FT Analysis Claims Bitcoin's High Mining Cost Means It Cannot Become Global Currency

Know more about the mining costs incurred in Bitcoin mining. There are a lot of options available.

The Current Scenario Of Energy Costs In Bitcoin Mining

According to the CEO of both the beleaguered Twitter Inc as also Square Inc, a strong statement was made in favor of Bitcoin by saying that the crypto coin is expected to become the most significant currency of the world in a matter of the next10 years while before Twitters Mar 27, 2018, ban of cryptocurrency ads from its platforms. Dorsey said in a Mar 21, 2018 interview with the Times Of London that the world ultimately will have a single currency as the internet will have a single currency personally believing that it will be Bitcoin. 

While analysts offer quite a different version, refuting the above claims made by one of the most influential entrepreneurs of Silicon Valley according to a report in Financial Times claims it virtually impossible for the Bitcoin tokens to become the leading currency.

Assumption Around Mining Costs

This analysis then hits the assumption at the core of bitcoin’s working mechanism which is Bitcoin mining. The report by FT argument starts with the concept of narrow money which is a category of the money supply including all physical money such as coins and currency, demand deposits and other liquid assets are being held by the central bank estimated to be at $41 trillion at present as per CIA data.

While it is expected to grow at a steady OECD average rate of 16%, it is sure to reach $210 trillion by 2028. Similarly, around the same time, it is around 20,367,000 bitcoins expected to be in circulation by then making each Bitcoin worth around $ 10million. It is essentially a mining reward of 3.13 bitcoins worth $ 32 million. Bitcoin mining uses a lot of electricity, which happens to be the main constituent of the big operational overhead for keeping the Bitcoin currency agile. 60% of the Bitcoin mining revenue could get eaten up by operational costs.

When it comes to taking cues from the Digiconomist estimates the Bitcoin energy consumption with such operational costs expected to hit 60 percent of Bitcoin mining revenues with the reward of 3.13 bitcoins where the operational cost comes to around $ 19 million where 80 percent would be the cost towards electricity.

The Estimation Of Energy Required

It is essential to generate a Bitcoin block where one would spend $15million worth of electricity as each block contains around 1,500 transactions with the costs of each transaction around $ 10,400 with US average cost of11 cents per kilowatt-hour as the energy consumption per Bitcoin transaction coming around 101,114kWh. Thereby assuming a high increase in Bitcoin mining efficiently to an optimistic figure of 99 percent over the next decade with energy consumption per Bitcoin transactions around 1,011 kWh in 2028.

Taking input from the 2017 World Payments Report the analysis stated is that there were 43 billion electronic transactions in the year 2015. In such a case the number of such transactions continues to increase at a steady pace of 10 percent per year as the number reaches 1.5 trillion by the year 2028. As the bitcoins are expected to be the core currency of circulation as for all these transactions at the earlier calculated energy cost of 1,011 kWh per transactions requiring high energy of around 1,511,484 terawatt-hours.

There is despite taking the highest possible 99 percent efficiency in Bitcoin mining as also a conservative increase of 10 percent per year in e-payment will be impossible to have such high power available even from the best of nuclear power plants put together as the biggest nuclear power plant of the US generates only 34 terawatts of power in the sense that it is sure to take more than as much as 44,000 such power plants put together to generate the enormous power required to keep the Bitcoin payments alive and kicking.

What Is The Conclusion Drawn From The Discussion Above

Therefore, in a nutshell, it seems impossible to have Bitcoin as a mainstream currency for the future as the analysis concludes. Even though it is so technological innovations are burning down the energy costs and thereby making sure there is even more investors and miners. The introduction of a lot more coins other than Bitcoin points to the fact that even with this high energy cost, the mining is still going on uninterrupted. This helps the altcoins to carve out a niche in the crypto market. The future is bright as the technology underlying cryptocurrencies is evolving to a more robust one and the investors are provided with more options. 

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