Rate of growth
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- In the past month alone, Bitcoin mining electricity consumption is estimated to have increased by 29.98%
- If it keeps increasing at this rate, Bitcoin mining will consume all the world’s electricity by February 2020.
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As usual, there is a relevant XKCD comic on this:
The obvious crux here is the phrase “if it keeps increasing at this rate” – which can be very unlikely to happen. It’s basically exponential growth, which can be really hard to match on scale – you would have to produce more mining hardware, which would also require you to at some point start creating more electronics factories and more chip fabrication facilities and so on. All of those can take a lot of time to get going.
Even if you could fabricate all of those chips, at some point you will run into some limits imposed by the economics of Bitcoin mining.
Economics of Bitcoin mining
The Proof of Work algorithm Bitcoin uses is self-balancing – it doesn’t really care how much or how little mining power there is in the network, it will still try to maintain the 1-block-per-10-minutes mining schedule. With the block reward being inflexible and the transaction fees being finite, the only factor that can have a large impact on the Bitcoin mining rate is the price of a single bitcoin. If the price doubles, you can expect the difficulty to double (with some time delay) due to more miners coming onto the network. If the price goes down, some miners will be priced out of the market and the difficulty will go down.
In an ideal world, the cost of mining 1 bitcoin would be about 1 bitcoin. In real world, you have some inefficiencies and opportunity cost, so you should see some small profit margin at the least.
To figure out how much electricity Bitcoin will consume in the future, you have to break things down into basics.
First – what is a miner really? It’s a computer that converts electricity into Bitcoin and produces some heat. In a perfect scenario, every dollar of electricity you would pump into the machine would give you about a dollar worth of coins.
Every year we have about 52’596 Bitcoin blocks generated. Assuming 12.5 BTC block reward and 2.5 BTC in transaction fees, we should expect to give the miners a net gain of 788’940 BTC in a year.
Since the Bitcoin mining rewards halve every 4 years, the price per BTC would have to increase by further factors to keep up with the global power generation revenue.
Taking a more realistic look
A lot of the numbers here assumed perfect scenarios – no money being lost while converting from electricity to bitcoins, no cost of manufacturing and maintaining the miners, etc. In reality, you can expect noticeable losses from those factors, as well as things like taxes, transfer fees, internet cost, etc.
At the very least, Bitcoin mining is a universal “overflow valve” – it’s a simple place to push excess electricity production capacity (and to some extend – electronics production as well) and turn it into tangible money. The mining process will gladly take any amount of excess and give some returns. If the returns are better than the savings from spinning the operation down and then back up again – it’s worthwhile.
Conclusions
Bitcoin is very unlikely to be a major consumer of the global energy production. On the other hand, it’s a good sink for excess power generated from renewable sources, always allowing one to convert spare electricity into cash.
