But this is my argument exactly, perhaps I did not explain it clearly, I am saying that the price drives electricity consumption - as miners make more money (due to a rising price) then they will spend more money on electricity, thus electricity consumption follows the price.
Yeah, you didn't.
However, I am also saying that there will be a cap on the amount of electricity that the network can use and when we are at or about that cap it will signal the approximate maximum sustained price, as if miners cannot acquire more electricity their costs will not increase and there will be no reason for them not to sell at a lower price.
And you're back at it one phrase later.
I already have told you that the price has gone up 6 times with the hashrate and thus directly proportional electricity consumption just around 20%, right now miners are really not caring about electricity costs at all.
Take a look at how numbers look for an s19pro in terms of costs (even at 10cents/kwh) vs profit.
The price can go to trillions with the energy consumption making baby steps, the proof is what is happening for already 5 months.
Not at all, they are quite different points of view:
- the first says that the miners will try to use just as much electricity as they want driven by their internal economics - absolutely agree
- the second says that there are external factors, outside of the control of the miners that may set limits on how much electricity they
can use
Profitability of individual machines doesn't really matter in this argument as it is generalising across the whole estate and estimating electricity consumption in the round from miners total income. See also here -
https://www.cell.com/joule/fulltext/S2542-4351(21)00083-0 - which makes a similar argument: " in the long run, the share of electricity costs in the total costs of mining is around 60%". If miners have more efficient machines that use less electricity for a given return they will simply buy more of them, because they can afford to.
That is not an assumption it is an assertion - it is the crux of my argument - I am saying that the network will not exceed 1% because socially and economically there is no justification for it to do so. There is insufficient benefit to the world as a whole for more than 1% of worldwide electricity generation to be consumed by Bitcoin.
The whole theory is again flawed because you're expressing it in 1% globablly.
Some countries which are net importers of energy and they have limited capacity that is not flexible might raise an eyebrow even at 0.2%, some countries would not care even at 5% because they have spare capacity that simply stays offline for 90% period of the time. It's also a different thing in terms of what that 1% would represent to the budget of the country, for some is 6% (US case, and in this, we include oil and gas), thus 1% of it would represent 0.06 for other is less than 1% and it would go in fractions of a thousand.
This is a fair point, and there will absolutely be a pretty high degree of variability between locations and countries. It will depend firstly on how flexible those countries are (i.e. how much they care about their energy resources being expended in this way) and how much energy they have at their disposal.
The article I linked to above (which as an aside was linked from the Digiconomist page you pointed me at) says:
"Given the growing implications of the cryptocurrency mining industry, policymakers might feel increasingly pressured to intervene. At a local level, this has already occurred in places such as Québec (Canada) and Iran." and
"It might also be a concern that a country like Iran has adopted cryptocurrency mining as a way to boost revenues while its oil exports suffer from international sanctions. Cheap energy has lured in many cryptocurrency miners, and the mining activity in Iran now represents 8% of the total computational power in Bitcoin’s network. If Bitcoin is enabling Iran to circumvent economic sanctions, this could pose a threat to international safety, given that these sanctions were imposed to prevent the nation from developing military nuclear capability."So we are already seeing external constraints brought to be bear upon the network.
Firstly that is why I have set my "limit" at more than double the current consumption - as I say above I don't know what the limit is, but I am arguing there is one and for the sake of the argument I picked a value to hang my hat on!
So basically there must be something out there because if it isn't things don't make sense to you and this is not tolerable
. You know, at this point rather than trying to find facts to back up your theory wouldn't it is better to see how many facts are against it and come up with a new one?
Hmm, you don't really understand how hypothesis and arguments work do you? There is no question of "tolerability" ... I thought it was an interesting idea and was raising it to spur some discussion. I am in no way invested in its rightness or otherwise.
Secondly my prediction only sets an upper limit it does not set a lower limit at all. As you rightly say there is nothing to prevent the price being far far below the maximum implied by the power consumption cap. However, I would expect total consumption of the network to fall if the price fell and remained significantly lower for an extended period.
It won't.
If the price would crash to half its value the consumption will probably not go down even 1%, almost everything that is plugged in right now and burning energy would still be profitable and with new more efficient gear to come and replace the old ones it would still keep that consumption.
Remember, we were doing 120EH/s at 10k, at that rate of profitability, we could still consume more energy than now by 50% even if the price drops to 20k.
Now here I disagree, except for the fact (as I have said) that there is clearly a lag between changing price and changes to the network. If miners do not have the income support their expenses they will not (except for relatively short periods of time) continue to spend money on electricity.
We'd need to have good historic power consumption data to model the past accurately, and to be fair we don't even have good current data let alone historic!) but as I say the values can clearly diverge significantly for a period, the question is can they stay apart or will they tend to converge? I think the latter.
For at least one year there will be no converging point.
Simply put, there is not enough production capacity for new miners, there is a chip shortage, and they would need to produce 6 times more gear than they have in 4 years. One more doubling of the price which can be triggered by stimulus money or Amazon investing in
BTC and Bitmain would have to increase its production capacity by 10x, which is simply not doable.
So no, at least for one or maybe two years there will be no converging as the consumption is currently heavily influenced by factors that have nothing to do with bitcoin.
On this point I agree, the more I think about it the more I think that the current market means the price has out-stripped the network and so the estimates of power consumption will over-state the current consumption. i.e. we are not currently in
equilibrium and we probably need to use periods of relative stability.
Well that chart seems to show that the current electricity consumption of the network is the highest it has ever been, so if there is an upper bound (from whatever cause) we haven't reached it yet.
However, I do have some questions about the specifics of the Digiconomist model for estimating electricity consumption. On that page you linked (
here) they say:
The index assumes that miners will spend 60% of their revenues on operational costs on average in equilibrium.But then goes on to give an estimate of 22.21% of their income being spent on electricity, without explaining why they haven't used their own assumption. They are certainly a bit vague about how they actually perform the calculation.
It's not rocket science, you just have to look at hashrate, what hashrate/w can miners deliver, and check when those were launched and when they stopped productions of certain models. Indeed it's approximate, it becomes muddy when suddenly old gear is back online after being retired but overall it does a pretty good job.
Again I disagree I don't think the relative performance of individual miners actually matters. It is about providing what the Digiconomist page describes as an "economically credible estimate". Accordingly neither the Digiconomist model nor the Cambridge model use it.
See
here -
"The index is built on the premise that miner income and costs are related. Since electricity costs are a major component of the ongoing costs, it follows that the total electricity consumption of the Bitcoin network must be related to miner income as well. To put it simply, the higher mining revenues, the more energy-hungry machines can be supported."See also the original topic
here (linked in my OP) that started me thinking about this, including this comment from BurtW:
First, note that Bitcoin mining efficiency does not matter when estimating the trend of the power consumption of the entire Bitcoin network.
Bitcoin mining will trend toward 57/15,000 = 0.38 % of world power production given these values.
This scales by BTC price so:
BTC at $500,000 means power consumption would trend to 3.8% of worldwide power.
BTC at $5,000,000 means power consumption would trend to 38% of worldwide power.
I do have some questions about his numbers, which was what started me down this path.
