The Predictable Cost of Bitcoin
44 Pages Posted: 5 Dec 2017
Date Written: November 18, 2017
Bitcoin, the first and most prominent crypto-currency, has seen explosive growth since its inception in 2009. A feature of the Bitcoin mechanism design is that, under mild assumptions, it is fully deterministic in behavior given a date (in the past or future), and the price of one Bitcoin (in terms of, say, US dollars) at that date. Aspects of Bitcoin that can be determined include the number of outstanding Bitcoins, Bitcoin market cap, inflation rate, aggregate miner revenue, aggregate spending on computing chips and electricity, and aggregate computing power dedicated to mining Bitcoins. I present a formal model for Bitcoin analysis, define the equilibrium in the mining market, and show that if the current Bitcoin price trend continues, the aggregate Bitcoin demand for computer chips (semiconductors) and electricity will exceed the aggregate US demand by 2022 and 2023, respectively.
Keywords: Bitcoin, Proof-of-work, Cryptocurrency, Mechanism Design
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