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The Fair Cost of Bitcoin Proof of Work
Abstract
In this short note I provide a very simple estimation of the fair cost for the proof of work in Bitcoin mining. I conclude that the current cost, although large, is of a justified order of magnitude for an anonymous systems operating between untrustful parties.
... One question arises: is this cost fair or could it be lowered? In Aste (2016) made the argument that, at equilibrium, the cost of Bitcoin proof of work should be such to make a double spending attack too expensive to be profitably carried out. From this principle, it is relatively straightforward to estimate the fair cost of the proof of work under an ideal equilibrium assumption. ...
... The attacker will make profits if this cost is inferior to the gain made from duplicated spending. In the previous unpublished note by Aste (2016) the following formula is reported: ...
... Independently on the estimate of a realistic value for the parameter p, the principle that the cost of the proof of work must be a sizable fraction of the value transferred by the network to avoid double spending attacks should rest valid (Aste, 2016;Aste et al., 2017). Specifically, according to this principle, we expect that, for a given system, the ratio between the cost of the proof of work and the value transferred by the network should oscillate around some constant value which reflects the fair balance between the possible gains in an attack and the cost to perform it. ...
The Bitcoin network is burning a large amount of energy for mining. In this paper, we estimate the lower bound for the global mining energy cost for a period of 10 years from 2010 to 2020, taking into account changes in energy costs, improvements in hashing technologies and hashing activity. We estimate energy cost for Bitcoin mining using two methods: Brent Crude oil prices as a global standard and regional industrial electricity prices weighted by the share of hashing activity. Despite a 10-billion-fold increase in hashing activity and a 10-million-fold increase in total energy consumption, we find the cost relative to the volume of transactions has not increased nor decreased since 2010. This is consistent with the perspective that, in order to keep the Blockchain system secure from double spending attacks, the proof or work must cost a sizable fraction of the value that can be transferred through the network. We estimate that in the Bitcoin network this fraction is of the order of 1%.
... One question arises: is this cost fair or could it be lowered? In Aste (2016) made the argument that, at equilibrium, the cost of Bitcoin proof of work should be such to make a double spending attack too expensive to be profitably carried out. From this principle, it is relatively straightforward to estimate the fair cost of the proof of work under an ideal equilibrium assumption. ...
... The attacker will make profits if this cost is inferior to the gain made from duplicated spending. In the previous unpublished note by Aste (2016) the following formula is reported: ...
... Independently on the estimate of a realistic value for the parameter p, the principle that the cost of the proof of work must be a sizable fraction of the value transferred by the network to avoid double spending attacks should rest valid (Aste, 2016;Aste et al., 2017). Specifically, according to this principle, we expect that, for a given system, the ratio between the cost of the proof of work and the value transferred by the network should oscillate around some constant value which reflects the fair balance between the possible gains in an attack and the cost to perform it. ...
The Bitcoin network is burning a large amount of energy for mining. In this paper, we estimate the lower bound for the global mining energy cost for a period of 10 years from 2010 to 2020, taking into account changes in energy costs, improvements in hashing technologies and hashing activity. We estimate energy cost for Bitcoin mining using two methods: Brent Crude oil prices as a global standard and regional industrial electricity prices weighted by the share of hashing activity. Despite a 10-billion-fold increase in hashing activity and a 10-million-fold increase in total energy consumption, we find the cost relative to the volume of transactions has not increased nor decreased since 2010. This is consistent with the perspective that, in order to keep the Blockchain system secure from double spending attacks, the proof or work must cost a sizable fraction of the value that can be transferred through the network. We estimate that in the Bitcoin network this fraction is of the order of 1%.
... Despite a ten-billion-fold increase in hashing activity and a ten-million-fold increase in total energy consumption, we find the mining cost relative to the volume of transactions has not increased nor decreased since 2010. This is consistent with the perspective that the proof of work must cost a sizable fraction of the value that can be transferred through the network in order to keep the Blockchain system secure from double spending attacks [1,2]. We estimate that in the Bitcoin network this fraction is of the order of 1%. ...
... One question arises: is this cost fair or could it be lowered? In [1] made the argument that, at equilibrium, the cost of Bitcoin proof of work should be such to make a double spending attack too expensive to be profitably carried out. From this principle, it is relatively straightforward to estimate the fair cost of the proof of work under an ideal equilibrium assumption. ...
... The attacker will make profits if this cost is inferior to the gain made from duplicated spending. In the previous unpublished note by [1] the following formula is reported: ...
The Bitcoin network is burning a large amount of energy for mining. In this paper we estimate the lower bound for the global energy cost for a period of ten years from 2010 to 2020, taking into account changing oil costs, improvements in hashing technologies and hashing activity. Despite a ten-billion-fold increase in hashing activity and a ten-million-fold increase in total energy consumption, we find the mining cost relative to the volume of transactions has not increased nor decreased since 2010. This is consistent with the perspective that the proof of work must cost a sizable fraction of the value that can be transferred through the network in order to keep the Blockchain system secure from double spending attacks. We estimate that in the Bitcoin network this fraction is of the order of 1%.
... Bitcoin mining can be done with a CPU or GPU, but specialized hardware or FPGAs can outperform general purpose processors by many orders of magnitude [52]. ...
... The validity of a blockchain is maintained through proof-of-work, which is inherently inefficient. Maintaining the Bitcoin blockchain is estimated to cost $50,000 per hour [52]. ...
... Bitcoin's scarcity and novelty have given it a high monetary value compared to the mining (blockchain verification) cost [52]. Miners are currently awarded with 25 bitcoins for mining a block (technically miners award themselves bitcoins, the award is verified by other miners signing subsequent blocks). ...
Bitcoin’s underlying blockchain database is a novel approach to recordkeeping that has the potential to decentralize big data. Bitcoin’s success has inspired a multitude of spinoff projects hoping to use blockchain as a distributed database for records-management innovation in other fields. Misconceptions and exaggerations about blockchain and its capabilities are pervasive in the media. Drawing on perspectives from archival science, dependable computing, and secure computing, this paper surveys current applications, research, and critiques of blockchain to provide an objective assessment of its benefits and limitations. Based on the findings of the survey, this paper proposes three criteria that predict success for blockchain-based data management projects, briefly: dependability, security, and trust.
... Currently in Bitcoin a successful hash is generated in average after 2 10 21 (two billion trillions) hash attempts which correspond to an average electricity consumption per block of about 1,000 GW at an estimated cost of an order of magnitude around $10,000. This is a massive quantity of energy, however, it was pointed out in [34] that the cost of PoW must be equivalent to the amount one could potentially profit from an attach that attempt to alter transaction history. Given that a block contains around $1M in transactions and that an attacker should control a chain of around 10 blocks to falsify transaction history for long enough to collect the profits, a fair cost for the PoW should be indeed around $10,000. ...
... A worrying note must be added at this point. Bitcoin PoW was previously [34] estimated 'fair' by assuming current block values at about $1M and it is reasonable to expect that the system itself will dynamically adapt the PoW cost to the transferred value. However, if coloured coins introduce transactions associated with other external assets that are not represented in value as Bitcoin transfer, then the system becomes biased with blocks containing larger real value than the nominal content. ...
The authors describe blockchain’s fundamental concepts, provide perspectives on its challenges and opportunities, and trace its origins from the Bitcoin digital cash system to recent applications.
... Aiming at the ethical point of reference of human rights-more specifically, the right to life, the right to health, work-related rights, and the right to an adequate standard of living, including the right to housing, food, and water [66]-the enormous energy consumption of the proof of work consensus method [67] is ethically problematic [68]. In the case of Bitcoin, for example, in order to reach the validity of a proof of work, a billion watts is estimated to be necessary [69]. In other words, "currently, global power demand from cryptocurrency mining hovers at about 22 terawatt hours (TWh), but increasing demand means consumption could surge in 2018 to 125-140TWh-a full 0.6% of world consumption. ...
There is no question about the innovation force and the economic potential of blockchain technology. As the basis for new currencies, financial services, and smart contracts, blockchain technology can be seen as the fifth disruptive computing paradigm, after mainframes, personal computers, the Internet, and mobile devices. However, there are questions about its ethical implications, which have the potential to also impact the economic success of blockchain technology. This article aims to provide ethical guidance on blockchain technology. In order to reach this goal, the focus of the ethical analysis will first concentrate on the unique characteristics of blockchain technology compared to other technology-based innovations. The unique nucleus of blockchain technology can be defined as a move from the trust in people to a trust in math, as a move from an internet of information to an internet of value, or—as I would propose—a shift from an intermediated network to an immediate network. Second, the ethical opportunities (e.g., transparency, participation, global access to services) and risks (e.g., ecological impact, lack of legal monitoring and enforcement) associated with this unique nucleus of blockchain technology will be discussed. Third, an outlook on possible concrete solutions will be provided.
... First, verifying blockchain transactions requires considerable energy because the verification process is a competition in which many participate. Aste (2016) estimates that a single verification needs about 1GW per second, giving a cost of approximately $5 per transaction. Second, multiple parallel attempts to verify is inherently inefficient: only one is strictly necessary. ...
The changing nature of the relationship between a retail bank and its customers is examined, particularly with respect to new financial concepts, debt and regulation. The traditional image of a bank is portrayed as a physical building a classical Doric portico. This image conveys concepts of service, soundness, strength, stability and security ("five-S"). That "five-S" concept is changing, and the evidence for changes that affect customers directly is considered. A fundamental legal problem associated with those changes is highlighted: a bank is no longer solely responsible for the safeguard of customer monies. A solution to this problem is proposed: banks should be jointly liable with perpetrators of criminal activity in the event of frauds as an encouragement to recognise and mitigate fraud.
... The Bitcoin mining process is always the same: the "miners" receive a new mathematical problem every ten minutes and the fastest to solve it gets the new coins that are put into circulation [11,12]. This mathematical problem is based on random calculations that aim to find the solution and thus obtain the validation of the block [13]. Whoever deciphers this will get the reward, provided that the rest of the members of the network confirm that the answer is correct. ...
There are different studies that point out that the price of electricity is a fundamental factor that will influence the mining decision, due to the cost it represents. There is also an ongoing debate about the pollution generated by cryptocurrency mining, and whether or not the use of renewable energies will solve the problem of its sustainability. In our study, starting from the Environmental Performance Index (EPI), we have considered several determinants of cryptocurrency mining: energy price, how that energy is generated, temperature, legal constraints, human capital, and R&D&I. From this, via linear regression, we recalculated this EPI by including the above factors that affect cryptocurrency mining in a sustainable way. The study determines, once the EPI has been readjusted , that the most sustainable countries to perform cryptocurrency mining are Denmark and Ger-many. In fact, of the top ten countries eight of them are European (Denmark, Germany, Sweden, Switzerland, Finland, Austria, and the United Kingdom); and the remaining two are Asian (South Korea and Japan).
... Estimates have indicated that the energy cost of the computation has been as much as $5 per transaction [34], and that the energy consumption of the Bitcoin network is equivalent to the energy consumption of some countries [35]. This high energy consumption has been seen as an obstacle for retailers considering adopting Bitcoin as a payment while wishing to remain as energy efficient and socially accountable as possible. ...
Blockchain technology has generated a great deal of interest in recent years, as has the associated area of cryptocurrency trading, not only on the part of individuals but also from traditional financial institutions and hedge funds. However, there is currently limited knowledge as to how to predict future cryptocurrency price movements. This thesis investigates whether online indicators, especially from social media, can be harnessed to predict cryptocurrency price movements – to achieve this, three experiments are conducted. The first experiment analyses time-evolving relationships between chosen online indicators and associated cryptocurrency prices; relationships are considered over short, medium and long-term durations. The work introduces and evaluates several influential factors from the social media platform Reddit, a platform previously unexplored within cryptocurrency prediction literature. It is found that medium and longer-term relationships strengthen in bubble market regimes (compared to non-bubble regimes). The second experiment utilises these promising new factors as inputs to a predictive model. The model used was originally designed to detect influenza epidemic outbreaks, and is repurposed here to model epidemic-like cryptocurrency price bubbles, demonstrating how social media can be used to track the epidemic spread of an investment idea. The predictive power of the model is validated through the generation of a profitable trading strategy. Having considered quantitative count-based metrics in the previous chapters (e.g. posts per day, submissions per day, new authors per day etc.), the next experiment considers the content of social media submissions. More specifically, the third experiment analyses social media submission content to investigate whether certain topics of discussion precede upcoming shorter term (positive or negative) price movements. Information evidencing time-varying interest in various topics is retrieved from social media submissions, upon which hidden interactions with the associated cryptocurrency price are deciphered. It is found that certain topics precede major positive or negative price movements, and also additional analysis shows that certain discussion topics exhibit longer-term relationships with cryptocurrency market prices.
... A June 2016 estimate of the cost of the Bitcoin proof of work found that it consumed around US$50,000 of energy an hour, and concluded that the resources devoted to mining were "large, wasteful, but necessary". 29 Miners recoup this cost with a reward for finding valid blocks. This is likewise the case with diplomatic ritual, which can come across as wasteful, obscure and effete; but provides an essential role in the creation of trust between adversaries and the validation of diplomatic communication. ...
... First, verifying blockchain transactions requires considerable energy because the verification process is a competition in which many participate. Aste (2016) estimates that a single verification needs about 1GW per second, giving a cost of approximately $5 per transaction. Second, multiple parallel attempts to verify is inherently inefficient: only one is strictly necessary. ...
The changing nature of the relationship between a retail bank and its customers is examined, particularly with respect to new financial concepts, debt and regulation. The traditional image of a bank is portrayed as a physical building a classical Doric portico. This image conveys concepts of service, soundness, strength, stability and security ("five-S"). That "five-S" concept is changing, and the evidence for changes that affect customers directly is considered. A fundamental legal problem associated with those changes is highlighted: a bank is no longer solely responsible for the safeguard of customer monies. A solution to this problem is proposed: banks should be jointly liable with perpetrators of criminal activity in the event of frauds as an encouragement to recognise and mitigate fraud.
Bitcoin, which has the highest net worth among cryptocurrencies and the most significant transaction volume, has an immense prospect in terms of economic cost, rapid processing, and minimal risk, even while driving significant worldwide transformation and disruption. Since cryptocurrencies and Bitcoin are new, have an uncertain legal status, and bear the possibility of being engaged in illicit behaviour, there is the opportunity for their usage as a highly unpredictable and impulsive investment instrument with environmental consequences. This research studies Bitcoin mining and blockchain technologies, as well as Bitcoin's high energy consumption and environmental impacts. This study signifies the process used to calculate bitcoin’s energy consumption. We discuss the two prominent models (a) Model-1 by Christian Stoll, Lena Klaaßen, and Ulrich Gallersdörfer, and (b) Model-2—The CBECI model used to determine the energy consumption meant for mining bitcoins. The findings suggest that the power needed by bitcoin mining has detrimental ecological and social effects, such as causing global warming and climate change. Further, this study also forecasts the future of bitcoin mining and its influence on sustainability.
The knowledge center is a Web-based framework intended to help individuals remotely share data. The knowledge center offers an assortment of devices and adornments that empower prompt services. Knowledge centers must execute different techniques by which the members can communicate and trade data. Knowledge is mined, mapped, and assessed inside the Knowledge Center. Integrating cloud technologies and storage access networks will provide cloud clients and providers access to confidential data in cloud storages as well as in data warehouses. The whole information dwells over a worldwide arrangement of neighborhood organized assets, empowering the data and information to be gotten to just through a protected channel of the cloud condition. Cloud services and resources experience security and protection issues because of the possible attacks and internal/external threats. The data server farm framework has the facility to monitor the latest creation of data, the live changes of data from common libraries to advanced data server farm, and rebuild the data.
The concept of “Big data” was mentioned for the first time by Roger Mougalas in 2005. Volume hints to the size and/or scale of datasets. Until now, there is no universal threshold for data volume to be considered as big data, because of the time and diversity of datasets. Velocity indicates the speed of processing data. It can fall into three categories: streaming processing, real-time processing, or batch processing. Value alludes to the usefulness of data for decision making. Veracity denotes the quality and trustworthiness of datasets. Parallelization allows one to improve computation time by dividing big problems into smaller instances, distributing smaller tasks across multiple threads and then performing them simultaneously. Feature selection is useful for preparing high scale datasets. Sampling is a method for data reducing that helps to derive patterns in big datasets by generating, manipulating, and analyzing subsets of the original data.
We propose a modelling framework for the optimal selection of crypto assets. We assume that crypto assets can be described according to two features: security (technological) and stability (governance). We simulate optimal selection decisions of investors, being driven by (i) their attitudes towards assets’ features, (ii) information about the adoption trends, and (iii) expected future economic benefits of adoption. Under a variety of modelling scenarios—e.g. in terms of composition of the crypto assets landscape and investors’ preferences—we are able to predict the features of the assets that will be most likely adopted, which can be mapped to macro-classes of existing crypto assets (stablecoins, crypto tokens, central bank digital currencies and cryptocurrencies).
A blockchain is an institutional technology—a protocol—that allows for economic coordination between agents separated by boundaries of possible mistrust. Blockchains are not the only technology in history to have these characteristics. The paper looks at the role of the diplomatic protocol at the very beginning of human civilisation in the ancient near east. These two protocols—diplomatic and blockchain—have significant similarities. They were created to address to similar economic problems using similar mechanisms: a permanent record of past dealings, public and ritualistic verification of transactions, and game-theoretic mechanisms of reciprocity. The development of the diplomatic protocol allowed for the creation of the first international community and facilitated patterns of peaceful trade and exchange. Some questions about a generalised ‘protocol economics’ are drawn.
Blockchain technology (aka Distributed Ledger Technology or DLT) is a novel configuration of Peer-to-Peer, cryptographic and distributed computing technologies that have the potential to shift the internet from an internet of information to an internet of value network, with significant disruptive potential. To date, the cryptocurrency ‘bitcoin’ is the application of DLT that has attracted most attention, not all of it favourable. However, DLTs are about much more than cryptocurrencies and, as Kranzberg’s (1986) first law of technology, that ‘Technology is neither good nor bad; nor is it neutral’ reminds us, we can ethically frame applications of new technologies. To date, research has tended to focus on the technical characteristics of DLTs, and there has been little reflection on potential socially and environmentally beneficial use cases: Blockchain for Good (B4G). The aim of this this exploratory and descriptive paper is to reflect on innovative B4G applications that could help deliver socially and environmentally beneficial outcomes, framed in terms of the UN’s Sustainable Development Goals, through challenging existing business models and providing new opportunities for value creation.
Explores key areas of Blockchain innovation that appear to represent viable catalysts for achieving global Sustainable Development targets.
Projects and initiatives seeking to extend the reach of Distributed Ledger Technology (DLTs), seem mostly intended for the benefit of for-profit businesses, governments, and consumers.
DLT projects, devised for the public good, could aim, in theory, to fulfil the United Nation’s current Sustainable Development Goals (SDG).
Our overview of these initiatives suggests that blockchain technology is being applied in ways that could transform this ambition for good into a practical reality.
Blockchain technology (aka Distributed Ledger Technology or DLT) is a novel configuration of Peer-to-Peer, cryptographic and distributed computing technologies that have the potential to shift the internet from an internet of information to an internet of value network, with significant disruptive potential. To date, the cryptocurrency ‘bitcoin’ is the application of DLT that has attracted most attention, not all of it favourable. However, DLTs are about much more than cryptocurrencies and, as Kranzberg’s (1986) first law of technology, that ‘Technology is neither good nor bad; nor is it neutral’ reminds us, we can ethically frame applications of new technologies. To date, research has tended to focus on the technical characteristics of DLTs, and there has been little reflection on potential socially and environmentally beneficial use cases: Blockchain for Good (B4G). The aim of this this exploratory and descriptive paper is to reflect on innovative B4G applications that could help deliver socially and environmentally beneficial outcomes, framed in terms of the UN’s Sustainable Development Goals, through challenging existing business models and providing new opportunities for value creation
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