Energy Consumption – Bitcoin’s Achilles Heel

10 Pages Posted: 21 Nov 2018 Last revised: 29 Nov 2018

See all articles by Sailendra Prasanna Mishra

Sailendra Prasanna Mishra

University of Texas at Dallas - Naveen Jindal School of Management

Varghese Jacob

University of Texas at Dallas - Department of Accounting & Information Management

Suresh Radhakrishnan

JSOM, University of Texas at Dallas

Date Written: November 24, 2017

Abstract

Bitcoin as a cryptocurrency has received wide public interest. As a decentralized transaction system, Bitcoin relies on the mining process, which is a necessary process to validate transactions. The mining process involves solving complex crypto-puzzles which requires significantly high computing power. This resource-hungry process has a significant impact on the energy consumption of the system. Our study looks at the mining process and the resources required to process large volumes of transactions. Using data from September 2014 to November 2018, we investigate how the mining protocol impacts the computing capacity needs of miners. We demonstrate that the complexity of the crypto-puzzle and the transaction volume significantly increase computing resource needs which in turn raises the energy consumption. We estimate that the energy demand from mining activities will drain 17.96 Gigawatt if the system processes 100 million transactions per week. Our findings suggest that the mining protocol drains significant resource requirements both from a computing hardware and energy consumption needs that the future growth of the Bitcoin network and the use of Bitcoin as a currency could be questionable.

Keywords: Bitcoin, Blockchain, Cryptocurrency, Mining, Energy

JEL Classification: M10, M15, M48

Suggested Citation

Mishra, Sailendra and Jacob, Varghese and Radhakrishnan, Suresh, Energy Consumption – Bitcoin’s Achilles Heel (November 24, 2017). Available at SSRN: https://ssrn.com/abstract=3076734 or http://dx.doi.org/10.2139/ssrn.3076734

Sailendra Mishra (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Varghese Jacob

University of Texas at Dallas - Department of Accounting & Information Management ( email )

2601 North Floyd Road
Richardson, TX 75083-0688
United States

Suresh Radhakrishnan

JSOM, University of Texas at Dallas ( email )

Mail Stop SM 41
800 West Campbell Road
Richardson, TX 75080
United States
972-883-4438 (Phone)
972-883-6811 (Fax)

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