Abstract — Bitcoin is a digital cryptocurrency that has generated considerable public interest, including both booms in value and busts of exchanges dealing in Bitcoins. One of the fundamental concepts of Bitcoin is that work, called mining, must be done in checking all monetary transactions, which in turn creates Bitcoins as a reward. In this paper we look at the energy consumption of Bitcoin mining. We consider if and when Bitcoin mining has been profitable compared to the energy cost of performing the mining, and conclude that specialist hardware is usually required to make Bitcoin mining profitable. We also show that the power currently used for Bitcoin mining is comparable to Ireland’s electricity consumption.
I Introduction
Bitcoin is a peer-to-peer cryptocurrency mainly used for monetary transactions on the Internet [1] and is designed to be similar to fiat money and commodities. Bitcoins are intrinsically valueless, their worth is decided by those trading in them. At the time of writing, 1 Bitcoin (B) is worth approximately 378.7 Euro(e). Bitcoin has generated a huge amount of interest in the media lately and has sparked a wave of copy-cat-currencies (Litecoin, Gaelcoin, etc.) and even a fully working parody currency (dogecoin). It has also generated interest in academic circles due to issues it creates in user privacy e.g. [2], as well as attempts to gain insights into is behind transactions e.g. [3] and attempts to better understand its implications as a payment system e.g. [4].
Bitcoin is based on a peer-to-peer network within the Internet. The members of the peer-to-peer network effectively maintain a ledger of Bitcoin transactions which have been accepted by the network. In this ledger, Bitcoins are owned by Bitcoin addresses, which are public keys from a key-pair. In order to assign Bitcoins, or some fraction thereof, to a new owner, the current owner must sign the transaction with the private key of the keypair using an ECDSA scheme. Before a transaction is accepted by the network, the transaction is checked for validity, including the presence of these signatures.
Bitcoins are not issued or governed by a central authority but, instead are created in a process called mining. Mining is one of the key concepts behind the Bitcoin protocol, in which valid transactions are collected into blocks and are added to the ledger by linking it to the previously accepted blocks. The network forms a common view, called the blockchain, of which transactions have taken place, preventing users from reusing Bitcoins and attempting to spend them more than once.
To add a block to the blockchain, a signature must be found linking the transactions in the block to the previous blocks. This requires finding a nonce value which satisfies a particular equation involving the SHA256 cryptographic hash function. This is a computationally expensive task; however, a member of the peer-to-peer network who finds a suitable value is rewarded by being able to assign newly mined Bitcoins to an address of their choosing.
In this paper we consider the energy cost of Bitcoin mining. Solving of the computational problem requires energy. We consider how this energy can be calculated and the impact of using different types of hardware for this computation. Using historical information from the Bitcoin network and Bitcoin exchanges, we compare the monetary cost of the energy to the reward for calculating a Bitcoin block. We also consider the likely power consumption of the whole Bitcoin mining operation, and show that it is comparable to Ireland’s average electricity consumption.
II Bitcoin Mining
As we mentioned, a Bitcoin miner is part of Bitcoin’s peer-to-peer network that collects recent transactions and aims to complete a proof of work scheme, based on the ideas of Hashcash[5]. In this scheme, there is a current target value T , which is periodically recalculated by the network...
Read more, download the PDF below (6 pages)
I Introduction
Bitcoin is a peer-to-peer cryptocurrency mainly used for monetary transactions on the Internet [1] and is designed to be similar to fiat money and commodities. Bitcoins are intrinsically valueless, their worth is decided by those trading in them. At the time of writing, 1 Bitcoin (B) is worth approximately 378.7 Euro(e). Bitcoin has generated a huge amount of interest in the media lately and has sparked a wave of copy-cat-currencies (Litecoin, Gaelcoin, etc.) and even a fully working parody currency (dogecoin). It has also generated interest in academic circles due to issues it creates in user privacy e.g. [2], as well as attempts to gain insights into is behind transactions e.g. [3] and attempts to better understand its implications as a payment system e.g. [4].
Bitcoin is based on a peer-to-peer network within the Internet. The members of the peer-to-peer network effectively maintain a ledger of Bitcoin transactions which have been accepted by the network. In this ledger, Bitcoins are owned by Bitcoin addresses, which are public keys from a key-pair. In order to assign Bitcoins, or some fraction thereof, to a new owner, the current owner must sign the transaction with the private key of the keypair using an ECDSA scheme. Before a transaction is accepted by the network, the transaction is checked for validity, including the presence of these signatures.
Bitcoins are not issued or governed by a central authority but, instead are created in a process called mining. Mining is one of the key concepts behind the Bitcoin protocol, in which valid transactions are collected into blocks and are added to the ledger by linking it to the previously accepted blocks. The network forms a common view, called the blockchain, of which transactions have taken place, preventing users from reusing Bitcoins and attempting to spend them more than once.
To add a block to the blockchain, a signature must be found linking the transactions in the block to the previous blocks. This requires finding a nonce value which satisfies a particular equation involving the SHA256 cryptographic hash function. This is a computationally expensive task; however, a member of the peer-to-peer network who finds a suitable value is rewarded by being able to assign newly mined Bitcoins to an address of their choosing.
In this paper we consider the energy cost of Bitcoin mining. Solving of the computational problem requires energy. We consider how this energy can be calculated and the impact of using different types of hardware for this computation. Using historical information from the Bitcoin network and Bitcoin exchanges, we compare the monetary cost of the energy to the reward for calculating a Bitcoin block. We also consider the likely power consumption of the whole Bitcoin mining operation, and show that it is comparable to Ireland’s average electricity consumption.
II Bitcoin Mining
As we mentioned, a Bitcoin miner is part of Bitcoin’s peer-to-peer network that collects recent transactions and aims to complete a proof of work scheme, based on the ideas of Hashcash[5]. In this scheme, there is a current target value T , which is periodically recalculated by the network...
Read more, download the PDF below (6 pages)
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