Friday, December 6, 2013

Is bitcoin an ecological disaster in the making?

I've been thinking a lot about bitcoin mining lately, even considering building some mining equipment with Nasier. As exciting as it is, I have a new doubt over the enviro-ethical value of the bitcoin protocol as it exists today.

Right now, the total energy put into mining bitcoin is still small. The network hash rate is perhaps 7PH/s. If we take an average mining efficiency of 100MH/J (maybe generous, but I really only want an order-of-magnitude calculation here) then it means there must be 70MW dedicated to mining. It won't stay at just 70MW though.

The current block reward is 25BTC, or about 250000ZAR. Every 10 minutes in the long-term average.  That's the limit up to which mining costs can go before it becomes uneconomical - the point where miners decide to just switch off their machines. Right now capital costs are important, because average mining equipment efficiency is still increasing, which obsoletes current mining equipment in a matter of months. I don't think we can expect consistent increases in mining efficiency for much longer: Avalon's gen2 chips are made with a 55nm process, and I've seen talk of 28nm chips. Once we reach an efficiency wall, the only way to access a greater hash rate will be to consume more power.

Once we reach that point, there will be little incentive to replace older equipment with newer; the incentive for profitable miners will be simply to add more equipment to their operations. Capital costs then shrink as the economic lifetime of mining equipment increases to years instead of months, and electricity prices will become the dominant cost.

Domestic electricity costs no more than R2.50/kWh. 250kZAR per 10 minutes can fund the consumption of 100MWh every 10 minutes - that's 167kWh every second, or roughly half my monthly electricity consumption every second. In standard units, that's 600MW. Notice that this doesn't depend on average mining efficiency, but only on the block reward and on the price of electricity. Cheaper electricity only makes it worse!

Are you okay with that? I'm not sure if I am. Does the standard banking industry, whose death due to bitcoin we sometimes pine for, use that much? I doubt bitcoin would replace the banking industry's carbon footprint; it would rather add to it. Also, things get much, much worse if bitcoin rises to the $100000+ that some think is possible.

Block reward halves every 210000 blocks, or every 4 years. Next halving is in 2016. So we may see only two years of gigawatt-scale mining - if the price of electricity in bitcoin stays constant. What happens to the half of the exahash-scale mining network that would go offline due to being uncompetitive? Does it instantly turn into a 51% attack network, having to make ends meet by conspiring with double-spenders?

In the very long term, the block reward becomes insignificant or disappears completely. So I'm happy that bitcoin mining won't be an ecological travesty in eternity. But in the meantime, this looks like a serious problem to me.

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