9 ms·

What article is claiming is based on a misunderstanding of how Bitcoin works, this really is an odd way of thinking about it. If half of all people stop sendin

What article is claiming is based on a misunderstanding of how Bitcoin works, this really is an odd way of thinking about it. If half of all people stop sending bitcoin around, the amount of electricity used doesn't go down by 50%. So you sending or not sending bitcoin doesn't impact the electricity spend by miners at all. Miners mine to secure the network, there is not a certain amount of electricity needed per transaction.

steeve 4y ago
True, but the network serves a purpose. Without transactions, would there be a network to begin with? Therefore, you can model a per transaction cost within certain bounds.
paulgb 4y ago
It's not so odd. Those people are willing to transact in Bitcoin because it's sufficiently secure against a 51% attack. So in a sense they're consuming the benefit of the overall network hashrate, even though the cost they pay is heavily subsidized.
speedgoose 4y ago
If all people stop using bitcoin, the amount of electricity goes to zero.
rspeele 4y ago
But, the only purpose of mining -- the whole purpose of the blockchain -- is to facilitate transacting. So if the network can only do X transactions per day, and it costs $Y to run the network, it seems fair to use a "cost per transaction" to describe that inefficiency. Kind of like how I could represent the total cost of ownership of a car (purchase price, oil changes, tire changes, big repairs, fuel) in terms of $ per mile, even though out of all those costs, only fuel is directly consumed by driving a single mile.
- lowkey 4y ago
  It is incorrect to assume that the only, or even the most important, purpose of bitcoin is for transactions. Bitcoin users primarily hold Bitcoin as a store of value or speculative savings technology, typically held over long periods of time (years) with an expectation of price appreciation at the expense of short-term volatility. It is not, as many on HN have correctly pointed out, a viable transactional currency for most use cases due to price volatility, taxation related friction, limited real-world adoption for payments or transaction costs. The only compelling transactional use cases I know of are censorship resistant payments (e.g, Wikileaks) or high value international funds transfers outside G8 countries where wires are slow and risky. Most Bitcoin is held by savers or speculators over long periods and transactions are infrequent. Therefore the primary purpose of Bitcoin mining is securing the network from bad actors. Bitcoin is a secure vault on the internet. Just because people put money in and take money out of a vault doesn’t mean the purpose of a vault is transactions. It is security against 51% attacks. Therefore, the appropriate measure is not cost per transaction. It is cost per total value secured.
  - danShumway 4y ago
    > Therefore, the appropriate measure is not cost per transaction. It is cost per total value secured. Have you run the math on this? A quick DDG search brings up (https://www.investopedia.com/tech/how-much-worlds-money-bitcoin/ https://www.investopedia.com/tech/how-much-worlds-money-bitc...), which estimates about 2.9% of the world's money supply is in Bitcoin. It's not clear whether they estimated how much of that money supply is actually still accessible (ie, how many dead wallets there are), and it's not a given that all of that money could actually be cashed out anyway (see the recent stablecoin fiascos). But lots of asset classes are vulnerable to runs, so let's assume that it's completely accurate, and Bitcoin is using all this power to meaningfully secure 2.9% of the world's money. In order to secure that 2.9% of the money, Bitcoin generates more e-waste than a mid-sized country and uses roughly the same amount of energy as the entire country of Sweden every single year. And the problem is that even the most generous estimations of the amount of power that current financial markets use make that energy expenditure look really inefficient. Even pro-Bitcoin articles that I find online (ex. https://news.bitcoin.com/banking-system-uses-significantly-more-energy-than-bitcoin/ https://news.bitcoin.com/banking-system-uses-significantly-m...) are estimating that gold and banks each use in the neighborhood of 2-4x more power than Bitcoin annually. Which is a little bit embarrassing given that Investopedia above suggests that Bitcoin secures less than 10% the amount of money that gold secures. Similarly, it's tough to estimate how much money is held inside the financial sector (and of course, banks do way more than just secure value), but nobody I can find is giving estimates as low as 6-12%, instead I'm seeing some estimates as high as 25%. I would not really classify gold as an environmentally amazing asset, but when considering gold we're still looking at a store of value that per-year is basically 2-5x more energy efficient per "dollar-secured" than Bitcoin is. --- And I feel like this should honestly be kind of intuitive to people, if anything people should be surprised that those numbers aren't worse. Bitcoin's design is such that it uses electricity proportional to the amount of profit available from mining. Until the mining rewards drop to zero, as Bitcoin rises in value the energy/hardware expenditure will also rise to match that value. If it doesn't then the value of the coin will eventually get high enough to make 51% attacks profitable. So take a step back and think about that: a system that keeps its assets secure via a constant, massive expenditure of energy, that has to grow in energy expenditure as the price of the asset increases, and that has to be maintained in perpetuity in order to win an ever-escalating computing arms race against attackers... well, that's not a system that's exactly setting itself up to be an amazingly efficient store of value. It's not surprising that more traditional methods of running and securing databases and coordinating databases/transactions would be more efficient. It's not surprising that even a mostly physical asset would be more efficient to secure.
lukeschlather 4y ago
It's incorrect, but absent Bitcoin having an actual plan to increase transaction volume it's a reasonable way to imagine what a world where Bitcoin actually functioned as a currency might look like. It's possible that the bitcoin design is fundamentally flawed and cannot scale, but in some ways, OP has a very charitable way of imagining what it would look like if Bitcoin could actually function as a global currency.
yobbo 4y ago
Classic confusion about marginal costs. The price of bitcoin is supported by inflow of "fresh money" from newcomers. If this inflow stopped, for how long would mining continue?
- cookingrobot 4y ago
  The price of Bitcoin is not supported by the amount of fresh money coming in. It’s based on the lowest price a current Bitcoin holder is willing to sell for. If all Bitcoin holders decide tomorrow that it’s worth $200k per coin, then that’s the price, even if there are very few buyers at that price. It’s like the price of a stock: it’s not dependent on trading volume.
  - yobbo 4y ago
    To be accurate, the equilibrium price is the highest price a buyer is willing to pay, and that someone is willing to sell for. If the highest price is zero, there is no market, and mining would cease.
leifg 4y ago
So? It’s so frustrating having these discussions about energy consumption. If you make a statement about the absolute energy consumption of a PoW blockchain, the first response usually is “But this other thing consumes way more energy!!!!” In order to compare the consumption of the network to anything you will need to calculate it by some unit of utility. Transactions is the only metric that makes sense.
danans 4y ago
> Miners mine to secure the network They are ultimately humans, not machines, so they mine for the mining reward, not as a public service of securing the network. Transactions are the only service provided by Bitcoin (what else is a currency for other than transactions?), so it's totally fair to consider it's energy cost per transaction, especially since the banking system is evaluated in the same way.
danbruc 4y ago
How saturated is Bitcoin currently? I stopped following the details years ago but I guess Bitcoin could not handle a ten fold transaction rate increase today, right? Which means at best - if you completely saturate the network - you could get the costs per transaction down to 10% of the given number.
tromp 4y ago
> there is not a certain amount of electricity needed per transaction. Not yet. But that will be increasingly the case in the coming decades as the block subsidy gets repeatedly halved into insignificance. Then the brunt of Bitcoin's security (protection against 51% attacks) will have to be borne by transaction fees.
danShumway 4y ago
If 50% of Bitcoin users went away tomorrow or stopped transacting, almost certainly the amount of electricity used would decrease, because the value of the coin would decrease. This is like saying that if the US banned gold that gold mines wouldn't be impacted at all. Demand (and thus profitability of the asset) fuels mining. People mine because mining is profitable, not to secure the network. Securing the network is a side effect.

steeve 4y ago

True, but the network serves a purpose. Without transactions, would there be a network to begin with? Therefore, you can model a per transaction cost within certain bounds.

paulgb 4y ago

It's not so odd. Those people are willing to transact in Bitcoin because it's sufficiently secure against a 51% attack. So in a sense they're consuming the benefit of the overall network hashrate, even though the cost they pay is heavily subsidized.

speedgoose 4y ago

If all people stop using bitcoin, the amount of electricity goes to zero.

rspeele 4y ago

But, the only purpose of mining -- the whole purpose of the blockchain -- is to facilitate transacting. So if the network can only do X transactions per day, and it costs $Y to run the network, it seems fair to use a "cost per transaction" to describe that inefficiency. Kind of like how I could represent the total cost of ownership of a car (purchase price, oil changes, tire changes, big repairs, fuel) in terms of $ per mile, even though out of all those costs, only fuel is directly consumed by driving a single mile.

lowkey 4y ago
It is incorrect to assume that the only, or even the most important, purpose of bitcoin is for transactions. Bitcoin users primarily hold Bitcoin as a store of value or speculative savings technology, typically held over long periods of time (years) with an expectation of price appreciation at the expense of short-term volatility. It is not, as many on HN have correctly pointed out, a viable transactional currency for most use cases due to price volatility, taxation related friction, limited real-world adoption for payments or transaction costs. The only compelling transactional use cases I know of are censorship resistant payments (e.g, Wikileaks) or high value international funds transfers outside G8 countries where wires are slow and risky. Most Bitcoin is held by savers or speculators over long periods and transactions are infrequent. Therefore the primary purpose of Bitcoin mining is securing the network from bad actors. Bitcoin is a secure vault on the internet. Just because people put money in and take money out of a vault doesn’t mean the purpose of a vault is transactions. It is security against 51% attacks. Therefore, the appropriate measure is not cost per transaction. It is cost per total value secured.
- danShumway 4y ago
  > Therefore, the appropriate measure is not cost per transaction. It is cost per total value secured. Have you run the math on this? A quick DDG search brings up (https://www.investopedia.com/tech/how-much-worlds-money-bitcoin/ https://www.investopedia.com/tech/how-much-worlds-money-bitc...), which estimates about 2.9% of the world's money supply is in Bitcoin. It's not clear whether they estimated how much of that money supply is actually still accessible (ie, how many dead wallets there are), and it's not a given that all of that money could actually be cashed out anyway (see the recent stablecoin fiascos). But lots of asset classes are vulnerable to runs, so let's assume that it's completely accurate, and Bitcoin is using all this power to meaningfully secure 2.9% of the world's money. In order to secure that 2.9% of the money, Bitcoin generates more e-waste than a mid-sized country and uses roughly the same amount of energy as the entire country of Sweden every single year. And the problem is that even the most generous estimations of the amount of power that current financial markets use make that energy expenditure look really inefficient. Even pro-Bitcoin articles that I find online (ex. https://news.bitcoin.com/banking-system-uses-significantly-more-energy-than-bitcoin/ https://news.bitcoin.com/banking-system-uses-significantly-m...) are estimating that gold and banks each use in the neighborhood of 2-4x more power than Bitcoin annually. Which is a little bit embarrassing given that Investopedia above suggests that Bitcoin secures less than 10% the amount of money that gold secures. Similarly, it's tough to estimate how much money is held inside the financial sector (and of course, banks do way more than just secure value), but nobody I can find is giving estimates as low as 6-12%, instead I'm seeing some estimates as high as 25%. I would not really classify gold as an environmentally amazing asset, but when considering gold we're still looking at a store of value that per-year is basically 2-5x more energy efficient per "dollar-secured" than Bitcoin is. --- And I feel like this should honestly be kind of intuitive to people, if anything people should be surprised that those numbers aren't worse. Bitcoin's design is such that it uses electricity proportional to the amount of profit available from mining. Until the mining rewards drop to zero, as Bitcoin rises in value the energy/hardware expenditure will also rise to match that value. If it doesn't then the value of the coin will eventually get high enough to make 51% attacks profitable. So take a step back and think about that: a system that keeps its assets secure via a constant, massive expenditure of energy, that has to grow in energy expenditure as the price of the asset increases, and that has to be maintained in perpetuity in order to win an ever-escalating computing arms race against attackers... well, that's not a system that's exactly setting itself up to be an amazingly efficient store of value. It's not surprising that more traditional methods of running and securing databases and coordinating databases/transactions would be more efficient. It's not surprising that even a mostly physical asset would be more efficient to secure.

lukeschlather 4y ago

It's incorrect, but absent Bitcoin having an actual plan to increase transaction volume it's a reasonable way to imagine what a world where Bitcoin actually functioned as a currency might look like. It's possible that the bitcoin design is fundamentally flawed and cannot scale, but in some ways, OP has a very charitable way of imagining what it would look like if Bitcoin could actually function as a global currency.

yobbo 4y ago

Classic confusion about marginal costs. The price of bitcoin is supported by inflow of "fresh money" from newcomers. If this inflow stopped, for how long would mining continue?

cookingrobot 4y ago
The price of Bitcoin is not supported by the amount of fresh money coming in. It’s based on the lowest price a current Bitcoin holder is willing to sell for. If all Bitcoin holders decide tomorrow that it’s worth $200k per coin, then that’s the price, even if there are very few buyers at that price. It’s like the price of a stock: it’s not dependent on trading volume.
- yobbo 4y ago
  To be accurate, the equilibrium price is the highest price a buyer is willing to pay, and that someone is willing to sell for. If the highest price is zero, there is no market, and mining would cease.

leifg 4y ago

So? It’s so frustrating having these discussions about energy consumption. If you make a statement about the absolute energy consumption of a PoW blockchain, the first response usually is “But this other thing consumes way more energy!!!!” In order to compare the consumption of the network to anything you will need to calculate it by some unit of utility. Transactions is the only metric that makes sense.

danans 4y ago

> Miners mine to secure the network They are ultimately humans, not machines, so they mine for the mining reward, not as a public service of securing the network. Transactions are the only service provided by Bitcoin (what else is a currency for other than transactions?), so it's totally fair to consider it's energy cost per transaction, especially since the banking system is evaluated in the same way.

danbruc 4y ago

How saturated is Bitcoin currently? I stopped following the details years ago but I guess Bitcoin could not handle a ten fold transaction rate increase today, right? Which means at best - if you completely saturate the network - you could get the costs per transaction down to 10% of the given number.

tromp 4y ago

> there is not a certain amount of electricity needed per transaction. Not yet. But that will be increasingly the case in the coming decades as the block subsidy gets repeatedly halved into insignificance. Then the brunt of Bitcoin's security (protection against 51% attacks) will have to be borne by transaction fees.

danShumway 4y ago

If 50% of Bitcoin users went away tomorrow or stopped transacting, almost certainly the amount of electricity used would decrease, because the value of the coin would decrease. This is like saying that if the US banned gold that gold mines wouldn't be impacted at all. Demand (and thus profitability of the asset) fuels mining. People mine because mining is profitable, not to secure the network. Securing the network is a side effect.