Finance is about 7.3% of U.S. GDP [1]. The U.S. produces about 1,000 gigawatts of energy per year [2]. A first-order estimation thus yields 73 Gigawatts for finance. So about 150 times Bitcoin’s 500 megawatts.
About $700 million of BTC change hands every day [3]. That’s $250 billion a year. U.S. non-cash transaction volume is like $180 trillion a year [4]. So about 720 times the size of the Bitcoin economy.
Bitcoin thus appears about 5 times less efficient than the non-cash status quo. Given finance is less energy intensive than most of the U.S. economy, this is likely a lower-bound estimate.
[1] https://www.selectusa.gov/financial-services-industry-united...
[2] https://en.m.wikipedia.org/wiki/Electricity_sector_of_the_Un...
[3] https://www.quandl.com/data/BCHAIN/ETRVU-Bitcoin-Estimated-T...
[4] https://www.federalreserve.gov/newsevents/press/other/2016-p...
That government and military also safeguards a lot of the economy any financial system, traditional or crypto currency, needs to drive it. In any case, sovereign-less free banking happened [1]. It was replaced for reasons of efficiency.
The day bitcoin has its top 1% people(By many a definition they are already there) you will need a military to force it on the people, else they can start their own currency turning the value of existing cryptocurrencies to 0.
Bitcoin et al will easily support 10x the value and transactions and make the "but it is 5 times less efficient" argument moot.
Cars were also less efficient than horses at first. Maybe cars were a huge waste of energy and should have stuck with animal power.
If bitcoin has 300 trillion worth of transactoins, that means being able to mount a 51% attack on the network has a value in the trillions..
Therefore, if you're using less than trillions of dollars of energy to secure it, someone will mount an attack.
The more valuable the bitcoin network is, the more incentive there is to attack it and the more energy must be wasted.
The current financial system does things besides verify transactions.
- Need to get a loan, a line of credit, or just a safe third party to hold your bitcoin so that you're not carrying around your life savings in your pocket? Banks.
- Want to buy cats with your bitcoin but your cat dealer only accepts bitcoin cash? Exchanges.
- Want to do any kind of business in commodities? Now you've got derivatives, and you'll definitely want lawyers.
- Want to make any kind of investment? Now you've got everything.
The actual transferring of money only makes up a tiny fraction of the services in our financial system, and none of the rest of the stuff goes away just because you changed the type of money.
I can see the argument that "waste" is the wrong word, since it is producing value, but it's worth putting thought into.
We as a race are really good at only considering the downsides of something once we've deployed it at irreversible scale
That's a little pessimistic, I think. Some problems simply do not become apparent and are difficult to anticipate prior to a certain minimal scale. This IMO isn't an issue with humans in general, our resources are limited in the design phase. There is only so much we can anticipate-and how often do you hear about large scale successes with the same magnitude of emotionally loaded reporting that you get with large scale disasters?
The fact that mining requires energy is not any different from literally any other action human beings perform to transact value. Bitcoin is just much closer to a pure exchange of information (which is all that value transfer really is) and so it's easier I think to stop and say "look at all those computers wasting energy doing nothing!" Since you typically see other "necessary" uses of power in non BTC transactions.
Not to mention the various solutions that could substantially improve BTC efficiency in the way of both hardware and software (e.g. asics). The fact that the BTC network is energy intensive is not as big of a hit against BTC overall as people seem to be making it out to be.
Not to mention that everyone is screaming about the energy use without considering both cost and benefit.
In general, miners won't mine unless there is a financial incentive to do so. as Bitcoin matures, that financial incentive maps closely to an overall demand for a store of value (plus the nifty features of crypto).
I would see your point more clearly if miners really were wasting energy–using energy to calculate hashes that weren't financially valuable–but I don't see that happening right now.
For every river you pollute I'll print another $10 bill and hand it to you. Clearly this isn't wasteful because it's financially valuable. /s
This logic doesn't hold up to reason.
The blockchain doesn't have the economics to incentivize limitless energy consumption. The upper bound is exactly how much people are willing to pay for the bitcoin you mine.
This also means that as the Bitcoin mining reward diminishes, the money "wasted" on energy is going to decrease, unless the transaction fees rise enough to match what the reward was paying. In that case, because people are willing to pay those fees, it seems quite logical that the cost of the mining is providing a value equal to its cost. Otherwise, people would not be paying those fees.
I really don't know if the Bitcoin experiment is going to work but a lot of criticisms of it are based on some really poor logic.
The upper bound is the combination of how much people will pay you for the bitcoins they mine, how much people value being able to transact (transaction fees), and the value of existing held bitcoin.
Since mining is what prevents attackers from stealing bitcoin,the total value of all bitcoin in existence actually has a bearing in this.
If no one were transacting and no coins were rewarded for mining, people would still mine just so that their existing coins remain secure.
Building a new plant is much less risky if there is guaranteed off-peak demand. New plants also tend to me more environmentally friendly.
Is less than 1% additional energy usage worth a 2 trillion cap? Well, I'm sure people can find a way to argue that it's not, but the point is that bitcoin isn't this enormous threat to energy usage that people try to argue it is.
According to https://digiconomist.net/bitcoin-energy-consumption bitcoin is on track to consume 19 TWh this year. That puts it at .1% of the global power consumption already
NASDAQ does 10 million trades a day, roughly. So if bitcoin scales to just handle NASDAQ alone it would consume ~850 TWh/year, which is 3.5% of the total world's electricity generation (to say nothing of Visa's 150 million transactions a day)
The reason bitcoin isn't currently an enormous threat is because it's basically barely used by comparison. 300,000 trades/day is a tiny number in the world of financial transactions.
Edit: mining effort is dominated by difficulty anyway, not throughput.
The key question raised in the parent comment, which your own riposte artfully dodges, is once again - who stands to benefit from this N% increase in global energy usage?
As far as a justification goes, I think that if BTC reaches 2 trillion, it will have gone mainstream. Meaning either existing transactions should become easier, or people find it a good store of value.
This isn't just theoretical. The marijuana industry faces immense hurdles dealing with the traditional financial system, because marijuana is technically still illegal at the federal level. This makes it a nightmare to do any of the normal banking operations we take for granted. Bitcoin sidesteps this problem while also letting you be legal: As long as you declare your taxes properly, Uncle Sam probably won't come knocking.
That's just one example of an industry that benefits. There are many more.
[1] https://en.wikipedia.org/wiki/World_energy_consumption [2] https://www.thedailybeast.com/the-insanely-profitable-federa...
Paperclipping - https://wiki.lesswrong.com/wiki/Paperclip_maximizer
https://hackernoon.com/bitcoin-doesnt-waste-electricity-6496...
The other half is an augmentation of the line that the electricity used for mining is actually used by the mining computer, and very little of it evaporates as heat. Moreover heat inefficiencies are not intended by miners. As a result mining is as legitimate as any other business activity and mining bitcoins should not be considered a waste of energy. While in this case an opponent may possibly exist, I am left unconvinced by this demonstration.
The real discussion is that as of today, the raw materials required to produce electricity are in limited supply and in decreasing amount. Provided this limited supply and this decreasing amount, a structural increase on the demand will result in a pressure on price which may have a negative impact on society and the economy. An other concern is that as of today, efforts are made to decrease energy consumption because energy production has a negative impact on environment with the current state of the art technologies. The waste discussion comes from the fact that the energy footprint of the bitcoin network may seem unnecessary to some since alternatives exist to transfer value.
The author fails to consider the issue from the other side of the table and does not even know who or what he argues against. He misunderstands what the opposing view is. Throughout the article a lot of energy is spent defending positions that nobody ever challenged and this for sure is a waste.
This entire article is glossing over the fact that the vast majority of electricity produced is from converting a physical resource into the electricity being wasted. Excessive wasteful packaging is stupid, and so is using excessive amounts of power to make Dunning-Krugerrands.
You could certainly place your miners near energy sources such as hydro, solar, or geothermal, but that doesn't change the fact that Bitcoin mining is, by definition, a measure of wasted electricity.
That is far too selfish of a view for the author to take. Electricity is a finite resource; only so much of it can be generated and available at a given time.
The important thing to know is that the current administration considers energy a top priority [1] so we are well poised to continue building blockchain infrastructure.
Boiling the ocean for a bit more personal wealth for the top 5% of income earners that make up the userbase of this site is ... a lot.
> Almost all of society functions on energy, some of the largest breakthroughs in society have been on sudden abundance of cheap energy and the machines, vehicles products they can create.
Entire economies can be crippled by rising costs in energy (oil shocks of the 70s) and boom by sudden drops in cost of energy.
So we've created an "industry" where you are essentially paid by comverting energy to waste. Paid to perform extremely intense difficult (ie wasteful) operations to back a useful technology (digital currency).
Assuming it catches on, energy will never be cheap, there will always be a higher floor now due to options for "mining". As we get better at it and it becomes less wasteful, the digital system will simply raise the reward so people are incentivised to once again waste it.
Ignore the short term for the moment, and which ever currency you're backing. We've created a long term societal motivation/reward to harvest every joule produce by the sun and use it to calculate hashes. I'm not talking about the next decade obviously, but we have incentivised that behavior.
If there is anything technologists should understand is that whatever your beautiful perfect technology is, it will instead be used based on whatever has been incentivised.
Regardless of the technology it powers, this is a terrible societal incentive - and one that will be around a lot longer than people are considering.