Ethereum Breaks $2,000, Bitcoin at $57,000: History in the Making

 

Thar she blows! That's right: Ethereum just broke $2,000 for the first — and almost certainly not last! — time. Bitcoin meanwhile is in the high $50K range. With companies like Master Card, Tesla, and various banks investing potentially billions of dollars into blockchain technologies, none of this is going away any time soon. Which raises an interesting question: How much money does the world spend daily on cryptocoin mining?

I've run the numbers, and best-case, the Ethereum miners are using well over a billion watts of power, and Bitcoin mining is about five times that amount. That's going off how much power would be required if every miner was using the most efficient hardware possible, which obviously they're not, and so real-world power use is about three times as high as what I just estimated.

That's three billion watts, every hour of every day, just to keep Ethereum humming along, and roughly 15 billion watts for all of those Bitcoin ASICs. It's nuts! It's also completely unsustainable to keep growing at this rate, so if you're looking at mining profitability right now and wondering how long it will stay this high, I'd estimate another month or two at most, and in three to six months it will likely be less than half as profitable. But what do I know? I thought $40,000 per Bitcoin was the limit for now, and clearly that was wrong.

Anyway, back to power, at $0.10 per kWh, Ethereum would cost about $7.2 million dollars to keep running, each and every day — not including IT infrastructure and cooling, which probably makes it closer to $10 million per day. With a price of $2,000, around 6,500 ETH blocks mined every day, and 2 new ETH minted per block, that's $26 million created out of thin air. So, it's definitely got room to grow at this price. Also interesting is that there are around 1.2 million transactions per day on the Ethereum blockchain, which means each one costs something like $20 in theory — that's looking at the average of around 2 ETH per block in transaction fees.

Bitcoin is, if anything, worse. The Bitcoin network runs at around 160 million terahash per second. The most efficient ASICs do about 25TH/s using 1000W. Using only such ASICs, that would mean we'd have 6.4 million ASICs running Bitcoin, using 6.4 billion watts. But lots of older ASICs are in use, so triple that and we can estimate roughly 19.2 billion watts. Each day, every day!

Total cost at $0.10 per kWh would be about $46 million per day in power costs. Lots of big miners are getting lower cost power than that, but lost of places in the world also cost a lot more, so let's just stick with 10 cents per kWh. Bitcoin is a slow block time of around 10 minutes, so there are only 144 block per day (give or take), but the block reward is 6.25 BTC newly minted, plus around 160 BTC per day in transaction fees, so roughly 1.1 BTC in tx fees per block.

Given those stats, Bitcoin creates 900 new BTC per day, with a value of around $50 million. Notice how much closer that is to the power costs? What's more, at 160 BTC per day in transaction fees, and around 300,000 transactions per day, that means the average BTC transaction costs around $30. Fewer transactions take place, and a lot of places like mining pools and Coinbase seem to be doing transactions largely off the books — using internal mechanisms to track who has what BTC — but the net result is a lot of power and heat used for blockchain technologies.

I'm curious to see where this goes, and if we end up with a lot more regulation and at the same time more uptake of cryptocurrencies in the coming years. The potential influx of cash into the network via banks and other large companies helps ensure things will continue for a while, but we know banks and others could pull out just as quickly as they joined — manipulating the market on a large scale and trying to make a buck in the meantime.

Don't get caught holding the bag, in other words. We saw massive amounts of hype in 2017 and 2018 for blockchain, and much of that went nowhere. Then again, here we are in 2021, with BTC at more than double the previous high and closing in on triple the value. If you had and held BTC for three years and triples your value, that's a nice improvement. All the 'weak' hands that folded? Too bad for them!

Personally, I'm trying to only sell enough of what I earn to pay for power these days. Because it feels like at some point in the coming years, we'll see $100,000 per BTC, and potentially even $1 million. Also potentially $10,000 or less again, so who knows?

Does the Bitcoin Network Waste Lots of Power?

One of the big complaints about Bitcoin -- and cryptocurrencies in general -- is that they're using "tons" of power and not really accomplishing any "useful" purpose. While it's certainly true that all of the ASICs out there hashing away to secure the Bitcoin network (and mine coins in the process) use power, it's important to put things in perspective. Let's start with a rough estimate of the power used by all the systems connected to the Bitcoin network.

At present, the total hash rate of the Bitcoin network is around 240,000 TH/s, though of course that changes on almost a daily basis -- you can check the current approximate hash rate any time at BitcoinWisdom (or any number of other sites). The most efficient Bitcoin ASICs right now can do around 3 TH/s while drawing 2000 W (give or take), while upcoming ASICs may be as much as two to four times as efficient (e.g. around 3 TH/s while drawing only 600 W). Obviously not every ASIC currently hashing on the Bitcoin network is going to be the most efficient option (side note: I finally shut down my AntMiner S2 ASICs as their hash rate to power is no longer profitable), but let's just estimate that most ASICs today are averaging a 1:1.5 ratio of TH to power.

What that means is that our 240,000 TH/s of hash rate is using 360,000 kW. (By way of comparison, if every current ASIC was a KnC Neptune doing 3 TH per 2000 W, the Bitcoin network would only use 160,000 kW.) 360,000 kW becomes 360 MW, and 24 hours per day means the Bitcoin network is using around 8640 MWh (Megawatt Hours) each day, and 259,200 MWh per month. So how does that compare with the power used for other tasks?

According to Wikipedia, the total power consumed in the US per month was 2,183 TWh, or 2,183,000,000 MWh. That means the total power used by the entire Bitcoin network is approximately 0.012% of the US energy use. But Bitcoin isn't just a US phenomenon, so we really need to look at the entire world. In 2008 the worldwide approximate power use was 143,851,000,000 MWh, or 11,823,000,000 MWh per month. It's likely power use has increased since then, but let's just stick with that number for now. That means the Bitcoin network "waste" of power accounts for a whopping 0.0022% of all energy consumed in the world.

Let me put that figure in different terms. The average power draw of a US household is 10,837 kWh per year, or 29.7 kWh per day. That's the same as a continual power draw of around 1250W from all the lights, appliances, computers, etc. in your home. 0.0022% of the average power used by an American home would equal 0.0275 W. Or in other words, shutting down all Bitcoin related hardware in the world would be like the average American home cutting their power use by $0.00008 per day.

Now, it's entirely possible I screwed up on the math somewhere. Maybe I'm even off by a factor of 1000, but I'm pretty sure that's not the case. I've checked things multiple times and I think I've got it reasonably close, understanding that this is merely an estimate and I could easily be off by a factor of 2-4X on a few guesses (e.g. maybe the average efficiency of ASICs is much lower than my estimate). Still, if you spot an error, by all means let me know.

The bottom line is that the amount of power being used globally for the Bitcoin network is pretty tiny as a percentage. When you think of all the other things out there consuming power -- lights on empty roads and parking lots, computers that sit idle at large corporations, etc. -- there are far worse ways of using power. Inherently, people and businesses consume power because they find it to be a good use of their money -- cost vs. benefit. There's no need to try and halt the use of power by cryptocurrencies as they'll eventually reach equilibrium on their own.

Bitcoin hashing might be consuming 360 MW (which is still about one fourth of the infamous 1.21 Gigawatts number from Back to the Future), but how much power is consumed by all of our financial institutions? I'm absolutely sure it's far more than 360 MW, so by that token the Bitcoin network is actually a much more efficient way of doing things.

BitFury Group's Upcoming ASIC: More Efficient SHA256 Hashing

Earlier this week, the BitFury Group issued a technology roadmap update for their ASICs. What's interesting about BitFury is that unlike many of their competitors, they've apparently put a lot more work into designing a custom ASIC. I'll get to what this means in a moment, but first we need to take a step back and discuss general microprocessor design principles.

Designing a CPU, GPU, SoC, ASIC, etc. can be done in many ways, but from a high level there are two general approaches. One is to use machine algorithms to optimize and lay out the transistors, and the other is to basically design the logic circuits and do the layout "by hand". There are pros and cons to either approach, of course.

The machine algorithms can do a great job of testing and validating the design and basically get you up and running a lot faster than if you were to have a human (many humans) perform the same work. What's more, there are many companies that now sell functional blocks of compute logic, so you can integrate these functional blocks into your chip a lot easier if you let the machines do the legwork. The drawbacks to machine layouts are that they typically use more area and they tend to be less power efficient. These aren't necessarily inviolate rules, but that's the basic idea.

Doing the layout by hand is basically the reverse of the above: it can take much longer to complete the design, validation, testing, etc. However, a human can generally see the big picture better than a machine and so they can optimize better for die area as well as power. This can in turn lead to potentially higher performance, which can be very important for high performance (or low power) microprocessors.

The above is a low-level discussion of processor design, but one of the interesting ideas is the use of ready made functional blocks. If you've ever wondered why it took a while to see the first SHA256 (Bitcoin) ASICs and then suddenly there was an explosion of competing designs from several companies, it's because once there was a tested and validated solution available, many other companies were able to license/buy the basic design and then just place more chips on a board to improve performance.

There are still multiple Bitcoin ASIC designs of course. The earliest ASICs were built on 90nm or even 130nm process technology (because it was cheap, mature, readily available, and easier to use), but as the competition heated up things shifted to newer and smaller process nodes. Today, the fastest and most efficient ASICs are manufactured on 28nm process technology, and 20nm designs will probably come out within the next year (the 20nm fabrication facilities are busy making things like Apple's A8 and the new Qualcomm Snapdragon cores, so they would cost a lot more to use). However, even 55nm ASICs can still be efficient enough to earn a profit -- or at least, the power cost of running them is lower than the value of BTC they generate.

BitFury is a prime example of this last case, as up until now they have been using 55nm process technology. The key to staying competitive even with an older process node is that BitFury uses their own custom logic (i.e. it's not licensed from another company), and they apparently put a bit more effort into optimizing for power and efficiency. Or more likely, they run at lower clocks and they're not really performance competitive right now -- the current BitFury ASICs can hit 3.5 TH/s at 2800W (give or take), but the power use is likely the limiting factor.

The latest announcement is basically BitFury Group saying that their 28nm custom logic ASIC is nearly ready. With the smaller process node and additional time spent optimizing for power efficiency, BitFury is claiming that they will have ASICs capable of running at 0.2 J/GH (essentially 0.2 W/GH) by the end of 2014, most likely late December. They're also working on an even more efficient design that will use 0.1 J/GH (W/GH, assuming 0.1 J/s) in mid-2015. That doesn't really tell us a lot in a vacuum, though, so let's compare those power numbers with some existing ASICs.

BitFury's own 3500BF I mentioned above delivers 3500 GH/s at 2800W, so it's doing about 0.8 W/GH. It also uses 1320 BF864C55 chips, which can run at a voltage range of 0.5V to 1.2V depending on your desired efficiency, with 0.5 J/GH being the maximum efficiency while 3.8 GH/s is the maximum performance -- but you have to choose one or the other. (Ever wonder why you can overclock ASICs? It's because you're just trading efficiency for higher performance, so if you have an older ASIC that's pulling 420W at the wall and you drop the clocks 10%, you'll likely end up improving efficiency by more than 10%.)

The KnC Neptune is currently targeting 3500 GH/s at 1950W, so it's slightly more efficient than the 3500BF (0.56 W/GH), but it's already on 28nm. Butterfly Labs' Monarch is more like existing chips, as it's capable of 700 GH/s at 490W (0.7 W/GH). Bitmain has their AntMiner S3 that's also around 0.78 W/GH, though the Antminer S4 is "coming soon". Looking at a list of other ASICs, those figures are pretty similar to the other "state of the art" designs.

Since I've been on a Hashlet's kick, I might as well toss out the Hashlet Genesis as well. GAW isn't saying how much power the Genesis actually uses, but the cost to run it (hosting included) is $0.02 per 10 GH. Doing the math at $0.10 per kWh, that would mean GAW is basically charging you at a rate equivalent to roughly 0.83 W/GH.

Basically, if we look at most of the currently shipping Bitcoin ASICs, the best you might get out of them is 0.5 W/GH, so BitFury Group is claiming they will more than double the hashing efficiency, and by the middle of next year they'll double it again. It's not just about efficiency of course -- the initial price will also largely determine whether or not a new ASIC is worth buying, so keep that in mind.

As I've said in the past, the real money makers in the whole Bitcoin Gold Rush are the people selling the mining hardware -- or other services as the case may be. You can't expect them to give the stuff away, obviously, but they're taking a healthy profit in most cases and hitting ROI is sometimes difficult (especially when the manufacturers mine with the hardware for a month or two before shipping to customers). Hopefully the 28nm BitFury parts get to end customers sooner rather than later, as we're getting close to the point where many of the current ASICs are going to have to be retired. Anything worse than about 3 W/GH is now breaking even on power, but really you'd want to be below 1.5 W/GH to keep mining viable -- and if you pay more for electricity (like $0.30 per kWh), you'd be breaking even at just 1 W/GH!

Anyway, for those thinking the current levels of efficiency were the end of the road for Bitcoin ASICs, there's still plenty of room left for optimizations. The first wave is now over (and probably the second and third as well), and the focus is now on refining designs rather than just getting them out the door. It's going to be interesting to see what sort of pricing we get on the next generation of ASICs, but we're still a few months away it looks like.

What Makes a Good Cryptocurrency, Part 1: Slow and Steady

I’ve discussed some of these thoughts before, but I wanted to get into this a bit more. Vertcoin is a great example of how to make a useful new cryptocurrency, and the reasons for its current success are due in a large part to the design. Fundamentally, I think any good cryptocurrency needs to have the following:

1. It needs to do something new relative to what is already out there.
2. It needs to launch in a “fair” manner.
3. Difficulty adjustments should happen sooner rather than later.
4. It needs to be designed with the future in mind.

I’m sure there are other things that I could put on the list, but I'm going to focus on point number four right now. There's an old saying: "slow and steady wins the race", which we're all familiar with from the story of the tortoise and the hare. While the latest meme cryptocurrencies may catch fire for a short time, I don’t think they’re a strong basis for a lasting currency. And DOGE, I hate to call you out like that, but long-term I don’t think your prospects are all that bright (similar to your silly Doge face – such wow and all that). A primary reason is that the coins get paid out in a short amount of time and we reach the point where the block rewards largely disappear.

Of course, "short" is all relative, but to me a coin should be designed such that it will still have a reason for mining (i.e. securing the network) in five, ten, twenty, etc. years. If as an example you have a new currency with one million total coins and they'll all be mined in six months, what will keep miners going with securing the network past that point? If transaction fees of 0.1 coins per transaction were mandatory, and if there are on average 10 transactions every block, that would mean even if you're doing a block every 30 seconds, you're still only giving out 2880 coins per day. So the people that mined the initial 1 million coins of this hypothetical currency did so at let's just say a steady rate of 5555 coins per day, and if you had a minimum guaranteed transaction fee of one coin, it perhaps wouldn't be so bad...but that's not really what we have on most coins.

The reality is that transaction fees are far, far lower than 1 coin on most of the major cryptocurrencies. Take Bitcoin as an example -- it's one of the most heavily used coins, and yet looking at the past 20 or so blocks, the biggest block I could find was this one. That has 826 transactions and only 0.21444776 BTC in total fees. If we were depending wholly on transaction fees, all of the power going into the Bitcoin network would only amount to on average something like 0.05 BTC every ten minutes, paid for by those conducting transactions.

Right now, the 25 BTC block reward means there's a bounty of around $20,000 that will go to some lucky miner (or pool) on average every ten minutes. The total network hash rate of Bitcoin has now reached a pretty staggering 19,720,113 GHash/sec. Let's assume for a second that every system participating in Bitcoin hashing is as efficient as the latest and greatest 28nm ASICs. That would mean world-wide, Bitcoin is sucking down around 11,503,400 Watts of power. At a relatively inexpensive $0.10 per kWh, that means in a day Bitcoin consumes $27608.16 worth of power -- not too bad, as the current block reward will pay that in just over 10 minutes. (Realistically, most ASICs are far less efficient so the power cost is probably twice that -- so 30 minutes to pay for all the power use of BTC.)

But what happens in the future, like say in 2030 when the block reward of Bitcoin will probably be at the 0.78125 BTC mark? Most likely we'll be seeing a lot more transactions on the Bitcoin network, so instead of 0.05 in average fees per block, maybe we get to the point where the average transaction fees per block amount to 0.5 BTC (which is probably a bit of a stretch). At that point, we're looking at perhaps 1.25 BTC every ten minutes, and the power use of the BTC network may not actually drop much (and more likely it will increase). What happens then?

1.25 BTC per block right now is still more than enough to cover the cost of power -- in fact, 11.5 MW of power costs something like $200 per block, so at current prices we would only need 0.25 BTC per block for those securing the network to break even. If BTC is worth ten times as much in twenty years (which is either optimistic or horribly pessimistic), an average block reward of 1 BTC with transaction fees will be enough to power a while lot of hashing, so the network stays secure and BTC can continue to succeed. It was designed with this sort of scenario in mind, which is why things should continue to function well. But that's for Bitcoin; what about other cryptocurrencies? Time to pick on DOGE for a minute.

The total number of blocks before the block reward drops to 10K + transaction fees is around 756,250 blocks -- or in just 525 days from the time DOGE first started. Looking at the past day of blocks, here's one of the largest; with a total of 617 transactions, there were just over 575 DOGE paid in transaction fees. Right now the total network hash rate of DOGE is around 86 GHash, but it's happening almost entirely with GPUs. Assuming everyone is using the most efficient GPU possible, so an R9 290X hashing at 900KHash and drawing 350W, that means the DOGE network is drawing about 34,000,000W (and in reality it might be 50-100% more than that due to less efficient GPUs). With an average of 500,000 DOGE produced every minute, that's 720 million DOGE per day, with a value of roughly $1,000,000. Meanwhile, the power cost for the DOGE network is around $81,600 per day, so clearly DOGE is more than paying for the power use. But what happens when the block reward drops to 10K + transaction fees?

With the largest block of the past few hours generating 575 DOGE, it's probably a safe bet that best-case we're looking at 1000 DOGE or less per block in transaction fees. That means 15,840,000 DOGE per day, so to break even on power costs of $81,600 per day DOGE will need to be worth at least $0.0052 per DOGE, or in BTC terms it would need to trade at around 0.0000064 BTC per DOGE. That's only about four times as much as the current value of DOGE, so we can certainly hit that level, but again that's just to break even. If other coins are generating a substantial profit, why would people stick with DOGE just to break even on their power costs? I'd say bare minimum it would need to consistently generate twice as much revenue for those mining (securing the network) as it costs in power, and perhaps 2-3 times the return would be better. Will we see DOGE trading at 0.0000192 BTC/DOGE? Possibly, but more likely a new meme will supplant DOGE before then.

Put another way: if you believe DOGE will manage to maintain current hash rates for the next two years, you'd be a fool to sell any of your DOGE at the current prices. All the "DOGE millionaires" (currently around $1300 worth of DOGE) would be looking at the equivalent of $10,000 or more if that happens. A nearly 10-fold return on your investment in under two years is "pie in the sky" sort of thinking in terms of investments, but yet cryptocurrencies are all beating that mark -- often by a large margin.

As usual, this is a bit long, but when you start thinking in terms like this it should help you to start seeing why coins that pay out most/all of their block rewards in a short amount of time are a bad idea. They start out looking pretty interesting and might garner some headlines and make waves, but a couple years from now I expect Litecoin will still be chugging along -- the little engine that could -- while most/all of the meme coins are going to end up fading away. And really, it's better that way in my book, as if I'm talking to friends or investors and trying to get them to understand that cryptocurrencies can succeed, the "success" of a joke coin like DOGE doesn't help at all.

Now if you'll pardon me, I'm going to go create the All Your Base Are Belong To Us (AYBABTU) coin. Does that sound old and stupid to you? Well, that's what today's memes will be in another decade. All memes die, and the meme currencies will die with them.

Getting back to the main topic, what I'm saying is that you need to build a cryptocurrency that will pay out block rewards long enough to reach the point where the transaction fees can actually sustain the network. Or you can be like DOGE and go with a deflationary approach and always have 10K DOGE per block minimums, forever. But that's what got us into the mess we're in with fiat right now, isn't it? As far as a long-term payout, there are plenty of ways to do that -- Bitcoin, Litecoin, and Vertcoin cut the block reward in half every 4 years or so while other coins might drop linearly over time. Coins that pay out too quickly on the other hand (DOGE, QRK, FZ, etc.) are very likely to reach the point where there's no profit in mining/securing the network. If that happens, the coin(s) will die. You've been warned -- don't get caught holding the bag for a poorly designed cryptocurrency.

EDIT: Note that I missed the fact that DOGE has a 10K minimum reward, apparently forever. I don't really like that as a solution either, if you can't tell. I've updated the text to reflect this with new calculations. Thanks to several readers for pointing out my errors!