1 00:00:00,350 --> 00:00:04,700 So in the last section we ended by showing how large professional mining 2 00:00:04,700 --> 00:00:07,990 data centers have taken over the business of Bitcoin mining. 3 00:00:08,990 --> 00:00:13,440 And we showed the parallel to traditional mining with those open pit mines on 4 00:00:13,440 --> 00:00:16,720 the bottom, which you may know have been a huge source of concern for 5 00:00:16,720 --> 00:00:19,090 environmentalists over the years asking. 6 00:00:19,090 --> 00:00:21,640 How much damage are these pit miners doing to the environment? 7 00:00:22,910 --> 00:00:25,310 Now, Bitcoin is not quite at that level yet. 8 00:00:25,310 --> 00:00:29,710 But as I said, it is a very difficult computation 9 00:00:29,710 --> 00:00:33,950 with a lot of large players interested in competing now. 10 00:00:33,950 --> 00:00:37,630 And it is starting to use a significant amount of energy, 11 00:00:37,630 --> 00:00:39,320 which has become a topic of discussion. 12 00:00:40,800 --> 00:00:44,129 So in this section we'll talk about how much energy Bitcoin is using and 13 00:00:44,129 --> 00:00:46,803 what that might mean for the currency and for the planet. 14 00:00:50,421 --> 00:00:51,630 So to start with, 15 00:00:51,630 --> 00:00:56,400 we'll talk about why computation inherently requires some energy. 16 00:00:57,730 --> 00:01:02,326 So there's a principle developed by Rolph Landauer in the 1960s. 17 00:01:02,326 --> 00:01:09,650 That any non-reversible computation must use as minimum amount of energy. 18 00:01:09,650 --> 00:01:12,028 So this is derived from basic physics. 19 00:01:12,028 --> 00:01:14,791 We're not going to go through the derivation here, 20 00:01:14,791 --> 00:01:19,196 except to say that every time you flip on bit in a non-reversible computation, 21 00:01:19,196 --> 00:01:22,375 there's a minimum number of joules that you have to use. 22 00:01:25,320 --> 00:01:29,940 And of course, if you remember some fundamental theorems of physics, 23 00:01:29,940 --> 00:01:32,060 energy is never destroyed. 24 00:01:32,060 --> 00:01:35,544 It's only converted from one form into another. 25 00:01:35,544 --> 00:01:39,530 In the case of computation, it's mostly that energy is transformed from 26 00:01:39,530 --> 00:01:42,808 electricity, which is very high grade energy, Into heat, 27 00:01:42,808 --> 00:01:45,204 which is dissipated into the environment. 28 00:01:47,783 --> 00:01:51,270 Now of course, SHA-256 being a hash function, 29 00:01:51,270 --> 00:01:56,480 which is the basis of Bitcoin, is not a reversible computation. 30 00:01:56,480 --> 00:01:58,330 And if you remember all the way back to lecture one, 31 00:01:58,330 --> 00:02:01,799 this is a basic requirement of hash functions, that they're not reversible. 32 00:02:03,370 --> 00:02:08,685 Since I told you that any non-reversible computation has to use some energy and 33 00:02:08,685 --> 00:02:11,190 SHA-256 is not reversible, 34 00:02:11,190 --> 00:02:14,390 energy consumption is an inevitable factor doing Bitcoin mining. 35 00:02:15,590 --> 00:02:19,740 What it's saying is that the limits provided by Landauer's principle 36 00:02:21,280 --> 00:02:26,550 are far, far below the amount of electricity that's being used today by 37 00:02:26,550 --> 00:02:28,220 over a factor of a thousand, so 38 00:02:28,220 --> 00:02:32,100 we're nowhere close to theoretical optimum efficiency of computing. 39 00:02:34,040 --> 00:02:36,570 But even if we did get to the theoretical optimum, 40 00:02:36,570 --> 00:02:39,540 we would still be using some energy to perform Bitcoin mining. 41 00:02:41,280 --> 00:02:43,980 So why does Bitcoin mining require energy? 42 00:02:43,980 --> 00:02:46,470 There are three steps in the process that require energy. 43 00:02:47,610 --> 00:02:51,110 First, you have to manufacture your Bitcoin mining equipment. 44 00:02:51,110 --> 00:02:55,330 So that requires both physical mining, digging up things out of the ground, 45 00:02:55,330 --> 00:02:59,500 especially rare earth metals and copper that go into integrated circuits. 46 00:02:59,500 --> 00:03:03,010 And then you have to manufacture it into a Bitcoin mining ASIC. 47 00:03:03,010 --> 00:03:07,940 So it takes a lot of energy to run fabs and to tune out chips. 48 00:03:07,940 --> 00:03:11,050 So all of that energy is called the embodied energy. 49 00:03:11,050 --> 00:03:14,960 As soon as you receive a bit coin mining ASIC in the mail that you order, 50 00:03:14,960 --> 00:03:19,490 you've already consumed a lot of energy, including the shipping energy of course, 51 00:03:19,490 --> 00:03:23,340 just to get that to you before you've even turned it on and tried to mine Bitcoins. 52 00:03:24,740 --> 00:03:26,540 Then you'll plug it into the wall and turn it on, 53 00:03:26,540 --> 00:03:30,520 and of course it will be drawing electricity constantly while it's on, 54 00:03:30,520 --> 00:03:33,050 and that's the electrical energy consumed in mining. 55 00:03:33,050 --> 00:03:36,930 And that's the step that no matter what happens 56 00:03:37,940 --> 00:03:41,130 has to be consumed because of Landauer's principle. 57 00:03:41,130 --> 00:03:44,880 So hopefully over time, the embodied energy will go down. 58 00:03:44,880 --> 00:03:49,100 As less and less new capacity comes online, 59 00:03:49,100 --> 00:03:52,180 fewer people are going out to buy new mining ASICs. 60 00:03:52,180 --> 00:03:54,960 They're being obsoleted less quickly. 61 00:03:54,960 --> 00:03:57,480 The existing fleet can last a long time. 62 00:03:57,480 --> 00:04:01,360 The embodied energy will be amortized over years and years of mining. 63 00:04:02,530 --> 00:04:06,470 But the electricity consumption, even though it will go down a little bit 64 00:04:06,470 --> 00:04:10,620 because rigs will get more efficient, that will be a fact of life forever. 65 00:04:12,290 --> 00:04:14,633 The other thing about both electricity and 66 00:04:16,099 --> 00:04:20,840 energy is that both are probably less if you're operating at a large scale. 67 00:04:20,840 --> 00:04:23,270 If you're running a huge mining data center. 68 00:04:23,270 --> 00:04:25,240 You can do it more efficiently. 69 00:04:25,240 --> 00:04:29,550 It's cheaper to build chips that are designed to run in a large data center and 70 00:04:29,550 --> 00:04:31,340 you can deliver the power more efficiently. 71 00:04:31,340 --> 00:04:33,880 Because you don't need as many power supplies, 72 00:04:33,880 --> 00:04:36,660 you can deliver all the electricity to one place and so on. 73 00:04:38,010 --> 00:04:39,820 But there's a third important component, 74 00:04:39,820 --> 00:04:43,330 which is cooling off your equipment to make sure that it doesn't malfunction. 75 00:04:45,320 --> 00:04:47,650 So if you're operating your equipment in Antarctica, 76 00:04:47,650 --> 00:04:49,780 maybe your cooling budget is very small. 77 00:04:49,780 --> 00:04:55,090 But almost anywhere else, you're going to have to pay extra, usually electricity, 78 00:04:55,090 --> 00:04:58,790 to cool off your equipment from all the waste heat that it's generating. 79 00:05:00,100 --> 00:05:05,030 An interesting aspect about cooling Is that cooling actually costs more 80 00:05:05,030 --> 00:05:09,560 the bigger your scale is, so if you want to run a very large operation and have 81 00:05:09,560 --> 00:05:14,140 a lot of Bitcoin mining equipment all in one place, you're cooling budget is going 82 00:05:14,140 --> 00:05:19,320 to increase, because cooling that big mass is going to be much more difficult. 83 00:05:19,320 --> 00:05:22,973 There's less air for the heat to, to dissipate into surrounding your equipment. 84 00:05:26,021 --> 00:05:29,921 So how much energy is the entire Bitcoin network using? 85 00:05:29,921 --> 00:05:34,056 There are two basic approaches to trying to estimate how much energy the Bitcoin 86 00:05:34,056 --> 00:05:37,882 network is using of course we can't compute this precisely because it's 87 00:05:37,882 --> 00:05:41,277 a decentralized network with miners operating all over the place 88 00:05:41,277 --> 00:05:43,953 without documenting exactly what they are doing. 89 00:05:43,953 --> 00:05:47,706 But we'll start with a really simple approximation strategy, 90 00:05:47,706 --> 00:05:52,643 which is to take the fact that about $15,000 and again, that's 25 Bitcoin 91 00:05:52,643 --> 00:05:56,900 of reward are created with every block which is found every ten minutes. 92 00:05:57,940 --> 00:06:02,190 So if we convert that to revenue per second, we get about $25 US dollars per 93 00:06:02,190 --> 00:06:06,430 second that are being minted and given to the mining community. 94 00:06:08,040 --> 00:06:13,330 Now, if the miners are turning all of those $25 per second into electricity, 95 00:06:13,330 --> 00:06:14,046 how much can they get? 96 00:06:14,046 --> 00:06:19,370 Well, at US industrial electricity prices, and 97 00:06:19,370 --> 00:06:23,470 this will vary from state to state or certainly from country to country, but 98 00:06:23,470 --> 00:06:26,550 we'll go with about $0.10 US per kilowatt hour. 99 00:06:27,960 --> 00:06:30,900 And kilowatt hour is kind of a funny marketing unit, so 100 00:06:30,900 --> 00:06:33,920 we'll go to the more standard scientific unit of the megajoule. 101 00:06:35,810 --> 00:06:40,880 So, if the miner took those $25 that they earned every second and converted it 102 00:06:40,880 --> 00:06:46,180 purely into electricity, they would get about 900 megajoules every second. 103 00:06:47,880 --> 00:06:50,340 And of course joules per second are just watts. 104 00:06:50,340 --> 00:06:55,210 So those 900 megajoules per second are 900 megawatts or 900 million watts. 105 00:06:58,920 --> 00:07:02,850 A second way to estimate the same figure is to do a bottom up approach. 106 00:07:02,850 --> 00:07:07,330 And to say let's look at how many hashes the miners are actually computing, 107 00:07:07,330 --> 00:07:11,110 which we know by observing the difficulty of each block. 108 00:07:11,110 --> 00:07:13,630 And what is the best hardware that miners might be using? 109 00:07:15,850 --> 00:07:20,480 So if you look online at mining rigs that are being commercially sold today, 110 00:07:20,480 --> 00:07:25,110 one of the best performance figures that you'll see Is rigs that are able to turn 111 00:07:25,110 --> 00:07:29,480 one watt of electricity into about one gigahertz of hashing. 112 00:07:29,480 --> 00:07:33,770 So they perform one billion hashes per second while consuming about one 113 00:07:33,770 --> 00:07:34,550 watt of power. 114 00:07:35,890 --> 00:07:42,560 And the total network hash rate is about 150 million gigahertz or 150 petahertz. 115 00:07:46,670 --> 00:07:48,790 Of course that excludes all of the cooling energy and 116 00:07:48,790 --> 00:07:50,880 all of the embodied energy that's in those chips. 117 00:07:50,880 --> 00:07:53,020 But we're doing an optimal calculation here. 118 00:07:54,500 --> 00:07:57,620 So if the entire network was running at about the efficiency of 119 00:07:57,620 --> 00:08:00,650 generally the better chips on the market, what would we get? 120 00:08:01,940 --> 00:08:06,740 If we just multiply these two together We would get about 150 MW to 121 00:08:06,740 --> 00:08:09,850 produce that many hashes per second, at that efficiency. 122 00:08:11,960 --> 00:08:15,710 So again, last slide I said, at a high end, using the top down approach, 123 00:08:15,710 --> 00:08:18,330 we estimated about 900 MW. 124 00:08:18,330 --> 00:08:22,920 And using the bottom up approach, this is a lower bound, about 150 MW. 125 00:08:24,140 --> 00:08:27,580 So maybe for the whole network today somewhere between 100 megawatts and 126 00:08:27,580 --> 00:08:30,070 a gigawatt of electricity are being consumed. 127 00:08:31,390 --> 00:08:33,740 In reality, of course, it's probably somewhere in the middle and 128 00:08:33,740 --> 00:08:35,760 it's going to evolve over time. 129 00:08:35,760 --> 00:08:38,240 But that's a useful ballpark to think about right now. 130 00:08:40,780 --> 00:08:41,960 So how much is a megawatt? 131 00:08:43,110 --> 00:08:46,370 Well, we can look at what big power plants produce. 132 00:08:46,370 --> 00:08:48,800 So one of the largest power plants in the world, 133 00:08:48,800 --> 00:08:51,960 the Three Gorges Dam in China, is a 10,000 megawatt power plant. 134 00:08:51,960 --> 00:08:56,550 It actually has slightly higher capacity than that, but 135 00:08:56,550 --> 00:08:59,960 that's the average rate of power that's being produced, 136 00:08:59,960 --> 00:09:02,950 whereas a typical large hydro plant is more like 1,000 megawatts. 137 00:09:05,790 --> 00:09:10,311 If you're interested in nuclear power, we can look at the largest nuclear plant in 138 00:09:10,311 --> 00:09:13,024 Japan, and that's about a 7,000 MW plant, 139 00:09:13,024 --> 00:09:16,790 whereas the average nuclear power plant is more like 4,000 MW. 140 00:09:19,432 --> 00:09:24,465 Or back in the carbon-heavy way of producing electricity, we can look at 141 00:09:24,465 --> 00:09:30,580 a major large coal fired plants, and you might get 1,000 to 2,000 megawatts. 142 00:09:30,580 --> 00:09:35,080 So again, our high end estimate was still that Bitcoin was consuming less than 1,000 143 00:09:35,080 --> 00:09:39,402 megawatts, so the whole Bitcoin network is consuming 144 00:09:39,402 --> 00:09:42,380 less than a large power plants worth of electricity. 145 00:09:43,540 --> 00:09:44,840 So it's not nothing. 146 00:09:44,840 --> 00:09:49,530 It still means that we have to essentially to run a large power plant purely to power 147 00:09:49,530 --> 00:09:53,570 Bitcoin and not any of the other things that we need electricity for in the world. 148 00:09:54,610 --> 00:09:58,750 But it's not yet to the point where it's a large amount of electricity compared to 149 00:09:58,750 --> 00:10:01,609 all the other things that people are using electricity for on the planet. 150 00:10:03,210 --> 00:10:06,240 And, it's certainly worth pointing out that any payment system is going to 151 00:10:06,240 --> 00:10:09,040 require energy and electricity. 152 00:10:09,040 --> 00:10:11,030 So, when we look at traditional currency, 153 00:10:12,080 --> 00:10:17,440 a lot of energy is consumed moving gold bullion around, guarding the gold bullion, 154 00:10:17,440 --> 00:10:22,390 running ATM machines, running coin sorting machines, running cash registers. 155 00:10:22,390 --> 00:10:25,080 Transporting the money around in armored cars. 156 00:10:25,080 --> 00:10:28,030 All of that is energy consumed by the traditional money system. 157 00:10:29,430 --> 00:10:34,300 So sometimes people have a tendency to think Bitcoin is wasting energy, 158 00:10:34,300 --> 00:10:39,820 because the energy is being expended in this SHA-256 computation 159 00:10:39,820 --> 00:10:42,590 that doesn't serve any apparent purpose. 160 00:10:42,590 --> 00:10:46,370 But you could also look at all of the energies in a traditional currency system 161 00:10:46,370 --> 00:10:48,180 and say that it's also wasted and 162 00:10:48,180 --> 00:10:51,940 that it doesn't serve any other purpose besides maintaining the currency system. 163 00:10:54,110 --> 00:10:56,220 So that' s a really important disclaimer, I think, 164 00:10:56,220 --> 00:11:00,630 that just because Bitcoin uses electricity it's not necessarily wasted. 165 00:11:00,630 --> 00:11:02,950 If Bitcoin is a useful currency system, 166 00:11:02,950 --> 00:11:05,879 then the electricity is essentially being used for that purpose. 167 00:11:08,350 --> 00:11:11,220 But we still might think is there something better that 168 00:11:11,220 --> 00:11:13,330 we could do with this electricity. 169 00:11:13,330 --> 00:11:16,330 Rather than just heating up air which is sent off into the atmosphere. 170 00:11:17,440 --> 00:11:21,010 And one pretty interesting idea is what if we tried to capture the heat that we're 171 00:11:21,010 --> 00:11:27,210 turning that electricity used in Bitcoin mining and use it for practical purposes. 172 00:11:27,210 --> 00:11:30,630 So, this is called the Data Furnaces Model, and 173 00:11:30,630 --> 00:11:34,620 the basic idea is that you would go down to your local hardware store, and 174 00:11:34,620 --> 00:11:37,920 instead of buying a traditional electric heater to heat your home, or 175 00:11:37,920 --> 00:11:42,800 to heat water in your home, you would buy a Bitcoin mining rig that you would 176 00:11:42,800 --> 00:11:47,050 plug in both to the electricity outlet and also to your Internet connection. 177 00:11:48,280 --> 00:11:51,650 And your heater would essentially be doing Bitcoin mining, and 178 00:11:51,650 --> 00:11:56,110 using the heat produced as a byproduct of that computation to heat your water or 179 00:11:56,110 --> 00:11:59,090 to heat your home, which is hopefully useful. 180 00:12:01,250 --> 00:12:03,800 And it turns out that the efficiency of doing this isn't 181 00:12:03,800 --> 00:12:07,530 actually that much worse that just buying an electric heater. 182 00:12:07,530 --> 00:12:09,000 So this seems to be a great idea, 183 00:12:09,000 --> 00:12:12,590 and maybe it's a promising avenue to explore for the future. 184 00:12:13,600 --> 00:12:15,970 There's a couple of challenges here. 185 00:12:15,970 --> 00:12:20,910 For one, electric heaters are still much less efficient than gas heaters, so 186 00:12:20,910 --> 00:12:24,170 if you're in a really cold climate, where people really need heat, 187 00:12:24,170 --> 00:12:26,779 hopefully they'll have gas heating in their home anyway. 188 00:12:28,870 --> 00:12:31,350 It's also not clear what the ownership model is here. 189 00:12:32,360 --> 00:12:36,290 If you buy the Bitcoin data furnace, do you own the Bitcoin mining rewards that 190 00:12:36,290 --> 00:12:39,690 you get, or does the company that sold them to you? 191 00:12:39,690 --> 00:12:43,560 Most people don't have any interest in Bitcoin mining and probably never will, so 192 00:12:43,560 --> 00:12:46,470 it might make more sense to buy this as an appliance. 193 00:12:46,470 --> 00:12:48,970 And have the company that sold it to you keep the rewards. 194 00:12:50,390 --> 00:12:54,090 And then there's the really basic question of what happens if everybody turns off 195 00:12:54,090 --> 00:12:55,970 their Bitcoin mining rig in the summer? 196 00:12:57,880 --> 00:13:01,750 Will the capacity of the Bitcoin network go way down seasonally based on how much 197 00:13:01,750 --> 00:13:02,850 heat people need? 198 00:13:02,850 --> 00:13:06,507 Will it go way down on days that happen to be warmer, than average. 199 00:13:08,250 --> 00:13:11,440 This would be really interesting if the data for this model actually caught on. 200 00:13:14,250 --> 00:13:17,690 So a couple of open questions related to Bitcoin's energy consumption. 201 00:13:18,780 --> 00:13:23,130 Does the fact that Bitcoin provides such a good way to turn electricity into cash 202 00:13:23,130 --> 00:13:26,790 mean that countries that have strong electricity subsidies will have to rethink 203 00:13:26,790 --> 00:13:27,410 that model? 204 00:13:28,970 --> 00:13:33,800 So right now in many countries around the world, the government actually subsidizes 205 00:13:33,800 --> 00:13:36,640 electricity, particularly industrial electricity. 206 00:13:37,650 --> 00:13:39,502 And one of the reasons they do so is to try and 207 00:13:39,502 --> 00:13:43,174 encourage industry to be located in their country, as opposed to other countries. 208 00:13:45,572 --> 00:13:49,354 Now, if one of the main things that Bitcoin miners need to be successful is 209 00:13:49,354 --> 00:13:53,441 cheap energy and you can mine Bitcoins basically anywhere, it may not be stable 210 00:13:53,441 --> 00:13:57,711 to have countries subsidizing electricity heavily, because all that will mean is 211 00:13:57,711 --> 00:14:01,499 that you're paying for a lot of Bitcoin miners to move into your country. 212 00:14:03,600 --> 00:14:05,820 There's also the interesting question of, 213 00:14:05,820 --> 00:14:09,420 will the fact that you can turn electricity into money easily with Bitcoin 214 00:14:09,420 --> 00:14:12,390 mean that people have to start guarding their power outlets? 215 00:14:12,390 --> 00:14:14,010 Particularly around universities and 216 00:14:14,010 --> 00:14:17,530 corporations, large buildings with a lot of power outlets. 217 00:14:17,530 --> 00:14:21,440 Will they need security cameras to make sure that employees or students 218 00:14:21,440 --> 00:14:25,020 aren't trying to mine Bitcoins by plugging into unmonitored power outlets and 219 00:14:25,020 --> 00:14:25,810 just letting them run. 220 00:14:27,610 --> 00:14:30,720 And you might ask would we be better off if we didn't have this electricity 221 00:14:30,720 --> 00:14:32,140 consumption. 222 00:14:32,140 --> 00:14:35,630 Could we make a currency that didn't have proof of work and didn't have to use so 223 00:14:35,630 --> 00:14:36,430 much electricity. 224 00:14:36,430 --> 00:14:40,340 And again I'm not going to talk about that directly today, but 225 00:14:40,340 --> 00:14:43,190 that's going to be a topic that we talk about quite a bit. 226 00:14:43,190 --> 00:14:45,441 In our future lecture on alternative mining.