So in the last section we ended by showing how large, professional mining data centers have taken over the business of Bitcoin mining. And we showed the parallel to traditional mining with those open pit mines on the bottom, which you may know have been a huge source of concern for environmentalists over the years, asking how much damage are these pit miner doing to the environment? Now Bitcoin is not quite at that level yet, but as I said, it is a very difficult computation with a lot of large players interested in competing now. And it is starting to use, a significant amount of energy, which has become a topic of discussion. So in this section, we'll talk about how much energy Bitcoin is using, and what that might mean for the currency and for the planet. So to start with, we'll talk about why computation inherently requires some energy. So there's a principle developed by Rolf Landauer in the 1960s, that any non reversible computation must use a minimum amount of energy. So, this is derived from basic physics. And we're not gonna go through the derivation here, except to say that every time you flip one bit in a non reversible computation there's a minimum number of Joules that you have to use. And of course if you remember some fundamental theorems of physics, energy is never destroyed. It's only converted from one form into another. In the case of computation, it's mostly that energy is transformed from electricity, which is very high grade energy, into heat, which is dissipated into the environment. Now, of course, SHA-256 being a hash function, which is the basis of Bitcoin, it is not a reversible computation. And if you remember all the way back to lecture one, this is a basic requirement of hash functions, that they are not reversible. So, since I told you that any non-reversible computation has to use some energy, and SHA-256 is not reversible, energy consumption is an inevitable fact of doing Bitcoin mining. And it is worth saying that the limits provided by Landauer's principle are far, far below the amount of electricity that's being used today by over a factor of 1000. So, we're nowhere close to the theoretical optimum efficiency of computing, but even if we did to the theoretical optimum, we would still be using some energy to perform Bitcoin mining. So why does Bitcoin mining require energy? There are three steps in the process that require energy. First, you have to manufacture your Bitcoin mining equipment. So that requires both physical mining, digging up things out of the ground, especially rare earth metals and copper that go into integrated circuits. And then you have to manufacture it into a Bitcoin mining ASIC. So it takes a lot of energy to run fabs and to tune out chips. So all of that energy is called the embodied energy. As soon as you receive a Bitcoin mining ASIC in the mail that you order, you've already consumed a lot of energy, including the shipping energy, of course. Just to get that to you before you've even turned it on and tried to mine Bitcoins. Then you'll plug it into the wall and turn it on, and of course, it will be drawing electricity constantly while it's on, and that's the electrical energy consumed in mining. And that's a step no matter what happens, has to be consumed, because of Landauer's principle. So hopefully, over time the embodied energy will go down as less and less new capacity comes online. Fewer people are going out to buy new mining ASICS, they're being obsoleted less quickly. The existing fleet can last a long time. The embodied energy will be amortized over years and years of mining. But the electricity consumption, even though it will go down a little bit because rigs will get more efficient, that will be a fact of life forever. The other thing about both electricity and embodied energy is that both are probably less if you're operating at a large scale. If you're running a huge data mining center, you can do it more efficiently. It's cheaper to build chips that are designed to run in a large data center and you can deliver the power more efficiently, because you don't need as many power supplies. You can deliver all of the electricity to one place and so on. But there's a third important component, which is cooling off you equipment to make sure it doesn't malfunction. So if you're operating your equipment in Antarctica, maybe you are cooling but its is very small, but almost anywhere else you are gonna have to pay extra, usually electricity, to cool off your equipment from all the waste heat that is generating. And the interesting aspect about cooling is that cooling actually costs more the bigger your scale is. So if you want to run a very large operation and have a lot of Bitcoin mining equipment all in one place, your cooling budget is going to increase because cooling that big mass is going to be much more difficult. There's less air for the heat to dissipate into surrounding air equipment. So how much energy is the entire Bitcoin network using? There are two basic approaches to trying to estimate how much energy the Bitcoin network is using, of course we can't compute this precisely because it's a decentralized network with miners operating all over the place who haven't documented exactly what they're doing. But we'll start with a really simple approximation strategy. Which is to take the fact that about $15,000, and again, that's 25 Bitcoin, of reward are created with every block, which is found every 10 minutes. So if we convert that to revenue per second, we got about 25 US dollars per second that are being minted and given to the mining community. Now, if the miners are turning all of those $25 per second into electricity, how much can they get? Well, at US industrial electricity prices, and this will vary from state to state or certainly from country to country, but I'll go with about $0.10 US per kilowatt hour. And kilowatt hour is kind of a funny marketing unit, so we'll go to the more standard scientific unit of the megajoule. So if the minors took those $25 that they earn every second and converted it purely into electricity. They would get about 900 megajoules every second. And of course joules per second are just watts. So those 900 megajoules per second are 900 mega watts, or 900 million watts. A second way to estimate the same figure is to do a bottom up approach. And to say let's look at how many hashes the miners are actually computing, which we know by observing the difficulty of each block. And what is the best hardware that miners might be using? So if you look online, at mining rigs that are being sold commercially today, one of the best performance figures that you'll see is rigs that are able to turn 1 watt of electricity into about 1 GH of hashing. So they perform 1 billion hashes per second while consuming about 1 watt of power. And the total network hash rate is about 150 million GH or 150 petahertz. Of course that excludes all of the cooling energy and all of the embodied energy that's in those chips, but we're doing an optimal calculation here. So if the entire network was running at about the efficiency of generally the better chips on the market, what would we get? And we just multiply these two together, we would get about a 150 MW to produce that many hashes per second at that efficiency. So again, last slide I said at a high end using the top down approach, we estimated about 900 MW and using the bottom up approach this is a lower bound, about a 150 MW. So maybe for the whole network today, somewhere between 100 MW and a GW t of electricity are being consumed. In reality of course, it's somewhere in the middle and it's going to involve overtime, but that's a useful ballpark to think about right now. So how much is a megawatt? Well, we can look at what big power plants produce. So, one of the largest power plants in the world, the Three Gorges Dam in China is a 10,000 MWpower plant. It actually has slightly larger capacity that that, but that's the average rate of power that's being produced. Whereas a typical large hydro plant is more like 1,000 MW. If you're interested in nuclear power, we can look at the largest nuclear plant in Japan, and that's about a 7,000 MW plant, whereas the average nuclear power plant is more like 4,000 MW. Or back in the carbon-heavy way of producing electricity. We can look at a major, large coal-fired plant, and you might get 1,000 to 2,000 MW. So again, our high end estimate, was still that Bitcoin is consuming less than 1,000 MW. So the whole Bitcoin network is consuming less than a large power plant's worth of electricity. So it's not nothing. It still means that we have to essentially run a large power plant purely to power Bitcoin and not any of the other things that we need electricity for in the world. But, it's not yet to the point where it's a large amount of electricity compared to all the other things that people are using electricity for on the planet. And it's certainly worth pointing out that any payment system is going to require energy and electricity. So, we look at traditional currency, a lot of energy is consumed moving gold bullion around, guarding the gold bullion, running the ATM machines, running coin sorting machines, running cash registers, transporting the money around in armored cars. All of that is energy consumed by the traditional money system. So sometimes people have the tendency to think that Bitcoin is wasting energy, because the energy is being expended in this SHA-256 computation that doesn't serve any apparent purpose. But you can also look at all of the energy in a traditional currency system and say that it's also wasted, and that it doesn't serve any other purpose besides maintaining the currency system. So that's a really important disclaimer, I think, that just because Bitcoin uses electricity, it's not necessarily wasted. If Bitcoin is a useful currency system then the electricity is essentially being used for that purpose. But, we still might think, is there something better that we can do with this electricity, rather than just heating up air which is sent off into the atmosphere? And, one pretty interesting idea is what if we tried to capture the heat that we're turning that electricity used in Bitcoin mining and use it for practical purposes? So this is called the data furnaces model. And the basic idea is that you would go down to your local hardware store, and instead of buying a traditional electric heater to heat your home or to heat water in your home, you would buy a Bitcoin mining rig that you would plug in both to the electricity outlet and also to your Internet connection. And your heater would essentially be doing Bitcoin mining and using the heat produced as a byproduct of that computation to heat your water, to heat your home, which is hopefully useful. And it turns out that the efficiency of doing this isn't actually that much worse than just buying an electric heater. So this seems to be a great idea, and maybe it's a promising avenue to explore for the future. There's a couple of challenges here. For one, electric heaters are still much less efficient than gas heaters. So if you're in a really cold climate, where people really need heat, hopefully they'll have gas heating in their home anyway. It's also not clear what the ownership model is here. If you buy the Bitcoin data furnace, do you own the Bitcoin mining rewards that you get, or does the company that sold them to you? Most people don't have any interest in Bitcoin mining and probably never will. So it might make more sense to buy this as an appliance and have the company that sold it to you keep the rewards. And then there's the really basic question of what happens if everybody turns off their Bitcoin mining rig in summer? Will the capacity of the Bitcoin network go way down seasonally based on how much heat people need? Will it go way down on days that happen to be warmer of an average? This would be really interesting if the data furnace model actually caught on. So a couple of open questions related to Bitcoin's energy consumption. Does the fact that Bitcoin provides such a good way to turn electricity into cash mean that countries that have strong electricity subsidies will have to rethink that model? So right now in many countries around the world, the government actually subsidizes electricity, particularly industrial electricity. And one of the reasons they do is to try and encourage industry to be located in their country as opposed to other countries. Now if one of the main things that Bitcoin miners need to be successful is cheap energy, and you can mine Bitcoin basically anywhere, it may not be stable to have countries subsidizing electricity heavily, cuz all that will mean is that you're paying for a lot of Bitcoin miners to move into your country. There's also the interesting question of will the fact that you can turn electricity into money easily with Bitcoin mean that people have to start guarding their power outlets? Particularly around universities and corporations, large buildings with a lot of power outlets, will they need security cameras to make sure that employees or students aren't trying to mine Bitcoins by plugging into power outlets and just letting them run? And you might ask, would we be better off if we didn't have this electricity consumption? Could we make a currency that didn't have proof of work and didn't have to use so much electricity? And again I'm not gonna talk about that directly today, but that's gonna be a topic that we'll talk about quite a bit in our future lecture on alternative mining.