely scalable without cost), all is good.

Seems like you acknowledged the issue as having been reasonably dealt with...
We discussed this back and forth and I think we have settled that this scenario is possible but not very probable.

We cannot possibly quantify the exact probability that this "nightmare" will happen and I doubt any further discussion will change this.

[flug]

Seems like you acknowledged the issue as having been reasonably dealt with...
We discussed this back and forth and I think we have settled that this scenario is possible but not very probable.

We cannot possibly quantify the exact probability that this "nightmare" will happen and I doubt any further discussion will change this.

I acknowledged that the issue had been acknowledged 

If Bitcoin becomes a significant part of the world economy in the next decade, mining power will go crazy. No way out. We won't solve the problem by continually discussing it, but it is important to keep the question open and visible. I don't think an occasional bump of this thread is so bad.

[ctoon6]

if it became necessary to make mining less profitable in a world where it was too cheap and was causing problems, AND it was mainstream, all that would need to be done is make the mainline client mine by default, then it would make it at least 10% more difficult just because of the sheer volume of cpus that would be mining.

[PatrickHarnett]

There is no "nightmare."

If the BTC price goes up to $10,000 in the next year, mining earnings will be 50*6*10,000 = $3,000,000/hour

@10c/kWh, this is 30,000,000kWh/hour = 30GW = 6 power stations

Is this a realistic scenario? If so, is this a nightmare?

That would be great if I was the only one mining - say one 4850 or 9800 card somewhee, or even one i7 core.  The statement misses too many of the other variables to be sensible (sorry).

If difficulty is near zero and only one person mines, six block per hour will still be created.  This does not imply 30 GW.

[flug]

If difficulty is near zero and only one person mines, six block per hour will still be created.  This does not imply 30 GW.

In what scenario would only one person be mining when $3,000,000/hour is up for grabs?

[TiagoTiago]

Perhaps i should start selling carbon credits (in BTC of course) for not mining...

[ctoon6]

Perhaps i should start selling carbon credits (in BTC of course) for not mining...

that only works if you are required to pay silly...

[PatrickHarnett]

If difficulty is near zero and only one person mines, six block per hour will still be created.  This does not imply 30 GW.

In what scenario would only one person be mining when $3,000,000/hour is up for grabs?

An unlikely one.  The point is, all of the variables and relationships do not necessarily hold over the entire range.  Hence, while enormously improbable, it is at one end of the possible spectrum of outcomes.

If the relationships were exactly matched, the profit margins from mining would still be high like they were 1, 3 or 6 months ago?  This has not happened, and forecasting out to the $3m/hr scenario the relationship is unlikely to hold as other block economics start to have an influence.

[mestar]

To conclude from my perspective:
Yes, if price shoots up 200 fold within a year, Bitcoin's total energy consumption will be much higher by the end of that year but your conclusion of a 1:1 relationship is ignoring so many factors that it most certainly does not even hit the right order of magnitude.

This isn't mindless extrapolation. This is concentrating on the primary market driver.

Cost of mining will tend to gravitate to the rewards of mining.

In a decade's time, when (the few) people who can afford it have invested in expensive ASIC mining rigs and paid them off, and the bitcoin price has stabilized at $10,000 to become a major world currency:

(a) cost of mining will be mostly power costs, not capital costs
(b) investing in bitcoins won't make easy money anymore.

So I think we will approach a 1:1 relationship. At least, it will definitely be in the same order.

I think the calculation you gave is important in understanding the problem, but only looks at at small time window during the initial stages of Bitcoin. In the long term I think the picture will approach a different steady state.

It's funny, you tried to explain it again again, and still people still refuse to accept it. 

"1:1 relationship is ignoring so many factors that it most certainly does not even hit the right order of magnitude."

Yet he does not list a single factor.


Yes, incentives are there, almost all of the mining awards will go to pay for the power costs.  However, all this money must come from the bitcoin economy, and pass trought exchanges, since plants don't accept bitcoins yet.   This will push the price of bitcoins down, and in this way the energy problem will be solved. 

[pera]

Quick calculation:

In a few years, assume BTC price rises by a factor of 1000 and total bitcoins = 10M

BTC Market Cap = 10M BTC @ $20 x 1000 = $200B (not a huge %age of the world's current currency)
Power = 5MW x 1000 = 5GW

So, market cap of $200B = 5 Nuclear power stations (@ 1GW each)

I might be out by factors of 2, but not factors of 10.

Where is this calculation wrong?

It's amazing how accurate this estimation was. This thread is fascinating in retrospective.