A serious problem with BitCoin: it wastes energy

Excerpted from Xfin:

“With the EFF’s announcement that they would being accepting BitCoin donations, the alternative money community began to take a larger interest. I certainly did, and found that there are good and bad things about this form of money. In the end, BitCoins create a perverse incentive to consume energy to “create money.” Here is why.

What is a bitcoin and how do you create one? — A BitCoin is created whenever a user’s computer churns though a SHA-256 hash repeatedly from a hash until it results in a number less than a given number. Statistically, hash functions are supposed to have very unpredictable content–that is what makes them secure. Whenever a BitCoin client churns through a hash starting from a given number issued to the network, it burns CPU time (and thus energy). The probability of getting a hash to be “less than” a given 256-bit number is quite low. Successfully determining how many SHA-256 rounds it takes for a particular nonce to hash to a number lower than some value is called the “proof of work.” If while your computer receives a new “block” from the network (meaning another computer successfully won some BitCoins), your computer must start over with a new nonce.

How much energy does it require to mine the average BitCoin? — With my “older computer,” the hash rate averages around 2000 khps on a microprocessor going full-bore consuming about 65W. The current difficulty shows that a new BitCoin can be mined by a computer at this speed on average every 113 days. So, 113 days × 24 hours = 2712 hours. 2712 hours × 65W = 176280 Wh or 176.28 KWh. The average cost of a KWh in the United States is 10.45 cents. So we’re looking at spending $18.42 to create 50 BTC (at the moment). So the electrical cost is about $0.36/BTC. BitCoins are trading now already at values below this, so I can only assume that they’re being sold at a loss or others may be externalizing the costs of electricity and not taking this into account. If you were to pay your electric bill in BTC, you would have a positive feedback loop (always a bad thing) that consumes more energy to earn money to pay back the power company. It doesn’t matter how efficient your processors are—you’re spending more money to make money.”

The full article is a very good explanation of how BitCoin functions.

3 Comments A serious problem with BitCoin: it wastes energy

  1. eps

    The positive feedback loop can’t be infinite because only 21 million bitcoins will ever exist.

    I can’t help but think that the author has missed the point, the minting mechanism exists to distribute the coins, bitcoins are not supposed to represent “free” money.

    If bitcoin takes off as a widely used currency, most participants won’t gain their bitcoins through mining.

  2. hatboyzero

    You point out that the electrical cost is roughly $0.36 USD/BTC and then indicating that BTC is trading at levels below this. According the the current trade value of BTC at Mt. Gox (as of 2:00 PM, 23 March 2011), the value of 1 BTC is roughly equivalent to $0.86 USD. If I understand correctly, that’s a difference of $0.50 USD in favor of the Bitcoin miner in regards to BTC Value vs. electricity cost, hence describing a negative feedback loop rather than a positive one.

    Additionally, most effective Bitcoin miners are using GPU (usually in mining pools) to generate BTC — depending on the GPU, the electrical cost to generate BTC could be significantly less that $0.36/BTC, and if someone were to write a mining client that could take advantage of the crypto capabilities of certain low power hardware like the VIA C7 or an optimized FPGA based platform, this electrical cost per BTC could go down even more.

  3. grondilu

    The mining difficulty adjusts to current miners’s processing power.

    This means that if difficulty is that high, it’s only because some people, somewhere, accept to spend that much processing power into bitcoin mining. Maybe those people have a lower electricity cost than the one you mention, maybe they just don’t care about costs and want to mine bitcoin for fun, maybe they use solar panels. Who knows.

    The point is: if one spend more money to make money, then the difficulty will probably decrease until a better equilibrium is found.

    Also: mining bitcoin is not compulsory. If you think it’s a waste of energy, just don’t do it.

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