Measuring the energy consumption and efficiency of Bitcoin

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By Jamie McKane Published: January 12, 2022
energy consumption and efficiency of Bitcoin

Canadian accounting and business consulting firm MNP recently released a report titled ‘Blockchain and energy consumption: The quest for efficiency’, which found that the Bitcoin SV (BSV) blockchain is far more energy-efficient than Bitcoin Cash (BCH) and Bitcoin Core (BTC).

This is despite all three of these blockchains sharing the same proof-of-work consensus mechanism, which requires miners to expend energy to validate transactions and add them to the digital ledger. The report found that the difference between BSV and the other protocols which results in its greater efficiency is its inherent scalability.

The BSV blockchain is based on the original Bitcoin protocol as described by creator Satoshi Nakamoto. Unlike BTC and BCH, which have imposed arbitrary limits on the maximum block size supported by their networks, BSV offers unlimited block sizes in line with Bitcoin’s original design. This means that blocks on the BSV network can contain far more transactions than those on BCH and BTC, and they can also process far greater amounts of data.

More transactions and data per block mean less power used to process each transaction or megabyte of data, which leads directly to an increase in power efficiency.

‘The three Bitcoin protocols, BTC, BSV, and BCH, were compared to see which was more efficient. Given that all Bitcoin protocols are subject to the mining difficulty being affected by the computational potential of the miners on them, the metrics for efficiency were kilowatt-hours per transaction and kilowatt-hours per megabyte validated. These illuminate the major distinctions between the protocols,’ MNP states in its report.

‘When looking at the throughputs for the various networks, it is possible to see the potential capacity differences having a large effect on efficiency. The power consumption per transaction, and equally, per megabyte, decreases when network utilization is higher on more protocols with a more permissive block size than on those that are more restrictive. The arbitrary limitations of BTC and BCH may have a significant impact on the power consumption per transaction.’

‘BSV is more efficient due to block size and number of transactions (throughput) currently available on the network and limitations of other protocols. So long as the size or number of transactions on the BSV network exceeds the limitation of the other protocols, BSV is the most efficient in this group,’ the report adds.

 

Modelling the energy consumption of Bitcoin mining

The goal of MNP’s study was to create a model that could be used to measure the energy efficiency of any proof-of-work blockchain protocol that uses SHA256-based mining. While this framework was applied to BSV, BTC and BCH, it could also be applied to any other Bitcoin-based protocol to measure its energy efficiency.

One of the biggest obstacles MNP encountered in creating this model was determining the energy consumption of ASIC (Application-Specific Integrated Circuit) mining equipment used by major mining companies. The study surveyed 12 Bitcoin mining companies with facilities in Canada to gauge the energy used in mining operations, noting the hardware and cooling solutions they used.

The following Bitcoin mining companies were surveyed:

  • Bitfarms
  • Hut8
  • Hive Blockchain Technologies Ltd.
  • Blockstream
  • DMG
  • Argo
  • Ocean Falls Blockchain
  • MAAS Blockchain
  • Miningsky
  • Plexus
  • ADMCO
  • Quotecolo

MNP also addressed new cooling solutions being implemented by some mining companies which aim to improve hash rate while reducing cooling costs. These include immersion cooling, which is being implemented to great initial success by DMG Blockchain.

MNP’s modelling approach compares the electricity consumption of BSV, BTC and BCH in kWh per block, kWh per transaction (tx) and kWh per megabyte (MB), with the latter two being crucial to determining the energy efficiency of the network’s transaction processing operations.

‘Throughputs, as discussed here, are subsidiary to blocks. Since a block may be mined with a minimum density that has a minimal storage size and contains no transactions — or a maximum density that will vary depending on the protocol — the throughputs become a significant distinguishing factor between the different protocols with respect to energy consumption,’ MNP states.

‘The number of miners on a network, their hashpower, and the energy efficiency of their equipment will have a direct effect on the consumption required to mine a block. The energy consumption required to mine a block has a direct effect on the consumption of the other two metrics.’

The kWh/tx and kWh/MB figures are related but differ according to user behaviour and miner selection, MNP adds.

‘If no user transactions are included in a block, the consumption per transaction will be
equal to the consumption per block because the coinbase reward will be the sole transaction. If a miner selects an abnormally large transaction to validate in a maximum capacity block, the consumption per transaction will seem high relative to the consumption per megabyte because there will be fewer transactions.’

 

MNP’s model and estimates

The model developed by MNP accounts for the data above in its estimation of the energy consumption of the entire network. It uses block data collected by Blockchair as a basis for the network data from April 1, 2020 to June 13, 2021 and estimates the hash power of the network by using the block difficulty of each network.

When it comes to accounting for equipment efficiency, MNP selected different efficiencies for the lower and upper bound of hardware capabilities.

‘The lower bound of energy consumption assumes all equipment running on the network is the most efficient available at the time. The equipment available on or before June 13, 2021 was used. Selecting this date ensured no equipment could be more efficient based on equipment specifications, and, by extension, have a lower consumption. This choice also helps to offset techniques like over-clocking with immersion cooling, which miners use to improve the efficiency of their machines,’ MNP states.

‘The upper bound of consumption utilizes equipment that is estimated to be the least profitable. The Hayes’ equation for the miner’s break-even point was used to determine what equipment is the least profitable. The equation calculates the minimum value of Bitcoin required for a machine to be profitable, based on the hashrate and efficiency of a miner, the number of Bitcoin in the block reward, and the difficulty of a block.’

MNP’s estimated equipment efficiency is selected to base the consumption estimate by taking an unbiased average of equipment between the upper and lower bounds described above. This equipment included various ASICs from manufacturers Bitmain, Ebang, Canaan, MicroBT, StrongU, Innosilicon and ASICminer.

Total energy consumption from April 1, 2020 to June 13, 2021 was calculated according to the following function:

Blockchain technology and energy consumption: The quest for efficiency
Source: MNP Report – ‘Blockchain technology and energy consumption: The quest for efficiency’

From this, MNP was able to estimate the energy consumption according to its three main criteria.

‘Our calculations measured the output for the three main metrics for each of the protocol chains, at both the miner and the network scopes: average consumption per block, average consumption per transaction validated, and average consumption per megabyte validated. In addition, the totals of blocks mined, transactions validated, and megabytes validated for each of the periods in the prior sections are summed,’ the report states.

First, the total sums are calculated as follows:

‘Blockchain technology and energy consumption: The quest for efficiency’
Source: MNP Report – ‘Blockchain technology and energy consumption: The quest for efficiency’

From these total figures, calculating the main metrics used in MNP’s comparison is as simple as dividing the total consumption by the total transactions, megabytes or blocks as necessary:

Blockchain technology and energy consumption:
Source: MNP Report – ‘Blockchain technology and energy consumption: The quest for efficiency’

 

The results: BSV is the most energy-efficient blockchain

Applying this model to considered estimates, MNP found that the BSV blockchain was far more energy-efficient than either BTC or BCH due to its greater scalability and block size.

‘For BTC, the consumption per transaction steadily increases over time. The estimate beginning Q2 2020 has the average consumption at 430 kWh/tx through to 706 kWh/tx in Q2 2021. The estimated consumption per megabyte follows the same pattern, going from approximately 757 MWh/MB in Q2 2020 to 991 MWh/MB,’ the report states.

‘The estimated consumption per transaction peaks for BCH in Q3 2020 at 183 kWh/tx and falls as low as 6.5 kWh/tx in Q1 2021. The estimated consumption per megabyte follows the same pattern, with a maximum of 194 MWh/MB in Q3 2020 and a minimum of 20.5MWh/MB in Q1 2021.’

On BSV, however, the estimated consumption for both transaction and megabyte throughputs remains relatively consistent. Energy consumption per transaction ranges between 2.4kWh/tx and 3.3kWh/tx and consumption per megabyte between 0.9MWh/MB and 12.63MWh/MB.

MNP’s model provides an insightful comparison of blockchain protocol efficiency for SHA256 proof-of-work blockchains, finding that BSV offers much greater power efficiency than competing blockchains due to its higher scalability.

The report notes that the model can be applied to other qualifying blockchains which use the same consensus mechanism, with this study only opting to include the three most prevalent Bitcoin-based blockchain protocols operating in the industry.

‘…this study found it is possible to estimate a blockchain network’s power consumption. Moreover, we may use these estimates in assessing which implementations are more efficient,’ the report states.

‘Of the three cryptocurrencies that were sampled, our findings indicate BSV is a more efficient blockchain network when compared to the other two sampled SHA-256 proof-of-work blockchains.’

In a world where concern over energy efficiency and the environmental impact of excessive electricity consumption is rising due to the effects of climate change, BSV stands in a far better and more capable position than the others due to its ability to scale efficiency linearly with transaction throughput.