The Cost of Bitcoin Mining Has Never Really Increased

Abstract

The Bitcoin network is burning a large amount of energy for mining. In this paper, we estimate the lower bound for the global mining energy cost for a period of 10 years from 2010 to 2020, taking into account changes in energy costs, improvements in hashing technologies and hashing activity. We estimate energy cost for Bitcoin mining using two methods: Brent Crude oil prices as a global standard and regional industrial electricity prices weighted by the share of hashing activity. Despite a 10-billion-fold increase in hashing activity and a 10-million-fold increase in total energy consumption, we find the cost relative to the volume of transactions has not increased nor decreased since 2010. This is consistent with the perspective that, in order to keep the Blockchain system secure from double spending attacks, the proof or work must cost a sizable fraction of the value that can be transferred through the network. We estimate that in the Bitcoin network this fraction is of the order of 1%.

Fundamental and speculative components of the cryptocurrency pricing dynamics

“…Hashrate, sometimes referred to as network security but often considered to be the amount of computational power the miners are willing to contribute to the system for the chance of getting rewards, does not affect the price. This is in agreement with previous studies on the interaction between Bitcoin price and hashrate (Kristoufek 2020;Song and Aste 2020;Marthinsen and Gordon 2022). Inflation, representing newly minted coins, has no tangible effect on price dynamics; it seems to be priced in from a long-term perspective, as new emissions are known and imprinted in the protocol.…”

Asymmetric determinants of Bitcoin's wild price movements

“…Interestingly, the effect of negative change in the cost is stronger than that of rise in the cost, reflecting the thoughts of Kristoufek (2015) about the economical behavior of miners induced by a negative movement of costs. In other words, miners might be willing to limit the cost reducing effects on the price and keep growing the value of Bitcoin by, (1) introducing the Bitcoin futures and (2) auctioning off the hash rate to the highest bidder while miners figure out what to do with the now “worthless” hardware that have little or no value (Song and Aste, 2020). Such a finding calls into question the theoretical as well as empirical underpinnings of the mining efficiency (Kristoufek, 2020).…”

Illegal Roads Leading to Legal Ends: Bitcoin Mining in Malaysia

“…In terms of existing legislation that may be applicable to mining activities, certain mining hardware may currently be recognised as devices containing encryption and cryptographic tools. 41 In enacting these laws, countries could turn to those which already have such laws in place, for example, in Sweden, there are no prohibitions under Swedish law that ban, limit, or otherwise stipulate any required conditions that are especially applicable to the selling of virtual currency mining devices in Sweden. As long as such equipment are not offered to consumers, the parties to any sale of virtual currency mining machines are free to establish the conditions of the transaction at their discretion.…”