So in the last section we ended by
showing how large professional mining
data centers have taken over
the business of Bitcoin mining.
And we showed the parallel to traditional
mining with those open pit mines on
the bottom, which you may know have
been a huge source of concern for
environmentalists over the years asking.
How much damage are these pit
miners doing to the environment?
Now, Bitcoin is not
quite at that level yet.
But as I said,
it is a very difficult computation
with a lot of large players
interested in competing now.
And it is starting to use
a significant amount of energy,
which has become a topic of discussion.
So in this section we'll talk about
how much energy Bitcoin is using and
what that might mean for
the currency and for the planet.
So to start with,
we'll talk about why computation
inherently requires some energy.
So there's a principle developed
by Rolph Landauer in the 1960s.
That any non-reversible computation
must use as minimum amount of energy.
So this is derived from basic physics.
We're not going to go
through the derivation here,
except to say that every time you flip
on bit in a non-reversible computation,
there's a minimum number of
joules that you have to use.
And of course, if you remember some
fundamental theorems of physics,
energy is never destroyed.
It's only converted from
one form into another.
In the case of computation, it's
mostly that energy is transformed from
electricity, which is very
high grade energy, Into heat,
which is dissipated into the environment.
Now of course,
SHA-256 being a hash function,
which is the basis of Bitcoin,
is not a reversible computation.
And if you remember all
the way back to lecture one,
this is a basic requirement of hash
functions, that they're not reversible.
Since I told you that any non-reversible
computation has to use some energy and
SHA-256 is not reversible,
energy consumption is an inevitable
factor doing Bitcoin mining.
What it's saying is that the limits
provided by Landauer's principle
are far, far below the amount of
electricity that's being used today by
over a factor of a thousand, so
we're nowhere close to theoretical
optimum efficiency of computing.
But even if we did get to
the theoretical optimum,
we would still be using some
energy to perform Bitcoin mining.
So why does Bitcoin mining require energy?
There are three steps in
the process that require energy.
First, you have to manufacture
your Bitcoin mining equipment.
So that requires both physical mining,
digging up things out of the ground,
especially rare earth metals and
copper that go into integrated circuits.
And then you have to manufacture
it into a Bitcoin mining ASIC.
So it takes a lot of energy to
run fabs and to tune out chips.
So all of that energy is
called the embodied energy.
As soon as you receive a bit coin
mining ASIC in the mail that you order,
you've already consumed a lot of energy,
including the shipping energy of course,
just to get that to you before you've even
turned it on and tried to mine Bitcoins.
Then you'll plug it into the wall and
turn it on,
and of course it will be drawing
electricity constantly while it's on,
and that's the electrical
energy consumed in mining.
And that's the step that
no matter what happens
has to be consumed because
of Landauer's principle.
So hopefully over time,
the embodied energy will go down.
As less and
less new capacity comes online,
fewer people are going out
to buy new mining ASICs.
They're being obsoleted less quickly.
The existing fleet can last a long time.
The embodied energy will be amortized
over years and years of mining.
But the electricity consumption,
even though it will go down a little bit
because rigs will get more efficient,
that will be a fact of life forever.
The other thing about both electricity and
energy is that both are probably less
if you're operating at a large scale.
If you're running a huge
mining data center.
You can do it more efficiently.
It's cheaper to build chips that are
designed to run in a large data center and
you can deliver the power
more efficiently.
Because you don't need
as many power supplies,
you can deliver all the electricity
to one place and so on.
But there's a third important component,
which is cooling off your equipment to
make sure that it doesn't malfunction.
So if you're operating your
equipment in Antarctica,
maybe your cooling budget is very small.
But almost anywhere else, you're going to
have to pay extra, usually electricity,
to cool off your equipment from all
the waste heat that it's generating.
An interesting aspect about cooling
Is that cooling actually costs more
the bigger your scale is, so if you want
to run a very large operation and have
a lot of Bitcoin mining equipment all in
one place, you're cooling budget is going
to increase, because cooling that big
mass is going to be much more difficult.
There's less air for the heat to, to
dissipate into surrounding your equipment.
So how much energy is the entire
Bitcoin network using?
There are two basic approaches to trying
to estimate how much energy the Bitcoin
network is using of course we can't
compute this precisely because it's
a decentralized network with miners
operating all over the place
without documenting exactly
what they are doing.
But we'll start with a really
simple approximation strategy,
which is to take the fact that about
$15,000 and again, that's 25 Bitcoin
of reward are created with every block
which is found every ten minutes.
So if we convert that to revenue per
second, we get about $25 US dollars per
second that are being minted and
given to the mining community.
Now, if the miners are turning all of
those $25 per second into electricity,
how much can they get?
Well, at US industrial electricity prices,
and
this will vary from state to state or
certainly from country to country, but
we'll go with about $0.10
US per kilowatt hour.
And kilowatt hour is kind of
a funny marketing unit, so
we'll go to the more standard
scientific unit of the megajoule.
So, if the miner took those $25 that they
earned every second and converted it
purely into electricity, they would
get about 900 megajoules every second.
And of course joules per
second are just watts.
So those 900 megajoules per second
are 900 megawatts or 900 million watts.
A second way to estimate the same
figure is to do a bottom up approach.
And to say let's look at how many hashes
the miners are actually computing,
which we know by observing
the difficulty of each block.
And what is the best hardware
that miners might be using?
So if you look online at mining rigs
that are being commercially sold today,
one of the best performance figures that
you'll see Is rigs that are able to turn
one watt of electricity into
about one gigahertz of hashing.
So they perform one billion hashes
per second while consuming about one
watt of power.
And the total network hash rate is about
150 million gigahertz or 150 petahertz.
Of course that excludes all
of the cooling energy and
all of the embodied energy
that's in those chips.
But we're doing an optimal
calculation here.
So if the entire network was
running at about the efficiency of
generally the better chips on the market,
what would we get?
If we just multiply these two
together We would get about 150 MW to
produce that many hashes per second,
at that efficiency.
So again, last slide I said, at a high
end, using the top down approach,
we estimated about 900 MW.
And using the bottom up approach,
this is a lower bound, about 150 MW.
So maybe for the whole network today
somewhere between 100 megawatts and
a gigawatt of electricity
are being consumed.
In reality, of course,
it's probably somewhere in the middle and
it's going to evolve over time.
But that's a useful ballpark
to think about right now.
So how much is a megawatt?
Well, we can look at what
big power plants produce.
So one of the largest
power plants in the world,
the Three Gorges Dam in China,
is a 10,000 megawatt power plant.
It actually has slightly
higher capacity than that, but
that's the average rate of
power that's being produced,
whereas a typical large hydro plant
is more like 1,000 megawatts.
If you're interested in nuclear power, we
can look at the largest nuclear plant in
Japan, and that's about a 7,000 MW plant,
whereas the average nuclear power
plant is more like 4,000 MW.
Or back in the carbon-heavy way of
producing electricity, we can look at
a major large coal fired plants, and
you might get 1,000 to 2,000 megawatts.
So again, our high end estimate was still
that Bitcoin was consuming less than 1,000
megawatts, so
the whole Bitcoin network is consuming
less than a large power
plants worth of electricity.
So it's not nothing.
It still means that we have to essentially
to run a large power plant purely to power
Bitcoin and not any of the other things
that we need electricity for in the world.
But it's not yet to the point where it's
a large amount of electricity compared to
all the other things that people
are using electricity for on the planet.
And, it's certainly worth pointing out
that any payment system is going to
require energy and electricity.
So, when we look at traditional currency,
a lot of energy is consumed moving gold
bullion around, guarding the gold bullion,
running ATM machines, running coin
sorting machines, running cash registers.
Transporting the money
around in armored cars.
All of that is energy consumed
by the traditional money system.
So sometimes people have a tendency
to think Bitcoin is wasting energy,
because the energy is being expended
in this SHA-256 computation
that doesn't serve any apparent purpose.
But you could also look at all of the
energies in a traditional currency system
and say that it's also wasted and
that it doesn't serve any other purpose
besides maintaining the currency system.
So that' s a really important disclaimer,
I think,
that just because Bitcoin uses
electricity it's not necessarily wasted.
If Bitcoin is a useful currency system,
then the electricity is essentially
being used for that purpose.
But we still might think is
there something better that
we could do with this electricity.
Rather than just heating up air which
is sent off into the atmosphere.
And one pretty interesting idea is what if
we tried to capture the heat that we're
turning that electricity used in Bitcoin
mining and use it for practical purposes.
So, this is called
the Data Furnaces Model, and
the basic idea is that you would go
down to your local hardware store, and
instead of buying a traditional
electric heater to heat your home, or
to heat water in your home, you would
buy a Bitcoin mining rig that you would
plug in both to the electricity outlet and
also to your Internet connection.
And your heater would essentially
be doing Bitcoin mining, and
using the heat produced as a byproduct of
that computation to heat your water or
to heat your home,
which is hopefully useful.
And it turns out that
the efficiency of doing this isn't
actually that much worse that
just buying an electric heater.
So this seems to be a great idea,
and maybe it's a promising avenue
to explore for the future.
There's a couple of challenges here.
For one, electric heaters are still
much less efficient than gas heaters, so
if you're in a really cold climate,
where people really need heat,
hopefully they'll have gas
heating in their home anyway.
It's also not clear what
the ownership model is here.
If you buy the Bitcoin data furnace,
do you own the Bitcoin mining rewards that
you get, or
does the company that sold them to you?
Most people don't have any interest in
Bitcoin mining and probably never will, so
it might make more sense to
buy this as an appliance.
And have the company that sold
it to you keep the rewards.
And then there's the really basic question
of what happens if everybody turns off
their Bitcoin mining rig in the summer?
Will the capacity of the Bitcoin network
go way down seasonally based on how much
heat people need?
Will it go way down on days that
happen to be warmer, than average.
This would be really interesting if the
data for this model actually caught on.
So a couple of open questions related
to Bitcoin's energy consumption.
Does the fact that Bitcoin provides such
a good way to turn electricity into cash
mean that countries that have strong
electricity subsidies will have to rethink
that model?
So right now in many countries around the
world, the government actually subsidizes
electricity, particularly
industrial electricity.
And one of the reasons they do so
is to try and
encourage industry to be located in their
country, as opposed to other countries.
Now, if one of the main things that
Bitcoin miners need to be successful is
cheap energy and you can mine Bitcoins
basically anywhere, it may not be stable
to have countries subsidizing electricity
heavily, because all that will mean is
that you're paying for a lot of Bitcoin
miners to move into your country.
There's also the interesting question of,
will the fact that you can turn
electricity into money easily with Bitcoin
mean that people have to start
guarding their power outlets?
Particularly around universities and
corporations, large buildings
with a lot of power outlets.
Will they need security cameras to
make sure that employees or students
aren't trying to mine Bitcoins by plugging
into unmonitored power outlets and
just letting them run.
And you might ask would we be better
off if we didn't have this electricity
consumption.
Could we make a currency that didn't have
proof of work and didn't have to use so
much electricity.
And again I'm not going to talk
about that directly today, but
that's going to be a topic that
we talk about quite a bit.
In our future lecture
on alternative mining.