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| Fig. 1: Bitcoin Mining Facility. (Source: Wikimedia Commons) |
Bitcoin is a decentralized payment network created in 2008 in the wake of the Great Recession. Users of the Bitcoin network can exchange dollars (or other currencies) for the native currency of the Bitcoin network, called Bitcoin, on an exchange. As of October 2021, one Bitcoin trades for $64,000. Users of the Bitcoin network keep their coins in virtual, secure wallets and can choose to send their coins to other users of the network. Once sent, only the recipient can access and spend their new coins.
Bitcoin is different from conventional banks because there is no central authority storing coins (in a vault or secure database, for example) or arbitrarily inflating the currency (as central banks do). Instead, coin transfers are monitored and approved by millions of computers all around the world, called miners, which build a chain of transactionsgathered into blocks 1MB in sizeknown as the blockchain.
Bitcoin miners follow a protocol called Nakamoto Consensus. In Nakamoto consensus, miners race to add a block of transactions to the blockchain. The Bitcoin protocol awards the first miner to do this with 6.25 newly-minted Bitcoin (worth $400,000 as of October 2021). To win, a miner, given a number x, which is the hash of the 80-byte block header of the current block, finds a nonce, y, such that:
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(1) |
Where SHA256 is a cryptographic hash function that generates 256-bit outputs and D is another 256-bit number called the "difficulty". D can be thought of as the number of times a computer program must be run before it a nonce that satisfies the above equation is found. As of October 2021, there are no shortcuts to solve for a valid y. Doing so would mean reverse-engineering SHA256, which would invalidate the entire blockchain network and all of modern cryptography. A miner must instead simply run a brute-force program to search for a valid y. The Bitcoin protocol is designed so that, on average, the entire network of miners solves this equation once every 10 minutes. This means a new block gets added to the blockchain on average every 10 minutes.
As Bitcoin is an anonymous, distributed network of millions of computers, there are no published statistics on the yearly electricity consumption of the network. We can estimate this number, however, by looking at the hashrate (the total computational power of the entire network) and making assumptions about the hardware the miners are using.
We use a hashrate of 1.2 × 1020 hash sec-1, which was the peak hashrate from 2020. [1]
Next, we make the simplifying assumption that the network is composed of Antminer S19 Pros, a top-of-the-line, specialized mining computer released in March 2020 with an efficiency of 30 × 10-12 J hash-1. [2] Fig. 1 shows a Bitcoin mining facility equipped with similar, specialized mining computers. Given the entire network is performing, on average, 1.2 × 1020 hashes per second and is running exclusively on Antminer S19 Pros, this yields a power consumption of
| P = 1.2 × 1020 hash sec-1 × 30 × 10-12 J hash-1 | = 3.6 × 109 W |
for the entire Bitcoin network. This equates to a yearly energy usage of
| E = 3.6 × 10 9 W × 24 hr d-1 × 365 d y-1 × 3600 J wh -1 | = | 1.134 × 1017 J y-1 |
This estimate is a lower bound because the Antminer S19 Pro was one of the most efficient mining computers available in 2020, something most miners would not have upgraded to yet. [2]
Even with this lower bound estimate of 1.134 × 1017 J y-1 (32 terawatt-hours per year) consumed by the Bitcoin network, it still comparable to the 2020 electricity use of New Zealand (44.2 terrwatt-hours). [3] While it is unclear the exact energy mix used by Bitcoin miners around the world, the carbon footprint of 32 terawatt-hours cannot be ignored. If it all comes from natural gas, it is as below:
| 1.134 × 1017 J y-1 5.5 × 107 J kg-1 |
× ( | 44 16 |
) = 5.7 × 109 kg y-1 |
Is there a way to reduce the electricity needed to maintain the Bitcoin network? One approach is to change to protocol for mining blocks from the current proof-of-work to what is known as proof-of-stake. Under a proof-of-stake model, instead of miners competing to satisfy a hashing equation (what consumes so much power) miners have voting power on which blocks are added proportional to their relative stake in the currency. The second largest blockchain currency by market cap is Ethereum, whose 2.0 version will use a proof-of-stake protocol instead of its current proof-of-work.
For Bitcoin, however, moving to a proof-of-stake protocol would be a lot harder for two reasons. First, Bitcoin miners already have all this expensive equipment and thus an invested interest in the current protocol. Second, Bitcoin lacks an equivalent organization to the Ethereum Foundation, a non-profit with influence among users of the Ethereum protocol.
© Finn Dayton. The author warrants that the work is the author's own and that Stanford University provided no input other than typesetting and referencing guidelines. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.
[1] D. Fantazzini, and N. Kolodin, "Does the Hashrate Affect the Bitcoin Price?," J. Risk Financial Manag. 13, 263 (2020).
[2] Y.-D. Song, and T. Aste, "The Cost of Bitcoin Mining Has Never Really Increased," Frontiers in Blockchain (2020).
[3] "BP Statistical Review of World Energy 2020," British Petroleum, June 2020, p. 59.
