4 ms·

Each bitcoin block takes 25 BTC (11000 USD at time of writing) worth of electricity to mine, because that is the maximum that the sum total of miners can afford

Each bitcoin block takes 25 BTC (11000 USD at time of writing) worth of electricity to mine, because that is the maximum that the sum total of miners can afford to spend and still break even. Currently it's only possible to fit somewhere around 2000 transactions in each block, because there is a hard-coded limit on the size of a block (1 MiB). So each transaction costs 11000/2000=5.5 USD, which is indeed the approximate value of 1.57 days worth of average per household energy consumption in the US. This is a big reason why it is important that the 1 MiB limit is lifted soon, the artificial restriction on transaction volume pushes the cost per transaction far too high. As a side note, when the block reward halves to 12.5 BTC in a few months, we will either see the value of bitcoin double or the hashrate (and energy consumption) halve - probably a little of both.

aianus 10y ago
> So each transaction costs 11000/2000=5.5 USD No, each transaction costs at most $5.50 USD. You haven't established any lower bound in your calculations. A better approach would be to calculate the average number of hashes required to mine a block and the power efficiency of the latest generation ASIC miners. Also, for what it's worth, $5 is much cheaper than a Western Union or SWIFT wire transfer so even this upper bound doesn't mean Bitcoin is uneconomical compared to modern banking.
- xigency 10y ago
  Except environmentally, you need to look at the energy footprint of Western Union compared to the network of Bitcoin miners, not the price of electricity or amount of coins awarded.
  - Mtinie 10y ago
    Western Union's energy footprint is no doubt large. Is it larger than the Bitcoin networks? I don't know, but WU has extensive infrastructure in place all over the World, so it's not a simple case of Bitcoin being the only ecologically unsound option of the two.
  - gnaritas 10y ago
    No, you need to look at the energy footprint of the entire currency system including printing and movement of cash, not just Western Union.
- brg1007 10y ago
  Meanwhile in Europe I'm paying 30 cents for bank transfers within the EU up to 50K.
  - notahacker 10y ago
    and in a country where Western Union is actually the preferred payment option, the transaction fee allows a recipient that may not even own a computer to go to a shop in their village and collect local currency they can actually spend on the things they need
  - matt_wulfeck 10y ago
    That's a shame. I just transferred money from one bank to another here in the US and it was free. To my surprise it also happened instantly!
    - tormeh 10y ago
      Is this a recent development?
- ksrm 10y ago
  This chart shows that the cost per transaction is around $8: https://blockchain.info/charts/cost-per-transaction https://blockchain.info/charts/cost-per-transaction I believe this is because the average block size is less than 1 MB: https://blockchain.info/charts/avg-block-size https://blockchain.info/charts/avg-block-size
- aws_ls 10y ago
  >much cheaper than a Western Union or SWIFT wire transfer But in practice, even when a user moves bitcoins between their own wallets its results in that transaction getting registered in the block chain. Which is very unnecessary, costly, inefficient and also may compromise the user's privacy. That's why IMHO some kind of solution whether it is lightning network[1] or sidechains is needed. [1] https://lightning.network/ https://lightning.network/
Taek 10y ago
This is a dramatic oversimplification of the Bitcoin network. First, the hashrate's primary purpose is not mining transactions, it's securing the network. That includes transactions that have already been mined, and includes all of the bitcoins that everyone is sitting on. For me personally, Bitcoin's primary purpose is not moving money around but rather parking my money safely in an asset that is not subject to the whims of politicians. Giant price swings are inconvenient, but I am willing to accept the variance because I know my money cannot be seized, my transactions cannot be censored, and the money will not lose value because my government decides to print a ton of cash. It is important to me that the network have a high hashrate whether or not I am actively moving my money around, and in fact most of that $11,000 is charged in the form of inflation, not in the form of transaction fees. Inflation penalizes the people holding onto their bitcoins, where fees penalize the people moving money around. Secondly, the cost of a transaction is a relatively minor concern when it comes to the blocksize. What is most important is that the network is secure, and cheap transactions come as a secondary concern. If you want cheap transactions, you can use a centralized system which does not need to worry about all the problems that accompany decentralized money. If you want decentralized transactions, you're going to need to pay the minimum price necessary to make sure that the network remains both secure and decentralized, and (unfortunately) 1MB (soon to be ~1.75MB, thanks to segwit) per 10 minutes is about all we can do safely. Explaining why 1MB is approx the best throughput the network can get is a much longer conversation, but there are signficant safety concerns related to hardforking the network, related to slowing down block propagation (larger blocks propagate slower, and if blocks are taking more than ~6 seconds to propagate the network you get mining centralization pressures), related to the cost of running a full node, related to the fact that a fee market is going to be what secures the network in the future, and related to a handful of other smaller issues as well. It turns out that a number as simple as 1MB has a large number of broad effects on the system as a whole, and changing it even slightly can have pretty dramatic effects in unintuitive places. Finally, in practice there is not a linear correlation between hashpower and block subsidy. Lots of miners have been preparing for the halving for months, and therefore have only expanded their operations to what they will be able to sustain after the halving. There are at least a few large mining companies out there that are actually spending less than half the price of a bitcoin in electricity and maintenance for each bitcoin they mine, meaning they will not lose any hashrate at all when the halving arrives. There was some concern about this at the Scaling Bitcoin conferences, so me and a few others probed deeper into the probable outcomes of the reward halving, and we found that most miners had a plan which did not involve them turning off their rigs even if the price did not rise. Some of them are actually already locked into power agreements that will penalize them heavily if they don't consume the electricity. It's difficult to predict what the halving will do to the price. We know that when the halving occurs, ~1800btc per day of sell pressure will disappear. That most likely means that the price will rise, but there is absolutely no reason to believe that this will cause the price to double. I personally am predicting that, regardless of price movement, we will see the hashrate drop less than 15% in the month following the halving. I have done a moderate amount of research in arriving at this conclusion, at least more than your typical armchair speculator.

aianus 10y ago

> So each transaction costs 11000/2000=5.5 USD No, each transaction costs at most $5.50 USD. You haven't established any lower bound in your calculations. A better approach would be to calculate the average number of hashes required to mine a block and the power efficiency of the latest generation ASIC miners. Also, for what it's worth, $5 is much cheaper than a Western Union or SWIFT wire transfer so even this upper bound doesn't mean Bitcoin is uneconomical compared to modern banking.

xigency 10y ago
Except environmentally, you need to look at the energy footprint of Western Union compared to the network of Bitcoin miners, not the price of electricity or amount of coins awarded.
- Mtinie 10y ago
  Western Union's energy footprint is no doubt large. Is it larger than the Bitcoin networks? I don't know, but WU has extensive infrastructure in place all over the World, so it's not a simple case of Bitcoin being the only ecologically unsound option of the two.
- gnaritas 10y ago
  No, you need to look at the energy footprint of the entire currency system including printing and movement of cash, not just Western Union.
brg1007 10y ago
Meanwhile in Europe I'm paying 30 cents for bank transfers within the EU up to 50K.
- notahacker 10y ago
  and in a country where Western Union is actually the preferred payment option, the transaction fee allows a recipient that may not even own a computer to go to a shop in their village and collect local currency they can actually spend on the things they need
- matt_wulfeck 10y ago
  That's a shame. I just transferred money from one bank to another here in the US and it was free. To my surprise it also happened instantly!
  - tormeh 10y ago
    Is this a recent development?
ksrm 10y ago
This chart shows that the cost per transaction is around $8: https://blockchain.info/charts/cost-per-transaction https://blockchain.info/charts/cost-per-transaction I believe this is because the average block size is less than 1 MB: https://blockchain.info/charts/avg-block-size https://blockchain.info/charts/avg-block-size
aws_ls 10y ago
>much cheaper than a Western Union or SWIFT wire transfer But in practice, even when a user moves bitcoins between their own wallets its results in that transaction getting registered in the block chain. Which is very unnecessary, costly, inefficient and also may compromise the user's privacy. That's why IMHO some kind of solution whether it is lightning network[1] or sidechains is needed. [1] https://lightning.network/ https://lightning.network/

Taek 10y ago

This is a dramatic oversimplification of the Bitcoin network. First, the hashrate's primary purpose is not mining transactions, it's securing the network. That includes transactions that have already been mined, and includes all of the bitcoins that everyone is sitting on. For me personally, Bitcoin's primary purpose is not moving money around but rather parking my money safely in an asset that is not subject to the whims of politicians. Giant price swings are inconvenient, but I am willing to accept the variance because I know my money cannot be seized, my transactions cannot be censored, and the money will not lose value because my government decides to print a ton of cash. It is important to me that the network have a high hashrate whether or not I am actively moving my money around, and in fact most of that $11,000 is charged in the form of inflation, not in the form of transaction fees. Inflation penalizes the people holding onto their bitcoins, where fees penalize the people moving money around. Secondly, the cost of a transaction is a relatively minor concern when it comes to the blocksize. What is most important is that the network is secure, and cheap transactions come as a secondary concern. If you want cheap transactions, you can use a centralized system which does not need to worry about all the problems that accompany decentralized money. If you want decentralized transactions, you're going to need to pay the minimum price necessary to make sure that the network remains both secure and decentralized, and (unfortunately) 1MB (soon to be ~1.75MB, thanks to segwit) per 10 minutes is about all we can do safely. Explaining why 1MB is approx the best throughput the network can get is a much longer conversation, but there are signficant safety concerns related to hardforking the network, related to slowing down block propagation (larger blocks propagate slower, and if blocks are taking more than ~6 seconds to propagate the network you get mining centralization pressures), related to the cost of running a full node, related to the fact that a fee market is going to be what secures the network in the future, and related to a handful of other smaller issues as well. It turns out that a number as simple as 1MB has a large number of broad effects on the system as a whole, and changing it even slightly can have pretty dramatic effects in unintuitive places. Finally, in practice there is not a linear correlation between hashpower and block subsidy. Lots of miners have been preparing for the halving for months, and therefore have only expanded their operations to what they will be able to sustain after the halving. There are at least a few large mining companies out there that are actually spending less than half the price of a bitcoin in electricity and maintenance for each bitcoin they mine, meaning they will not lose any hashrate at all when the halving arrives. There was some concern about this at the Scaling Bitcoin conferences, so me and a few others probed deeper into the probable outcomes of the reward halving, and we found that most miners had a plan which did not involve them turning off their rigs even if the price did not rise. Some of them are actually already locked into power agreements that will penalize them heavily if they don't consume the electricity. It's difficult to predict what the halving will do to the price. We know that when the halving occurs, ~1800btc per day of sell pressure will disappear. That most likely means that the price will rise, but there is absolutely no reason to believe that this will cause the price to double. I personally am predicting that, regardless of price movement, we will see the hashrate drop less than 15% in the month following the halving. I have done a moderate amount of research in arriving at this conclusion, at least more than your typical armchair speculator.