Cryptocoins: who pays the huge energy?

[dimreepr]

Just now, martillo said:

I want both... 😄

Then you've got to understand, what you think you know...

[Bufofrog]

36 minutes ago, martillo said:

For me is just curiosity now to know who really consumes all that amount of energy as an entire country...

This has been answered.  The miners pay the electric bills.  You can mine for bitcoin, buy an expensive computer, with an expensive (powerful) video card and run your algorithm to guess the number that will allow you to claim some bitcoin.  To increase your chance of guessing correctly you could run 10 computers 24/7 at full capacity.  At the end of the month you have to pay the electric bill for your energy usage.

As has also been mentioned that because the miners are eating up all this energy it can cause energy prices to increase.

[joigus]

Here's a Bill Maher video, totally unrigourous, humourous, on the problem. 

I don't think it's a particularly impressive analysis of the problem, but it highlights some of the central questions. The main points being:

A) CCs are based on nothing of "real" value

B) CCs exert a huge demand on energy resources

I think the second point is more or less right, but the 1st one, IMO, is not.

I think Warren Buffett --and Maher with him-- misses the point of what the real problem with crypto-currencies probably is. It's not that crypto-currencies have no "real" value behind them (whatever that means).

I don't know what "real value" is supposed to mean: Whether the actual cost of making it, which is next to nothing; its face value, which depends on socio-economical convention; or perhaps its purchasing power, which depends on how much money is circulating, as well as on the whole amount of goods and services available.

I'll try to explain what I mean:

Seigniorage (difference between face value and production cost of a monetary unit) of 1-dollar bill is 95 cents, if we're talking about paper money, which is practically the whole dollar. If "real" value is seigniorage, then it's arbitrary; if it's cost, it's just 5 cents; if it's purchasing value, it's highly volatile. It is ridiculous to think that money holds an objective value based on something real, in the same sense that machines, raw materials, qualified professionals, or energy sources are real.

For digital money the cost is even less, I suspect, as it implies practically no extra cost writing 1'000'000'000 (a billion) instead of writing 1. In fact, crypto-currencies have a far safer system of controlling how much money is in circulation (a priori, at least) than the present monetary system has, resulting in a practically watertight framework to avoid inflation by dishonestly flooding the market with currency at any point in the network. And they also have an intrinsic value at least comparable to digital debt money (money just issued by writing numbers on a computer whenever banks "lend" money).

I think the real problem with CCs is:

1) It creates yet another "bag" for inflation, encouraging people to massively invest in assets that may or may not fulfil their expectations of future returns.

2) It does so at the expense of a huge demand of power due to computational needs.

3) It does not comply with the criteria for sound money: Reasonable degree of; 3a) Scarcity; 3b) Standardization (accepted by many)

If you create arbitrarily many types of money, you lose point 3b); and point 3a) becomes moot. What was intended to be safe money becomes investment in stamps.

IMO, it's not worth the carbon footprint that it costs at the scale and with the rules of the game under which it's running, and it is at least in that sense that we all pay the price. I'm sorry that half my arguments are economic --thereby off-topic strictly speaking--, but that aspect is very much linked to the roots of the problem, and needs attention.

[martillo]

1 hour ago, joigus said:

Here's a Bill Maher video, totally unrigourous, humourous, on the problem. 

I don't think it's a particularly impressive analysis of the problem, but it highlights some of the central questions. The main points being:

A) CCs are based on nothing of "real" value

B) CCs exert a huge demand on energy resources

I think the second point is more or less right, but the 1st one, IMO, is not.

I think Warren Buffett --and Maher with him-- misses the point of what the real problem with crypto-currencies probably is. It's not that crypto-currencies have no "real" value behind them (whatever that means).

I don't know what "real value" is supposed to mean: Whether the actual cost of making it, which is next to nothing; its face value, which depends on socio-economical convention; or perhaps its purchasing power, which depends on how much money is circulating, as well as on the whole amount of goods and services available.

I'll try to explain what I mean:

Seigniorage (difference between face value and production cost of a monetary unit) of 1-dollar bill is 95 cents, if we're talking about paper money, which is practically the whole dollar. If "real" value is seigniorage, then it's arbitrary; if it's cost, it's just 5 cents; if it's purchasing value, it's highly volatile. It is ridiculous to think that money holds an objective value based on something real, in the same sense that machines, raw materials, qualified professionals, or energy sources are real.

For digital money the cost is even less, I suspect, as it implies practically no extra cost writing 1'000'000'000 (a billion) instead of writing 1. In fact, crypto-currencies have a far safer system of controlling how much money is in circulation (a priori, at least) than the present monetary system has, resulting in a practically watertight framework to avoid inflation by dishonestly flooding the market with currency at any point in the network. And they also have an intrinsic value at least comparable to digital debt money (money just issued by writing numbers on a computer whenever banks "lend" money).

I think the real problem with CCs is:

1) It creates yet another "bag" for inflation, encouraging people to massively invest in assets that may or may not fulfil their expectations of future returns.

2) It does so at the expense of a huge demand of power due to computational needs.

3) It does not comply with the criteria for sound money: Reasonable degree of; 3a) Scarcity; 3b) Standardization (accepted by many)

If you create arbitrarily many types of money, you lose point 3b); and point 3a) becomes moot. What was intended to be safe money becomes investment in stamps.

IMO, it's not worth the carbon footprint that it costs at the scale and with the rules of the game under which it's running, and it is at least in that sense that we all pay the price. I'm sorry that half my arguments are economic --thereby off-topic strictly speaking--, but that aspect is very much linked to the roots of the problem, and needs attention.

So summaryzing, cryptocoins have real value zero, their energy consumption could worm up the planet in 2ºC and we all will pay more for our needed energy. Nice deal...

Edited May 15, 2021 by martillo

[swansont]

So it sounds like there are a number of people who spend money to mine but don’t get any cryptocurrency in return, and they are the ones doing the bulk of the paying.

[martillo]

I thought cryptocoins could simplify monetary transactions in a big "digital world". I suppose that was the original aim but at this cost no way...

 

Edited May 15, 2021 by martillo

[StringJunky]

54 minutes ago, martillo said:

I thought cryptocoins could simplify monetary transactions in a big "digital world". I suppose that was the original aim but at this cost no way...

 

It's far too volatile to be a currency as well. It's a game for gamblers and crooks to wash their money. I'm all for privacy in general but I don't think any money system should be untraceable and unaccountable.

[John Cuthber]

2 minutes ago, StringJunky said:

I don't think any money system should be untraceable and unaccountable.

Do you mean... like cash?
I'm fairly sure that the blockchain ensures that all crypto-currency deals are exceptionally well documented.

1 hour ago, martillo said:

cryptocoins have real value zero

Just like all forms of money.

[martillo]

2 hours ago, Bufofrog said:

This has been answered.  The miners pay the electric bills.  You can mine for bitcoin, buy an expensive computer, with an expensive (powerful) video card and run your algorithm to guess the number that will allow you to claim some bitcoin.  To increase your chance of guessing correctly you could run 10 computers 24/7 at full capacity.  At the end of the month you have to pay the electric bill for your energy usage.

As has also been mentioned that because the miners are eating up all this energy it can cause energy prices to increase.

Are you saying that cryptocoins have associated a very expensive game now and that game being reponsible for the main consumption of energy?

 

51 minutes ago, StringJunky said:

It's far too volatile to be a currency as well. It's a game for gamblers and crooks to wash their money. I'm all for privacy in general but I don't think any money system should be untraceable and unaccountable.

May be I'm just beginning to understand, not sure. Seems to me now that a cryptocoin would be like the money of a virtual country in the web. A volatile country then...

Edited May 15, 2021 by martillo

[martillo]

4 hours ago, iNow said:

You’re basically asking me how people earn money to pay their bills. You need to ask better questions. 

I apologize, I'm understanding what cryptocoins' mining means just now I think...

[Sensei]

1 hour ago, martillo said:

May be I'm just beginning to understand, not sure. Seems to me now that a cryptocoin would be like the money of a virtual country in the web. A volatile country then...

Which country is not volatile? Where is Roman Empire now? Ancient Greece? Egypt? They existed for thousands years and now.. gone..

[martillo]

Googling about cryptocoin mining found this google answer:

"No matter how many miners, it still takes 10 minutes to mine one bitcoin. At 600 seconds (10 minutes), all else being equal, it will take 72,000 GW (or 72 Terawatts) of power to mine a bitcoin using the average power usage provided by ASIC miners."

It looks something absurd to me...

Edited May 15, 2021 by martillo

[swansont]

3 minutes ago, martillo said:

Googling about cryptocoin mining found this google answer:

"No matter how many miners, it still takes 10 minutes to mine one bitcoin. At 600 seconds (10 minutes), all else being equal, it will take 72,000 GW (or 72 Terawatts) of power to mine a bitcoin using the average power usage provided by ASIC miners."

It looks something absurd to me...

Is there context for this absurd (power is not energy) answer? Can you provide a link? 

[martillo]

45 minutes ago, swansont said:

Is there context for this absurd (power is not energy) answer? Can you provide a link? 

Here the appeared link: https://www.thebalance.com/how-much-power-does-the-bitcoin-network-use-391280

Seems to be the power needed by a bitcoin network. May be there's something wrong in the calculation. May be I posted it too fast without checking....

Edited May 15, 2021 by martillo

[swansont]

40 minutes ago, martillo said:

Here the appeared link: https://www.thebalance.com/how-much-power-does-the-bitcoin-network-use-391280

Seems to be the power needed by the bitcoin network. May be there's something wrong in the calculation. May be I posted it too fast without checking....

The claim that a hash rate requires a certain amount of power is contradicted by the later (correct) admission that power use depends on the efficiency of the computer.

”the bitcoin network in 2020 consumes 120 gigawatts (GW) per second.” muddles units.

Not a credible article, IMO

[martillo]

20 minutes ago, swansont said:

The claim that a hash rate requires a certain amount of power is contradicted by the later (correct) admission that power use depends on the efficiency of the computer.

”the bitcoin network in 2020 consumes 120 gigawatts (GW) per second.” muddles units.

Not a credible article, IMO

Yes, wrong calculations. I will stay with the comment at the beginning:

"In August 2018, a Princeton University associate professor expert in cryptocurrency testified at a hearing of the U.S. Senate Committee on Energy and Natural Resources.

The testimony said that bitcoin mining accounts for nearly 5 gigawatts—or about 1% of the world's energy use. That is slightly more than what is used by the entire state of Ohio.1"

Anyway, looks too much to just mantain a coin in the world for me. Another way to implement this is needed, I think.

Edited May 15, 2021 by martillo

[Sensei]

3 hours ago, joigus said:

2) It does so at the expense of a huge demand of power due to computational needs.

I think people don't count correctly costs and energy consumption, because they concentrate just on CC side.

The real existing paper money requires: ATM (millions of them!), terminals, delivery from/to banks/shops/offices/homes (delay), guards delivering money from ATM to/from banks (wages, fuel, equipment etc), additional security and staff in banks/shops/offices, printing and replacing damaged units from time to time, money safes and money counters in banks/offices/shops/homes, hard to measure cost of delay in transaction due to physical existence (e.g. consumer has to drive for money to ATM and return back).. etc. etc.

Multiply by the all people on the world using physical money and I bet it will consume more energy than CC.

4 hours ago, joigus said:

Seigniorage (difference between face value and production cost of a monetary unit) of 1-dollar bill is 95 cents, if we're talking about paper money, which is practically the whole dollar. If "real" value is seigniorage, then it's arbitrary; if it's cost, it's just 5 cents; if it's purchasing value, it's highly volatile. It is ridiculous to think that money holds an objective value based on something real, in the same sense that machines, raw materials, qualified professionals, or energy sources are real.

Paper money must be recreated when it is too much damaged. It happens every couple months or years. Unlike coins, raw material can't be reused, so yours $0.05 per unit, is underestimated IMO.

[martillo]

My little understanding in money says to me that criptography is needed to be added in any virtual money that could be developed to ensure safety in the transactions. That was considered even in the beginning of the creation of the first virtual coins. Seems something obvious.What I don't get is how and why mining the coins has been introduced. Seems something not really needed for me. Couldn't virtual coins be developed and implemented to work without mining? Mainly if mining is the cause of such huge consumption of energy why isn't it avoided? I don't get it...

[joigus]

1 hour ago, Sensei said:

I think people don't count correctly costs and energy consumption, because they concentrate just on CC side.

I think you're probably right about this. Factoring in all that could be significant might be even impossible. Let's not forget that fiat money is no more than 3 % of the total amount of money in circulation. Of course, doing a 10-million-dollar transaction from A to B by sending datagrams over a network is much less energy-costly in terms of CO₂ than having the same amount of money move in cash. But still, it only adds to all the factors that you've mentioned.

[iNow]

3 hours ago, martillo said:

Couldn't virtual coins be developed and implemented to work without mining?

This is basically what we do already with regular non-printed currencies offered by governments. 
 

3 hours ago, martillo said:

if mining is the cause of such huge consumption of energy why isn't it avoided?

Because it’s at the heart of the entire process and ensures transactions are valid / not being double counted. They’re also responsible for “minting” bitcoins into circulation.

The miners are the folks who validate “blocks” (about 1MB) of Bitcoin transactions and those blocks are what get added to the blockchain. 

Technically, Bitcoin could still be used without miners, but it would also mean no more bitcoins would ever be created. We could also stop mining gold, or rare earths and just use what we’ve already pulled out of the ground, but it puts a serious limit on what we can do.

Instead of stopping mining, we should be focusing on sourcing our energy around the entire globe in a cleaner and more sustainable way. 

https://www.investopedia.com/tech/how-does-bitcoin-mining-work/

[martillo]

Well... I want to give thanks to everybody for their answers which were very right from the beginning of the thread and apologize for some silly questions of mine. They were due to my total ignorance on the matter of cryptocoins. I appreciate having a better understanding on them now. Thanks for your time and patience.

I posted the thread worried about that huge consumption of energy ignoring from what it comes and who in practice would pay the cost. I think I know now. 

I came up with an analogy now. Cryptocoins mining movement on economy could be analogous to the Linux movement in software. Both in principle made up for free with the contributions of volunteers around the world but with costs and rewards at the end. The difference would be in the amount of money involved. Nobody got millonaire with Linux and it doesn't consume the same amount of energy of an entire country. The other difference is that Linux does not look like a bubble...

 

Edited May 16, 2021 by martillo

[Eise]

I am not a CC expert either, but I picked up, that also financial transactions cost a lot of energy. AFAIK this is because enough of the delocalised blockchains must confirm the transaction before it is definite. Googling I found this comparison:

From here.

[John Cuthber]

There will never be more than 21 million bitcoins, and we currently have 18 million of them.
So, the "mining" cost will soon stop.
 

the figure of 1123 KW Hr per transactions is... puzzling.

domestic electricity prices are of the order of £0.10 per KW Hr.

Which implies that each transaction costs something like £100.

And that doesn't seem plausible.

Is that comparison the equivalent of taking the production cost, which for a Dollar bill is about 5 cents cost

20 hours ago, joigus said:

Seigniorage (difference between face value and production cost of a monetary unit) of 1-dollar bill is 95 cents, if we're talking about paper money, which is practically the whole dollar.

and adding it to the cost of every transaction involving that dollar?
So, if I buy a book for ten dollars,the transaction cost is 50 cents for the price of preening the dollar bills.

The bitcoin only needs to be "minted" once.

Edited May 16, 2021 by John Cuthber

[iNow]

40 minutes ago, John Cuthber said:

domestic electricity prices are of the order of £0.10 per KW Hr.

Which implies that each transaction costs something like £100.

And that doesn't seem plausible.

This is part of the reason miners tend to setup their servers in locations where electricity is extremely cheap. Even within countries, the costs of electricity can vary tremendously from one region to the next. 

[dimreepr]

1 hour ago, iNow said:

This is part of the reason miners tend to setup their servers in locations where electricity is extremely cheap. Even within countries, the costs of electricity can vary tremendously from one region to the next. 

Who pays, is a very good question...