Hass McCook is a chartered engineer and freshly minted Oxford MBA. He has been researching bitcoin over the past several months and recently joined the Lifeboat Foundation’s New Money Systems advisory board.Here, in the first in a series of articles on bitcoin’s sustainability, he seeks to analyse the economic and environmental factors involved in the process of bitcoin mining.
There has been a lot of uncertainty surrounding the sustainability of the bitcoin network, with this fascinating nascent technology facing several unsubstantiated claims that it is highly unsustainable from a social, economic and environmental perspective.I therefore undertook research to disprove or support these claims and provide an order-of-magnitude comparison of the relative sustainability of bitcoin when compared with both the incumbent banking industry, the gold production industry, and the process of printing and minting physical currency.In fact, my research found that widely-available public information strongly refutes claims that bitcoin is unsustainable, and shows that the social, environmental and economic impacts are a minuscule fraction of the impacts that the legacy wealth and monetary systems have on both our society and environment.The results of this research have now been turned into a series of articles for CoinDesk (of which this is part 1) which examine the economic and environmental factors of bitcoin mining.Transactional fraudBecause bitcoin is resistant to transactional fraud and all transactions can be traced through its public ledger, there are no adverse social externalities or costs arising directly or indirectly from bitcoin mining.Even though bitcoin addresses are pseudonymous, a good team of detectives will be able to catch a criminal who has not been professionally meticulous in concealing their steps, which is very difficult to do on a public ledger.The slightest lapse of care will make anyone easily identifiable to authorities, and criminal detection rates will be much higher than the 1% success rate enjoyed by authorities in recovering laundered money (UN Office on Drugs and Crime, 2008).Economic and environmental impact assumptionsThe table below shows some examples of ASIC mining technology that is currently available (Source: Bitcoin Wiki, 2014), as well as energy efficiency per GH of hashing power.Due to the fast moving and perfectly competitive nature of the bitcoin network, it is assumed that the hashrate and energy usage performance displayed by these units will soon saturate the mining market, and most likely be exceeded to a significant extent every six to 12 months.
** HashCoins have had several production difficulties since the bankruptcy of HashFast, and won’t be considered further*** Minerscube and Extolabs appear to be scam entities, due to their unusually low energy usage and hashrate for the price point, and lack of information about the companies’ reputations available on the Internet. Regardless, it is not beyond the realm of imagination to expect to see these hashrates and energy performance figures in 6-12 months’ time (the Extolabs performance figures even sooner), which will go further to reduce the environmental impact of the bitcoin network.The best performing ASIC from a legitimacy, electricity and price point of view is the KnC Neptune ASIC, and the base case will assume that the entire bitcoin network is powered by them to uphold the economic laws of perfect competition and the assumptions listed above.Environmental costs of bitcoin miningWith a network hashrate of 110 million GH/s, the network needs 0.7333 x 110 million Watts = 80,666 kW. This equates to 80,666 kW x 24 hrs/day x 365.25 days/yr = 707,120,500 kWh/year.This equates to 2.54 million GJ/year, and 424,725 tonnes of CO2/year.At $100/MWh, this electricity would cost $70,712,000/year.The below table shows different energy usage, carbon footprint, and electricity costs assuming a different range of W/GH average network efficiency, but maintaining a network hashrate of 110 million.
Although the bitcoin mining industry should be efficient in theory, and the largest miners would be expected to have the most efficient equipment, this is not easily provable. The difference between the most efficient and least efficient miners is quite clear, and it makes sense that the large professional miners continually reinvest profits in updating their equipment multiple times per year.For the purposes of this order of magnitude comparative study, I will assume that the industry is not efficient, and average network energy efficiency is at the high end, 1.1 W/GH – 30% less efficient than the KnCMiner Neptune units.This generous allowance will also cover the impact of producing the ASICs, as several studies show that the gross majority of impact made by electronics happens during their use, and not during production.Also, 98% of electronic waste is completely recyclable (MRI, 2014).Economic costs of miningThe mining cycle is difficult to interpret since it depends on the market price of bitcoin.Similar to large gold miners, when market price of the underlying asset drops, miners tend to hold their assets to restrict supply, causing an eventual increase in price. Miners who can’t afford to do this typically shut off their equipment, and exit the mining game.When market price increases, this draws more miners into the game, increasing network hashrate and difficulty, which requires further capital expenditure from incumbent miners, which also leads to higher operating costs.So long as market price exceeds mining cost, miners will enter the market, and so long as mining costs exceed the market price, miners will either leave the game, or withhold supply – just as physical commodity miners do.Difficulty increases have been fairly consistent over the past year, with typical fortnightly hashrate increases of between 10% and 20% (BitcoinWisdom, 2014). Because of this, the useful life of most mining equipment is only about three to six months.Capital expenditureTheoretically, breaking the 110 million GH/s hashrate down into equivalent KnCMiner Neptune ASIC units (3,000 GH each), this results in approximately 36,670 units, at a price of $9,995 each – a total of $366.5m.Assuming this has to be spent twice a year, capital expenditure (CAPEX) of around $733m needs to be invested in the network. At the current block reward of 25 bitcoins per 10 minutes, 1,314,900 bitcoins are mined per year. This equates to yearly capital expenditure of $733 m/1.3149m bitcoins = $557.45 per bitcoin.Using the less efficient CoinTerra miner as a benchmark network average, yearly CAPEX would equate to $659.9m per year, or $501.85 per coin.For the purposes of this report, I will take an average figure of $530 per coin, or $696.9m.Operational expenditureAs calculated earlier, yearly electricity operational expenditure (OPEX) for a CoinTerra-average network would be $106.1m, or $80.69 per coin.Using KnCMiner consumption figures, running costs per coin would be $70.71 million, or $53.77 per coinFor the purposes of this report, I will take an average figure of $67.23 per coin, or $696.9 million.Total costAdding the CAPEX and OPEX figures results in a cost to mine a bitcoin of $597.23, and a total yearly cost of $785.3m. Interestingly, this is the exact bitcoin price at time of writing.It should be expected that price of bitcoin should grow proportionally with the cost of network CAPEX and OPEX based on hash rate from this point forward.This goes a long way to explain the cyclical bubble nature of bitcoin’s market price, and gives us insights into local minimum prices after a burst bitcoin cycle bubble.
Now we’ve looked at the cost of bitcoin mining, it’s time we compared it with the cost of generating other stores of value. Stay tuned for the next article in the series, in which Hass McCook examines the sustainability of gold mining.Environment image via Shutterstockbitcoin miningEnvironmentgold Original author: Hass McCook
bitpremier.comPrice: $175,000Purchasing these ivory tusks from the extinct woolly mammoth species with bitcoin would be a great way to bring things full circle between the past and the future, but only if you’ve got about 290 BTC to spare at today’s market price.3. A Venus flytrap plant 
predatoryplants.comPrice: $8.99Who hasn’t always wanted a carnivorous plant growing in their garden? At under $10, these venus flytraps are a catch!4. Sriracha-bacon flavored lollipops 
lollyphile.comPrice: $24 for 12 lollipopsMost everybody loves sriracha and bacon, but combining the two flavors? And putting them in a lollipop? These suckers sound pretty irresistible.5. An interactive ferrofluid sculpture Price: $199Even after watching the informational video, I’m still not certain I fully understand what’s going on with this ferrofluid sculpture. Regardless, I’m intrigued, and the iron-enhanced device seems fun to play with!6. Red Trinidad scorpion jelly 
pexpeppers.comPrice: $6Some people search near and far for their fix of the hottest chilli peppers on the Scoville scale. I’m not sure where this Trinidad Scorpion Jelly ranks according to this system, but by the sound of it I would guess pretty high.7. The very first Apple Macintosh model – 128k 
bitpremier.comPrice: $5,430Now that Apple is finally coming around to the idea of digital currencies, perhaps one nostalgic bitcoiner will spring for the very first model Macintosh that Apple released back in 1984.8. Celtic cross tarot reading cards 
mytarotreading.orgPrice: $15We’ve all tried our hand at predicting the price trends for bitcoin and other digital currencies. Maybe these tarot cards can offer sage insight that us mortals are simply overlooking?9. A Robo 3-D printer 
robo3dprinter.comPrice: $799While a 3-D printer may not be “weird” per se, this Robo3D printer could surely print out some strange objects. I’ll leave that up to the buyer’s imagination.10. A doge sweatshirt 
belovedshirts.comPrice: $59Wow. This doge sweatshirt really makes a statement. Many prints, all over.11. A handmade bitcoin plush pillow 
craftsquatch.comPrice: $29Some may want to show their love of digital currencies without sporting a doge sweatshirt, and for those people there is a handmade bitcoin plush pillow just waiting to be snuggled up with.12. Spokester bicycle noisemakers Price: $7.99Of course, we all remember the old card-and-clothespin trick to make our bicycles sound intimidatingly loud as kids. Now, someone has actually tapped into the market and made a product that removes the need for all of that work!13. A profitable Yukon gold mine 
bitpremier.comPrice: $2mThere’s still a ton of speculation over which is the better investment: gold or bitcoin. This already-profitable gold mine in Canada would be the perfect investment for a super-rich bitcoiner hoping to diversify his or her portfolio.14. Alpaca socks 
grasshillalpacas.comPrice: $20Alpacas and bitcoin have a long history together. Yes, you read that right. The llama-like animal has been dubbed the unofficial mascot of bitcoin, and these alpaca socks have become one of the quintessential items that can be bought with the digital currency.e-commercelifestylelistsmerchants
The company has also announced the launch of a “repurchase” feature, which enables users to immediately top up their bitcoin wallets after they make a purchase in the digital currency.Once placing an order via the checkout page of a site that uses 
