Correlation between mining costs and Bitcoin value and ecological nightmare

[Gabi]

Maybe he mean the low price? Mh...still make no sense 

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[Timo Y]

If Bitcoin ever becomes that big, mining will be so competitive that it will use electricity that can can be used for little else but mining.

A new kind of electricity? 

No, the old kind, except consumed in times and places where it would have gone to waste before.

[coel]

In Europe (or at least in Germany, I don't really know about the rest of Europe) mining already isn't profitable anymore. The price for one kWh is somewhere around 20 Euro cents which equals to about 30 US cents. Is it true that in the US, a kWh costs below 10 US cents? If yes, well, mining is of course profitable for you there. In Germany, mining only makes sense if you want to support Bitcoin or if you speculate on higher prices in the future.

And even that is quite idiotic, given that at current prices, buying Bitcoins is chepaer than mining them (at least if you have to buy hardware first, and maybe even without counting the hardware).

It can already be seen now that mining rigs tend to be where electricity is cheap. Which might be a problem in the future if a country where a lot of hashing power is amassed tries to ban Bitcoin completely.

[Tasty Champa]

water power, wind power and solar power, is the long haul.

[wareen]

No, the old kind, except consumed in times and places where it would have gone to waste before.

Energy companies around the world could use surplus energy in times of low demand to mine Bitcoins. This would be a really efficient scenario.

[Timo Y]

No, the old kind, except consumed in times and places where it would have gone to waste before.

Energy companies around the world could use surplus energy in times of low demand to mine Bitcoins. This would be a really efficient scenario.

Exactly. Also, there are a lot of electric heaters in the world that could be replaced with mining rigs.

Mining is a highly competitive market, so it will drive towards these kinds of solutions where the marginal cost of electricity is zero.

Nobody will be buying electricity to mine anymore, 6 months from now.

[PatrickHarnett]

Sorry, I find that funny.  Surplus energy - not really.  Most systems use some kind of fossil fuel and they would prefer to hold it until someone places enough alue on it to consume it.  They are not likely to throw away money on mining.

On the flip side, there is a computing community that computes for nothing - I've swapped over for a while - and when it becomes too expensive to mine, I'll probably go back because mining is not very interesting.

[wareen]

Sorry, I find that funny.  Surplus energy - not really.  Most systems use some kind of fossil fuel and they would prefer to hold it until someone places enough alue on it to consume it.  They are not likely to throw away money on mining.

Oh but surplus energy does exist - I happen to live in a country where about 60% of the electricity is generated by hydropower-plants and they are not turned off at night just because electricity demand drops. Instead they built lots of pumped storage systems to salvage at least some part of the surplus energy to use during daytime.

Unfortunataly the geographical locations suitable for pumped storage hydroelectric systems are limited and they are desperately trying to find more.

With a growing percentage of energy coming from renewable sources like wind or solar, the problem of fluctuating energy production becomes even more severe. Large scale grid storage systems are expensive and/or inefficient therefore temporary surplus energy will be a growing factor in the future.

As mining rigs are not terribly location dependent and it is no problem to design them in a way to quickly adapt their power usage it is not too far fetched that power companies distribute some rigs throughout the grid to make good use of surplus energy. This could help to stabilize the power grid, make efficient use of energy because you could use the energy close to where it's produced and of course: earn the power companies money.

[flug]

The main point I'm trying to make is that with the current setup, bitcoins going to $10,000 or taking any significant percentage of world GDP or the world black market over the next few years isn't going to happen. It's too severely limited by the power available in the world.

No no this is all wrong, ugh.  If Bitcoin demand rises then Bitcoin prices rise then mining demand rises then power demand rises and power prices rise and the price of
Bitcoins in dollars has nothing to do with the amount of power available anyways.

Ugh indeed. At least I hope there is a consensus that there is an approximately linear relationship between cost of production and bitcoin reward.

(I'm making a lot of assumptions here, like ignoring cost of equipment, no energy price fluctuations, just talking about the next 18 months with the 50BTC reward, wareens other points, etc. - but I'm looking at orders of magnitude here)

So, the assumption is that if the bitcoin market price rises by 10, the overall ongoing spend for power for mining will increase by 10 too, which will roughly equate to 10 times power consumption.

I'm not saying that the price of bitcoins in dollars has anything to do with power available. I'm saying that if the bitcoin price goes up too fast over the next 18 months there won't be enough power stations to satisfy the consequent power demand from bitcoin miners.

The idea that bitcoin mining might actually increase to the point where it significantly affects energy prices disturbs me!

[flug]

Mining is a highly competitive market, so it will drive towards these kinds of solutions where the marginal cost of electricity is zero.

If the price of bitcoins seriously shoots up 1000 fold in the next few years, those 50BTC or 25BTC rewards will be worth a lot of money! At $10,000/BTC in 3 years, each reward would be worth $250,000. In this case the mining won't be limited by the competitive market, it will be limited by the supply of graphics boards and the amount of power the electricity companies will ration you. This is the scenario I'm pointing to. It's the scenario that's implied when people say Bitcoin is scalable to cope with a significant %age of world GDP.

[BubbleBoy]

The idea that bitcoin mining might actually increase to the point where it significantly affects energy prices disturbs me!

You are mostly correct in your calculations. Comparing BTC to a real currency is good thought experiment that proves it's a flawed, wasteful concept.

Let's assume Bitcoin becomes hugely successful and manages to displace the US dollar tomorrow. The total quantity of dollars that make up the monetary base (the most liquid money that bitcoin would replace) is on the order of 2 trillion, so if their value is substituted with  bitcoins, the 12 million bitcoins generated in the next 10 years (6 million -> 18 million) will be worth today about 1.3 trillion $. If we equate that value with the price of electricity as per the quote above we get 26 trillion KWh at current wholesale prices. That's more than the entire energy production of the world in a single year ! During the ten year period, minting bitcoins would require 70% of the electricity production of the United States !

While I agree Bitcoin will not replace the dollar, and it will certainly not do so tomorrow, using the correct scale shows just how bad a design is. A smaller Bitcoin is not less bad, just bad on a smaller scale, a local toxic spill as opposed to a full blown Exxon Valdez.

Mind you, I have ignored the hardware requirements which will likely dominate mining and that have more important impacts on the environment than the electricity consumption. In a real scenario, the electricity consumption will be lower, while the environmental impacts will be higher (manufacturing is more damaging than electricity production for a given revenue level; electricity can come from nuclear, hydro, etc. while copper can't be extracted without carving up some mountain).
I challenge anyone to reflect on how all this compares with the current financial sector, and prove how Bitcoin can be seen as an improvement.

[wareen]

The idea that bitcoin mining might actually increase to the point where it significantly affects energy prices disturbs me!

Don't worry - it won't!
Heck, you could even hedge against that risk by buying some BTC today and use them to build your own DESERTEC in 18 months

[Timo Y]

Sorry, I find that funny.  Surplus energy - not really.  

It's complex. Electricity is not a perfectly liquid commodity.  

For example, powering up and down a gas power plant to match demand reduces the efficiency compared to a plant that is always running at optimum speed. Thus energy is wasted indirectly.  

Nuclear power plants cannot be powered down at all.

Pumped storage incurs losses.

Long distance transmission incurs losses.

Wind power is highly intermittent, and it's on the rise (6% of electricity in Germany comes from wind).


The complex economics of the electricity grid will favour bitcoin mining over storage/long distance transmission/throttling in some places at some times.

[pdki]

In my opinion

• in the mid-term (October) the availability of ASICs will change mining completely, they will consume less power but will be more expensive, at least in the beginning. Therefore the price of the ASICs will be the deciding factor for mining profitability. Because of their computing power beeing orders of magnitude larger than GPUs, GPUs cannot compete anymore.
• long-term, the technology used for mining does not matter, as long as it is available to everybody, thus energy will be the factor again

[flug]

long-term, the technology used for mining does not matter, as long as it is available to everybody, thus energy will be the factor again

This is one of the most important points in all of this. Increased technology will increase the overall hash rate but it won't decrease the overall power used.

[Stephen Gornick]

Difficulty follows price. If the price were to quadruple from current levels, for instance, miners might try to fire up CPUs again but other than that, there isn't much current excess capacity out there.  i.e., it wouldn't rise immediately.  Mining would once again be extremely profitable and it might take a couple of months or so for difficulty to catch up to price.

This is assuming there isn't some technological innovation (e.g.., cheap and low power ASIC) that comes along first.

[flug]

Mining would once again be extremely profitable and it might take a couple of months or so for difficulty to catch up to price.

Yes, there will be a lags and other dynamics, but in the steady state we'll still end up in the situation where a few power stations are needed to support a significant bitcoin price (e.g. $10K) in the near future.

This is assuming there isn't some technological innovation (e.g.., cheap and low power ASIC) that comes along first.

Cheap ASICs will push up the hash rate, but won't reduce the power used.

[flug]

You are mostly correct in your calculations. Comparing BTC to a real currency is good thought experiment that proves it's a flawed, wasteful concept.

I'm not sure it's a flawed concept. That's certainly not what I'm trying to prove. If the equations worked out better, it's valid to expend power to generate integrity in the network. It's just a shame it's that much power. Perhaps once most of the mining has finished and most income is generated from transactions things will get more sensible, but that's a long time in the future.

[BubbleBoy]

It's certainly a flaw, a major one. Is it a mortal flaw ? I don't know. It's the same flaw that killed gold as a viable medium of exchange. If the current monetary system of the US would suddenly require 70% of the energy production to stay secure, how do you think the society will react ?
I'm not saying security is bad, I'm saying that Bitcoin pays a hefty price for it's security, up to the point where it doesn't really make sense to want it as a replacement for the current monetary system. At least the executive bonuses at AIG go into nice looking palaces and generate employment. Bitcoin's overhead goes into killing the planet.

[flug]

So, before this thread goes to sleep, I'd like to leave a working conclusion that if the bitcoin price increases 200 fold over the next year or so, bitcoin mining will be using in the order of 1GW of energy, or about 1 large power station.