Ksenija Tocilina, marketing manager at To The Moon Lab, addresses a longstanding concern of both supporters and opponents of Bitcoin, the first successful cryptocurrency, in this op-ed article. She unpacks various studies seeking to answer the question, “How much energy is consumed in one Bitcoin transaction?”
Every 10 minutes, miners generate new blocks on the Bitcoin blockchain. The continuous process of block generation motivates people across the world to take up Bitcoin mining, seeking stable profits. As more people join the race, electricity consumption is predicted to rapidly increase. In the Digitalization & Energy report, prepared by the International Energy Agency, it’s highlighted that “as blockchain applications grow, understanding and managing its energy use implications may become increasingly important for the energy analysis and policy communities.” Many experts in the field of blockchain analyze the production capacity of the Bitcoin network as well as its energy consumption and the financial benefits of mining. They’re seeking to answer what the real energy use for one Bitcoin transaction is.
For the most accurate answer, various factors must be considered, including maintenance expenses of a mining machine, its performance, condition, and profitability. The complexity of the process and the necessary power for computing equipment are proportional to the number of Bitcoins produced. After 2,016 blocks, the complexity of the process increases, as well as the power required for the computing equipment. It also affects energy consumption: using less effective equipment increases both the cost of the energy resource and the cost of maintenance. In contrast, modernized devices are more expensive, making it more difficult for miners to regain their initial investment. The speed at which a computer completes an operation and its difficulty determine the hashrate, but the energy consumption used for a single Bitcoin transaction, at this point, has no specific definition. All this becomes a matter of discussion, hence the need for further research. The most well-known opinions on this matter are provided below.
The Meaning of “Difficulty” by Leonhard Weese
In December 2017, Leonhard Weese, the President of the Bitcoin Association of Hong Kong, published a report on the energy consumption of Bitcoin mining. He pointed out mining difficulties relative to energy consumption data, considering mining is not carried out separately when calculating electricity costs at the state level. It was the reason for building his calculations on the “difficulty” level of the hash, meaning the capacity rate of finding a hash solution. To generate Bitcoins, it’s necessary to produce a huge number of mathematical calculations. After 2,016 blocks the process becomes even more complicated. The probability of determining the hash solution is increasingly dependent on the power of the equipment calculating a certain number of hashes per second.
To determine a minimum cost, Weese took the most capable equipment and got a result of 1,100 MW in total, or 9,636 GWh over an entire year. According to his calculations, it was a lower boundary for how much electricity is consumed. Bitcoin.com’s statistics for 2017 show the average number of transactions per hour was 12,000. Consequently, the minimum electrical costs per one Bitcoin transaction, according to Leonhard Weese's calculations, was about 91.6 kWh. It wasn’t possible, however, to find the average score based solely on this data.
Digiconomist’s Bitcoin Energy Consumption Index and Discussions in That Regard
Another data source is the Digiconomist platform, providing in-depth analysis, opinions, and discussions with regard to Bitcoin and other cryptocurrencies. According to the information provided on their website, currently, the Bitcoin network consumes 71.12 TWh of electricity per year. It’s also mentioned in the analysis that it’s possible to compare Bitcoin’s energy consumption to some of the world’s nations like Chili, the Czech Republic, and Austria. On a global scale, Bitcoin’s network uses 0.32% of the world’s energy consumption.
The published index, however, caused some disagreement. Pointing out a number of errors in the study, Marc Bevand, an entrepreneur in the field of mining, published a technical analysis (with subsequent additions), with justification for the costs of mining and his own mathematical calculations, April of last year. He compared the Bitcoin hash rate with the market availability of ASICs and their energy efficiency and made a chart to calculate the lower and upper boundaries of electricity consumption. Mark took into account the power of the least and the most effective equipment for mining and mathematically justified his position on the electrical consumption of the network. According to his calculations, Bitcoin-transactions consume up to 470-540 MW or 4.12-4.73 TWh per year. By relying on the same statistical data from Bitcoin.com, an average number of transactions per hour being 12,000, the average result for one Bitcoin-transaction is about 100 kWh, but this information can’t be correct either.
Analysts of the financial conglomerate Morgan Stanley responded to Bevand’s technical analysis, explaining several problems with his approach in a detailed report. In reply, Marc Bevand issued his analysis with comments consisting of 9 items: math errors from multiplying instead of dividing, PUE of mining farms and their inconsistent math, optimistic and pessimistic assumptions in the hashrate, the global electricity consumption from the Ordos mine, domination of Antminer S9s, electricity costs, Bitmain’s direct sales price, and transaction fees. In his counter-arguments regarding electricity consumption used for non-hashing operations, Bevand cites two authoritative sources, Bitfury CEO Valery Vavilov and Gigawatt Mining CEO, David Carlson.
Mining: The Question of Capacity and Relevance
Complications estimating Bitcoin’s energy consumption also lie in the fact that it’s impossible to track the number of working miners. There’s no direct correlation between the number of nodes in the network and how much equipment is connected to the nodes. There is, however, publicly available information about the processing power and efficiency of the miners. Joule scientific magazine compiled data from the hashrate, the efficiency of different hardware, and energy costs of ASIC miners from different manufacturers, publishing a useful chart in their article revealing Bitcoin's growing energy problem. From the chart provided, the authors of the analysis determined the lower boundary of Bitcoin’s energy consumption at 2.55 GW but didn’t indicate a possible upper boundary, or even an approximate range between the minimum and maximum amount.
Another approach to calculating Bitcoin’s power consumption was also considered in the article. Based on economic benefits, it was identified by Adam Hayes, a candidate of economic and social sciences at the University of Wisconsin, during his empirical study of the costs of Bitcoin mining. The idea lies in mining profitability, with various indicators–from the production power of various equipment to its service life. Hayes deduced the most serious costs are related to power consumption. Considering the estimated share of these costs and the average price for electricity in the US, the scientist revealed an average number of energy cost for a Bitcoin-transaction being 7.67 GW. This calculation method became the basis for the Digiconomist’s energy consumption index.
Supporting Adam Hayes’s idea, the authors of the Joule gave their own conclusion about the energy costs for one Bitcoin transaction. In their opinion, with 200,000 transactions per day and the existing network capacity, the average amount of electricity consumed per transaction is 300 to 900 kWh. These calculations are many times higher than the results of Leonhard Weese and Marc Bevand. Such a discrepancy may be explained by the bias of the supporters versus the critics of Bitcoin. One’s stance of the currency’s stability and its development tend to have a greater impact on the research, resulting in a duality of positions.
As these studies and expressed opinions each have a different basis and are theoretical, as of now, we can determine there’s no precise answer to the question of how much energy is used for one Bitcoin transaction. Positive attitudes toward Bitcoin commonly lead to the opinion that it's stable and will ultimately develop. Supporters seek to convince the public that Bitcoin's network doesn't use much energy. Vice versa, critics of Bitcoin tout Bitcoin is dead and there’s no logic behind mining this cryptocurrency. This group of people strives to provide so-called evidence that mining Bitcoin is not profitable and that energy consumption is too high.