Commentary Bitcoin boom: what rising prices mean for the network's energy consumption
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Please cite this article in press as: de Vries, Bitcoin boom: what rising prices mean for the network’s energy consumption, Joule (2021), https://
doi.org/10.1016/j.joule.2021.02.006
ll
Commentary
Bitcoin boom: what rising PREDICTING FUTURE BITCOIN
NETWORK ELECTRICITY
prices mean for the network’s CONSUMPTION
energy consumption In order to assess what a certain price
level might mean for the energy hunger
Q1 Alex de Vries1,2,*
of the Bitcoin network, it is crucial to
first understand the relationship be-
Alex de Vries earned his MSc in of Bitcoin not only broke the previous tween these two variables. As noted,
Economics and Business from the record (from December 2017) of almost Bitcoin miners are rewarded with bit-
Erasmus University Rotterdam in $20,000 per coin but doubled it, surg- coins for successfully creating new
2011. In 2014 he founded the ing past $40,000 for the first time on blocks for Bitcoin’s blockchain. In May
blog digiconomist.net. This blog January 8, 2021. In the same period, 2020, this reward amounted to 6.25
is a platform for research, dedi- the demand for Bitcoin ‘‘mining’’ de- newly minted bitcoins per block, plus
cated to exposing the unintended vices also increased rapidly. Within the a variable amount depending on the
consequences of digital trends. Bitcoin network, these devices are Bitcoin transactions that get processed
The blog is best known for used to participate in the process of in the block. In December 2020, trans-
featuring the Bitcoin Energy Con- creating new blocks for Bitcoin’s under- action fees made up for about 10% of
sumption Index since late 2016, lying blockchain, with successfully the total overall miner income.3
which has played a major role in created blocks providing a certain
the global discussion regarding amount of bitcoins as a reward to the
These combined rewards provide a
Q2 the sustainability of proof-of- creator.1 In January it was reported
strong incentive to participate in the min-
work-based blockchains. that Bitmain, one of the largest manu-
ing process, but the Bitcoin protocol also
facturers of specialized Bitcoin mining
purposely makes it difficult for miners to
devices, had sold out through August
actually obtain these rewards. To suc-
2021 because of ‘‘overwhelming
cessfully create a new block for the block-
demand.’’2
chain, the block has to satisfy a set of re-
quirements. For the miners, this
The increasing popularity of Bitcoin translates into a process of trial and error.
mining quickly sparked a fresh debate As of January 11, 2021, it is estimated
on the energy use—and the resulting that all miners combined make over 150
carbon footprint—of the Bitcoin quintillion (blockchain.com/charts/hash-
network. Bitcoin mining devices require rate) attempts every second of the day
electrical energy to function, and all de- to produce a valid new block. Moreover,
vices in the Bitcoin network were the Bitcoin protocol self-adjusts the diffi-
already estimated to consume between culty of meeting these requirements to
78 and 101 terawatt-hours (TWh) of ensure that, on average, only one block
electricity annually prior to the latest is created every 10 min.1 All of the mining
surge in the price of Bitcoin (Figure 1). devices in the network are constantly
With a growing number of active ma- competing with each other to be the first
chines, the network as a whole also re- to produce a valid new block. With the
quires more power to operate. chance of success being random, a
miner’s share of the total available miner
This Commentary examines how to esti- income will average to the proportional
mate the amount of electricity the Bit- share of the total computational power
coin network consumes for a given Bit- in the network owned.
Q3 INTRODUCTION coin price level. Additionally, the
For the popular digital currency Bitcoin, article explores the implications of this Bitcoin’s price directly effects the value
the year 2021 started with the price of a energy consumption for the environ- of the mined coins and therefore the
single Bitcoin reaching progressively ment and broader economy and dis- amount of resources miners can afford
higher records in quick succession. In cusses how policymakers can limit the to spend on mining. Given that Bitcoin
less than one month’s time, the price network’s growing energy demands. mining is a competitive market,
Joule 5, 1–5, March 17, 2021 ª 2021 Elsevier Inc. 1
JOUL 920
Please cite this article in press as: de Vries, Bitcoin boom: what rising prices mean for the network’s energy consumption, Joule (2021), https://
doi.org/10.1016/j.joule.2021.02.006
ll
Commentary
annual energy consumption of 184
TWh, but miners have a strong incen-
tive to add new mining devices as fast
as possible. As the total amount of
computational power in the network
grows, the proportional share of each
individual device declines over time.
The number of bitcoins a device is ex-
pected to mine therefore declines as
well, meaning that the first person to
use a new device type will always reap
significantly more rewards than the
last. In fact, it is mostly due to limits in
the availability of hardware that the
Figure 1. Historic Bitcoin energy consumption estimates and price development network does not reach these levels of
The fluctuations in Bitcoin price (from finance.yahoo.com/quote/BTC-USD), along with estimates
energy consumption overnight. Miners
of Bitcoin’s energy consumption (in annualized TWh) from the Bitcoin Energy Consumption Index
(BECI) (bitcoinenergyconsumption.com) and the Cambridge Bitcoin Electricity Consumption Index
have some flexibility in the way their de-
(CBECI) (cbeci.org) since the start of 2017 to the end of 2020. vices are set up, so there is likely to be a
swift effect from miners boosting (over-
economic theory suggests that it reason, the primary cost components of clocking) their device’s performance.
should cost a bitcoin to mine a bitcoin.4 participating in the mining process are However, this effect is equally likely to
If it costs any less than one bitcoin to only hardware and energy. de Vries pre- be limited as devices become unstable
mine a bitcoin, miners can profit by viously estimated that, in the long run, and/or require additional cooling if
adding more units of computational the share of electricity costs in the total pushed too far. The speed at which
power to the network. The opposite is costs of mining is around 60%.5 the network’s energy consumption
also true because miners would be grows then depends on the availability
operating at a loss and start removing If, on top of the previous assumption, we of previously obsolete device models
units of computational power from the assume miners pay around $0.05 per (that can operate profitably again) and
network if mining costs exceed one bit- kilowatt-hour (kWh) of electrical energy the rate at which newer device models
coin. As previously noted by de Vries, on average, we can estimate the net- can be produced. With Bitmain having
‘‘these market forces drive the industry work’s energy requirement at a given sold out up to the third quarter of
towards an equilibrium where firms amount of miner income. With a Bitcoin 2021 by the start of the year, it could
will earn zero economic profit.’’5 price of $42,000 (Bitcoin’s all-time high take several months, if not longer, for
as of January 10, 2021) and transaction the network’s energy consumption to
This dynamic makes it possible to esti- fees comprising 10% of total miner in- reach the predicted level. Assuming
mate the amount of energy the network come, miners will earn around $15.3 that total miner income stabilizes at
is consuming given a certain amount of billion annually (6.25 coins per block * $15.3 billion annually, the network will
total miner income. Although we should 52,560 blocks per year / 0.9 * $42,000). ultimately consume 184 TWh per year.
not expect a market to be in perfect equi- With 60% of this income going to pay
librium because circumstances are for electricity at a price of $0.05 per
constantly changing, we do expect total AN ABSENCE OF REFUNDS
kWh, the total network could consume
miner expenses to gravitate toward the ENSURES MINING DEVICES WILL
up to 184 TWh per year (sensitivities to
total amount of miner income as well. BE PRODUCED REGARDLESS OF
different assumptions are shown in Table
Knowing how miner expenses will PRICE DEVELOPMENTS
1); this is not far from the amount of en-
develop does not immediately give us ergy consumed by all data centers glob- Because a vast number of new devices
an energy consumption estimate, but ally (200 TWh per year).6 have now been ordered, a large part
fortunately, the cost structure of mining of the expected increase in energy con-
is extremely simplistic. A miner only re- sumption might already be ‘‘locked-in;’’
quires a machine capable of mining ADOPTION SPEED OF MINERS this means that even if Bitcoin price falls
(which can be a central processing unit, AND HARDWARE CAPACITY by 25% or more (on January 11, the Bit-
graphic processing unit, or a specialized RESTRICTIONS coin price fell to $31,000 per coin
application-specific integrated circuit) Economic models do not indicate before recovering to $35,000), the esti-
and electricity to run the device. For this exactly when the network will reach an mations of the network’s future energy
2 Joule 5, 1–5, March 17, 2021
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Please cite this article in press as: de Vries, Bitcoin boom: what rising prices mean for the network’s energy consumption, Joule (2021), https://
doi.org/10.1016/j.joule.2021.02.006
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Commentary
Table 1. Bitcoin annual energy consumption (TWh) model sensitivity table
The table shows how various assumptions on the share of electricity costs in the total costs of mining, as well as the average price of electricity (in USD per kWh),
influence the expected future energy consumption of the Bitcoin network at four different price levels. For every scenario, it is assumed that fees make up 10% of
the total miner income next to a fixed block reward of 6.25 bitcoins.
consumption do not necessarily have to any case, we should be mindful of this ef- future implications are in terms of en-
revised by the same amount. This ‘‘lock- fect when considering a drop in Bitcoin ergy consumption assuming stability in
in’’ effect is the result of Bitmain’s policy price, though a scenario similar to that current miner income levels. Long-
(and similar ones of other manufac- which followed the Bitcoin price peak of term forecasts require more detailed
turers) stating that ‘‘cancellation or 2017 could still occur. After the Bitcoin modeling, and even the simple model
refund requests will not be enter- price got close to $20,000 for the first presented in this article should account
tained.’’7 As such, upon submitting an time in 2017, the market experienced a for relevant changes in Bitcoin mining
order, the equipment becomes a rapid and steep decline. By the end of rewards. Bitcoin’s fixed block reward
‘‘sunk cost.’’ Once a sunk cost has 2018, the value of Bitcoin had dropped has been set to halve every 210,000
Q4 been incurred, it can no longer be by more than 80% since the price peak. blocks (roughly every four years), which
recovered; thus, it should play no A Bitcoin price crash of a similar magni- will happen again in 2024. Although
further role in the decision-making pro- tude in 2021 would reduce the network’s typical useful lifetimes of mining de-
cess of a rational economic agent. Just energy consumption from the current es- vices are too short8 for this reward
like any other miner who already has timates (Figure 1). If total annual miner in- reduction to be relevant in this article,
devices running, those who have or- come falls to $3 billion (corresponding to it is something to be considered in
dered and paid for their new devices a Bitcoin price of around $8,000 depend- future research along with the growing
should base their decision to (continue ing on the transaction fee percentage at importance of variable transaction fees.
to) mine on prospective costs, which this point), this could only sustain an en-
primarily only include electricity costs. ergy consumption of at most 60 TWh Furthermore, future research might
For miners who only care about elec- per year (assuming the entire amount is study the effect of network size on the
tricity costs, a Bitcoin price of $25,200 used to pay for electricity). average price of electricity. In the short
(assuming $0.05 per kWh) is sufficient run, one might expect the average price
to sustain an annual electricity con- We also have to guard against overesti- of electricity to go up as the network
sumption of 184 TWh. mating the network’s future energy grows because there is a finite source
consumption. In the past, the results of the cheapest electricity. However,
LIMITS TO THE PREDICTABILITY of studies like these have been incor- the recent growth of cryptocurrency
OF BITCOIN’S FUTURE rectly extrapolated to make statements mining in (sanctioned) countries like
ELECTRICITY CONSUMPTION on the network’s future energy con- Iran9 (where miners can obtain oil-fu-
There is no way of knowing the precise sumption. The relationship between eled electricity for less than $0.01 per
amount of future energy consumption the network’s energy consumption kWh9) suggests the possibility that
that has been ‘‘locked-in’’ because of and miner income is mutual, meaning new mining locations might drive the
non-refundable orders, but with produc- that miners require a certain amount average price of electricity down
tion lines guaranteed to run at maximum of income to support a given level of instead. In any case, the chosen rate of
capacity for a majority of 2021, it is un- energy consumption. This article is $0.05 per kWh (commonly used in
likely to be an insignificant amount. In limited to examining what the potential research on the topic in recent years)
Joule 5, 1–5, March 17, 2021 3
JOUL 920Please cite this article in press as: de Vries, Bitcoin boom: what rising prices mean for the network’s energy consumption, Joule (2021), https://
doi.org/10.1016/j.joule.2021.02.006
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Commentary
found that other understudied crypto-
currencies such as Ethereum and Lite-
coin added ‘‘nearly 50% on top of Bit-
coin’s energy hunger.’’12 Moreover,
specialized Bitcoin mining devices
cannot be repurposed, potentially re-
sulting in a substantial amount of elec-
tronic waste once they become obso-
lete in several years’ time.8
On top of the environmental impact of
cryptocurrency mining, the effects of
the sector’s energy-hunger might also
spill over to other parts of the economy.
Figure 2. Comparison of chip production capacity versus mining device chip production Prior to the latest surge in Bitcoin price,
requirements it was already reported that there was a
This figure shows the monthly 7 namometer (nm) wafer capacity at the foundries of Taiwan global shortage of chips for an array of
Semiconductor Manufacturing Company (TSMC) and Samsung (wccftech.com/amd-7nm-wafer- electronic devices.13 The economic re-
production-set-to-double-in-2 h-2020-7nm-capacity-at-tsmc-currently-fully-booked/). These
covery after the COVID-19 crisis has led
companies are the only ones capable of mass-producing 7 nm nodes (am.miraeasset.com.hk/
insight/intel_7nm_delay/). The output needed to produce one million Antminer S19 Pro devices is to increased consumer demand, result-
calculated on the assumption that the required die size is 5 3 5 mm (in line with the Antminer S17 ing in chip shortages and delays in
series) (bitcointalk.org/index.php?topic = 5307087.0) and that each 300 mm wafer yields 2,288 manufacturing. These shortages are
viable dies (caly-technologies.com/die-yield-calculator/) on a defect density of 0.09 (anandtech. also affecting the production of (self-
com/show/16028/better-yield-on-5nm-than-7nm-tsmc-update-on-defect-rates-for-n5). Each
driving) electric vehicles, which will play
Antminer S19 Pro requires 342 chips (chainnews.com/zh-hant/articles/648268505750.htm) and runs
on 3,250 W. an important part in meeting global
goals for climate change, as well as per-
sonal electronics required to work from
is likely still a conservative value for the footprint. To this end, the work of Stoll home. Because the manufacturers of Bit-
network size considered in this article et al.11 demonstrated that Bitcoin mining coin mining devices need a substantial
given that a recent survey found miners had an implied carbon intensity of 480– number of chips to produce these ma-
pay a global average of $0.046 per 500 g of CO2 per kWh (gCO2/kWh) chines, this will only exacerbate the
kWh.10 consumed. Assuming this number re- shortage. To produce just one million
mains constant at 490 gCO2/kWh as units of Bitmain’s most powerful mining
Lastly, it should be noted that this article the network’s energy demand increases, device (the Antminer S19 Pro), which
generally assumes a market with rational a total energy consumption of 184 TWh can consume 28.5 TWh of electrical
agents; however, in reality, miners might would result in a carbon footprint of energy annually, Bitmain would have
make decisions like (temporarily) oper- 90.2 million metric tons of CO2 (Mt to book a full month of 7 nanometer
ating at a loss if they speculate on CO2), which is roughly comparable to (nm) capacity at its supplier, Taiwan
(further) price increases. This speculation the carbon emissions produced by the Semiconductor Manufacturing Company
might also increase the aforementioned metropolitan area of London (98.9 Mt (together with Samsung, currently the
‘‘lock-in’’ effect if miners order an exces- CO2, according to citycarbonfootprints. only companies capable of mass-produc-
sive amount of mining devices in antici- info). This number might be higher or ing 7 nm chips) (Figure 2).
pation of a higher Bitcoin price, though lower depending on the locations cho-
this will also depend on the limits of the sen for Bitcoin mining. Although fossil- It might also be a concern that a country
production capacity of mining device fuel-dependent countries like Iran have like Iran has adopted cryptocurrency
manufacturers and their suppliers (see recently gained popularity as mining mining as a way to boost revenues while
next section). sites,9 market miners might also try to its oil exports suffer from international
leverage ‘‘greener’’ sources of power. sanctions. Cheap energy has lured in
ENVIRONMENTAL IMPACT AND many cryptocurrency miners, and the
BROADER CONSEQUENCES In any case, the remainder of the cryp- mining activity in Iran now represents
Having an estimate of Bitcoin’s future en- tocurrency ecosystem would still have 8% of the total computational power
ergy consumption also permits a ballpark to be added to the total environmental in Bitcoin’s network.9 If Bitcoin is
estimate for the network’s future carbon impact of the sector. Recent research enabling Iran to circumvent economic
4 Joule 5, 1–5, March 17, 2021
JOUL 920Please cite this article in press as: de Vries, Bitcoin boom: what rising prices mean for the network’s energy consumption, Joule (2021), https://
doi.org/10.1016/j.joule.2021.02.006
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Commentary
sanctions, this could pose a threat to in- duction. Policymakers can be even be from materializing, but drastic joint
ternational safety, given that these more restrictive to certain cryptocurren- and coordinated actions could be
sanctions were imposed to prevent cies by barring them from centralized required to be effective.
the nation from developing military nu- digital asset marketplaces. Although
clear capability. the latter has no direct effect on mining, 1. Nakamoto, S. (2008). Bitcoin: A peer-to-peer
electronic cash system. https://bitcoin.org/
it can influence the value of a digital cur- bitcoin.pdf.
CONSIDERATIONS FOR rency (and thus the associated mining
2. Voell, Z. (2021). Bitcoin Mining Machine
POLICYMAKERS rewards). Shortage Worsens as Bitmain Sells Out
Given the growing implications of the Through August (Coindesk).
cryptocurrency mining industry, policy- Policymakers should, however, be 3. Voell, Z. (2021). Bitcoin Miners Saw 33%
aware that there are also some bound- Revenue Increase in December (Coindesk).
makers might feel increasingly pres-
sured to intervene. At a local level, this aries to the policy options. Ultimately, 4. Debreu, G. (1987). Theory of value: an
axiomatic analysis of economic equilibrium
has already occurred in places such as any laptop or computer is theoretically 19. Dr (Yale Univ. Press).
Québec (Canada) and Iran. In Québec capable of participating in cryptocur-
5. de Vries, A. (2018). Bitcoin’s Growing Energy
in 2018, the Canadian power company rency mining, and any location that Problem. Joule 2, 801–805.
Hydro-Québec and the independent has access to Internet and electricity
6. Kamiya, G. (2020). Data Centres and Data
Québec Energy Board decided to might be used to host these devices. Transmission Networks. Int. Energy Agency.
Miners could simply move elsewhere https://www.iea.org/reports/data-centres-
impose a moratorium on new crypto- and-data-transmission-networks.
currency mining operations, after a sig- under adverse policy decisions, or min-
7. Bitmain. (2017). Can I edit or cancel my
nificant number of applications ing might become more decentralized orders?. https://support.bitmain.com/hc/
threated to destabilize the local (and harder to control) when large-scale en-us/articles/115000382293-Can-I-edit-or-
cancel-my-orders-#::text=After%20an%
grid.14 More recently, in January 2021, mining facilities or manufacturers of 20order%20is%20submitted,not%20pay%
Iran decided to confiscate mining specialized devices are severely 20for%20that%20order.
equipment as the country suffered restricted. 8. de Vries, A. (2019). Renewable Energy Will
from outages blamed on cryptocur- Not Solve Bitcoin’s Sustainability Problem.
Joule 3, 893–898.
rency mining activities.9 CONCLUSION
9. Arab News. (2021). Crypto-miners take down
As the price of Bitcoin rises, the nega- Iran electric grids, prompting crackdown.
Despite the fact that, in both examples, tive externalities associated with Bit- https://www.arabnews.com/node/1794836/
middle-east.
policymakers did not decide to take coin mining increase in kind. This
action because of environmental con- Commentary has shown how a simple 10. Blandin, A., Pieters, G.C., Wu, Y., Eisermann,
T., Dek, A., Taylor, S., and Njoki, D. (2020).
cerns, the examples illustrate how poli- economic model might be used to esti- 3rd global cryptoasset benchmarking study.
cymakers might have multiple options mate the potential environmental https://www.jbs.cam.ac.uk/faculty-research/
centres/alternative-finance/publications/
in putting a halt to cryptocurrency min- impact of Bitcoin mining for a given Bit- 3rd-global-cryptoasset-benchmarking-
ing. Although Bitcoin might be a de- coin price. These estimates reveal that study/.
centralized currency, many aspects of the record-breaking surge in Bitcoin 11. Stoll, C., Klaaßen, L., and Gallersdörfer, U.
the ecosystem surrounding it are not. price at the start of 2021 could result (2019). The Carbon Footprint of Bitcoin.
Joule 3, 1647–1661.
The competitive Bitcoin market drives in the network consuming as much en-
12. Gallersdörfer, U., Klaaßen, L., and Stoll, C.
miners to take advantage of economies ergy as all data centers globally, with (2020). Energy Consumption of
of scale in lowering costs, which also an associated carbon footprint match- Cryptocurrencies Beyond Bitcoin. Joule 4,
1843–1846.
makes it harder for them to operate un- ing London’s footprint size. Beyond
der the radar. Large-scale miners can these environmental impacts, the pro- 13. Jin, H., Busvine, D., and Kirton, D. (2020).
Analysis: Global chip shortage threatens
easily be targeted with higher elec- duction of specialized mining devices production of laptops, smartphones and
tricity rates, moratoria, or, in the most might exacerbate the global shortage more (Reuters).
extreme case, confiscation of the of chips, which could effect the ability 14. de Vries, A. (2020). Bitcoin’s energy
equipment used. Moreover, the supply to work from home, the economic re- consumption is underestimated: A market
dynamics approach. Energy Res. Soc. Sci. 70,
chain of specialized Bitcoin mining de- covery after the COVID-19 crisis, and 101721.
vices is concentrated among only a the production of electric vehicles. 1Digiconomist, Almere, the Netherlands
handful of companies. Manufacturers The increasing popularity of mining in 2De Nederlandsche Bank, Amsterdam, the
like Bitmain can be burdened with addi- countries like Iran could even threaten Netherlands
tional taxes like tobacco companies or international safety. Policymakers are *Correspondence: alex@digiconomist.net
be limited in their access to chip pro- not completely powerless to stop this https://doi.org/10.1016/j.joule.2021.02.006
Joule 5, 1–5, March 17, 2021 5
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