Bitcoin Mining and Its Cost
9 Pages Posted: 5 Dec 2017
Date Written: November 24, 2017
As cryptocurrencies make a bid to become more mainstream, we investigate the resources needed to operationalize these at scales comparable to the traditional monetary system. As a first step, we study Bitcoin system, its mining process, and its resource requirements. Mining is a necessary process for the creation of bitcoins and verification of transactions. The process also makes the system decentralized and maintains security and trust in the system. Mining, which is tied to the solution of a complex crypto-puzzle, requires significant computing power. This resource demanding process has a significant impact on energy consumption. Our research looks at how the complexity of the problem to commit a transaction to the blockchain and the transaction volume impact computing capacity and energy consumption. We use data from January 2009 to October 2017 to analyze the problem. We highlight how the complexity, transaction volume, and price of bitcoins affect the mining capacity of miners. We find that the energy demand from mining activities will exceed 30,582 MW per month at 400 transactions/second. Our findings suggest that Bitcoin’s protocol induces competition among miners and computational power race, which may not be sustainable for future growth of the Bitcoin network.