It's very simple: Bitcoin pays too much for proof-of-work mining. It consumes lots of energy. If Bitcoin continues to grow, someday there will be a point when governments and environmental organizations say that it has to stop.
The problem is that there is no way to adjust block reward. It has been decided in the beginning and it can't be changed. This means that when the price of bitcoin goes up, the value of block reward goes also up.
Currently Bitcoin network is paying about 1,750,000 dollars per day for miners – quite a lot of money! Because Bitcoin mining is global and very competitive industry – there is no regulation – nobody is getting big profits. So most of the reward will go to running the business. And of course the biggest cost of mining is the electricity. It has been estimated that even 90-95% of mining costs can go to electricity.
Making more energy efficient mining hardware doesn't help. Efficiency is not the thing that Bitcoin is paying for. Bitcoin is paying for hashes and making hashes requires energy. When you pay for energy consumption, you will get energy consumption.
Let's do a little thought experiment. Current block reward is 1800 btc per day or 657,000 btc per year (we'll forget transaction fees for simplicity). Electricity consumption of the whole world is about 20,000 TWh. Mining happens in countries with cheap electricity, so let's assume it will cost 0,05 $/KWh. And let's assume that 80 % of block reward will go to paying the electricity bill.
If price of bitcoin goes to $50,000, Bitcoin network will consume 526 TWh per year which is 2.63% of the world's electricity consumption. If it goes only $10,000, it's still more than half percent. That is shitload of energy.
Of course everything will change when more and more electricity is consumed, but you get the idea. In some point there will be consequences.
Maybe price of electricity will go up because there is so much more demand. This will piss off people in poor countries where electricity is cheapest. Maybe there will be lots of more electricity production. This will piss off environmental organizations.
Centralization of mining is also very probable result. Because the need for electricity is growing, mining will be only done near power plants. Then it will be easy target for governments.
If we want the financial revolution that Bitcoin was supposed to bring us, I can see two solutions:
- Change the block reward. I'd say this is pretty much impossible.
- Wait for many years until the block reward goes very small. We have to ask everybody not to buy bitcoins so the price will stay low.
Or we could just admit that Bitcoin won't work. If the price goes up, there will be serious problems. If the price won't go up, it means nobody is using it and we can't get our financial revolution.
When this has been admitted, we can focus on systems that can serve the whole world without causing senseless energy wasting and all the problems related to it – like Steem or Bitshares.
Thanks for keeping me up to date, Samupaha!
Upvoted & Followed.
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If somebody wants to do their own calculations, here is how I did it.
How much of the world's electricity will be consumed by Bitcoin:
price of bitcoin ($/BTC)*block rewards per year (BTC)/ (electricity consumption of the world per year (KWh)*price of electricity ($/KWh)) *how much of the block reward is used for electricity*100If we assume that price will go to one million per btc:
1,000,000 $/BTC*657,000 BTC/ (20,000 TWh*0,05 $/KWh) *0,8*100=52.56 %(Yeah, more than half of the world's electricity would go to bitcoin mining. Hard to see that ever happening.)Downvoting a post can decrease pending rewards and make it less visible. Common reasons:
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52.56% of the world's electricity is way off. Today the network uses as much electricity as an average sized city ( 300 000 homes). Even if more miners started to mine due to an increase in price the electricity used by the network will never be more than a large city like London or Paris.
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Think about it this way... Replace Bitcoin with a company and mining with apples. So there is a company that is using money to buy apples.
Today the company is spending 1,750,000 dollars to buy apples from anybody who is willing to sell them to it.
If the price of company share goes up, it can afford to buy more apples. It can spend 50,000,000 dollars to buy apples.
Don't you think people would sell more apples to it?
This is the simple economic truth: people respond to incentives.
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My bad, you are right. If the price was 1 million today with the current block rewards the consumption would be 52% that's correct. ( assuming miners respond to incentives)
The thing is that when we will be at 1 million per BTC the block reward would be a lot smaller than now, I don't see a million dollar bitcoin in the next 10 -20 years at least .
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Mining is not selling. Bitcoin is not apples. They have a market cap, and you cant just make new bit coin like apples. There is a limit, and then the money is in the pool and at end goal allows people at home to make money for processing transaction that go on by the million a second. They do respond to real incentives, like how you posting gibberish on a web sight because they said they pay you.
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Why are you dividing basically the moles of coins by the worlds electricity usage?? This equation has no validity.
Imagine I have a bunch of car prices and divided their cost by their mpg. Then divided by the gas consumption of the world times everyones gas price times how much of their gas goes to driving(so like it will always be all of it) I get one crazy number that means nothing.
"how much of the block reward is used for electricity"
um what...
First of all that relative to what your mining when with how much power in what pool at even what temp.
Second, everyone pays different amounts for electricity based on where it is consumed.
Third "20,000 TWh" where did you get this number?? I cant find anywhere that says a number that low. Thats like how much New York on a good day.
The estimated number is 157.5 PWh, https://en.wikipedia.org/wiki/World_energy_consumption
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I don't follow your logic...How does a rise in the price of bitcoin makes energy consumption increase? You said something about block reward but I seriously don't get it.
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Block reward is the incentive that makes people to mine. The bigger the incentive, the bigger is the sum that is spent to earn it. In the case of Bitcoin, if you want to earn the reward you must use lots of electricity. Basically the Bitcoin network is paying for people to waste electricity.
If we want to reduce the electricity consumption, we have to make the block reward smaller or raise the price of electricity (which will cause problems for the people around the world) or prevent the price of bitcoin going up.
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Other overwhelming reason to assume that Bitcoin will fail as a currency; 1. Lack of stability 2. Thin demographic distribution. Only less than 0.5% of people ever owned bitcoin 3.Extremely uneven distribution (94% of bitcoin owned by 4% of addresses) 4.High transaction cost ($2 for transaction is not going to be acceptable especially in developing countries) 5. Lack of participation ( poor people can't afford to participate in mining or speculation 6. Bitcoin is not perceived as grass-root blockchain project. 7. Bitcoin's price doesn't correlate with it's intrinsic value. It only means that more money being put into speculation (usually by the same people) 8. Blockchain is too naively structured (it put in place no mechanism to keep stability and decide where the newly minted coins should go. It's primitive mechanism only give coins to miners by default, regardless of mining's unnecesarry contribution). In traditional way, the money is created through credits to companies/persons who create real value into the economy . 9. Late adopter bear the brunt of high price and high volatility (buy high with high probability of selling lower) 10. There are newer Blockchain projects that are evolved out of where bitcoin has failed.. Bitcoin will definitely fail.. I has to, just like dinosaurs .. it give ways for other blockchain projects a reference on what to do and not to do. Proof of Work mining is one of those things that should be avoided. Mining is an elaborate, technically convoluted activity that appels to the intellectuals the tech-savy, nevertheless all those intellectuals failed to see that mining serve no purpose but to entice participation, where to validate a transaction and to cast votes, a PoS node will do more efficiently with faster speed and higher throughput. (I, myself used to mine. I used to have 35 Ths of mining hardware antminer S5 and at least 10X more in cloudmining).. I used to enjoy mining, before recently I see that it is useless. Regardless of economic incentives, mining is unnecessary). Mining is a joke. SMOKE & MIRRORS
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This post needs to be taken down. Samupaha identifies a problem that he obviously didn't even grant the worth of typing into google before he spewed it over the internet. "The problem is that there is no way to adjust block reward" ---- UNTRUE. As with all coins they have a halving rate to level out the worth and prevent a run away market cap. So what in the world are you talking about? Heres a link with a countdown until the next split.
http://www.bitcoinblockhalf.com/
More bs, countries electricity doesn't directly rely on others. Electricity is made in the area of consumption
Ummmm your missing the whole point of decentralization. It doesnt matter if they are all separate or together energy is energy and will be consumed at a similar rate.
Lastly even your math is bull
"If price of bitcoin goes to $50,000, Bitcoin network will consume 526 TWh per year which is 2.63% of the world's electricity consumption. If it goes only $10,000, it's still more than half percent. That is shitload of energy."
No, the coins power consumption is not directly related to price... second bit coin consumes 2 TWh (https://en.wikipedia.org/wiki/World_energy_consumption) not 526.. which at a current point is 1/78750 of our energy usage. Currently banking which has veriphones and servers and employees and most probably consumes a lot more energy. Where in the world did you get your numbers? Or did you just make them up because they sound good.
More lastly bro look up hash rate. If I put more energy into my rig its not just simply gonna just make more money, itl prob explode.
I dont know how to take you off this page but your post was so ignorant I had to spend my morning telling you off. Please do not post again unless you at least do a google search.
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