Bitcoin Mining and Electricity Consumption
44 Pages Posted: 8 Feb 2022 Last revised: 31 Aug 2022
Date Written: August 31, 2022
We propose a dynamic industry equilibrium model for Bitcoin electricity consumption in a general framework, including Bitcoin miners’ optimal entry and exit with technology innovation. Using average operating costs to approximate the true operating costs, we overcome the difficulty of strong path dependency incurred by the interaction among entry, exit, and technology innovation. The model can capture the upside and downside co-movements of miners’ computing power, electricity consumption, and mining revenue. Our model predicts that the Bitcoin electricity consumption will not grow indefinitely and the ratio of Bitcoin electricity consumption to the miners’ revenue fluctuates within a certain range.
Keywords: Industry Equilibrium, Bitcoin Mining, Electricity Consumption.
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