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Cambridge Bitcoin Electricity Consumption Index launched

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Bitcoin trading just became a whole lot more scientific with the new Cambridge Centre for Alternative Finance dashboard
Bitcoin trading just became a whole lot more scientific with the new Cambridge Centre for Alternative Finance dashboard

An accurate picture of bitcoin’s electricity usage is now available thanks to the just-launched Cambridge Bitcoin Electricity Consumption Index – CBECI.

The Cambridge Centre for Alternative Finance, the academic research centre at Cambridge Judge Business School, runs CBECI, which offers a variety of ways at looking at bitcoin’s electricity consumption – 74 per cent of which comes from renewables. Comparisons include nation states’ electricity usage, usage as a percentage of global electricity production and consumption (around 0.25 per cent for both) and even down to the amount of electricity consumed by always-on but inactive home devices in the US – which would power all bitcoins needs four times over in any year.

The index has been developed in response to growing concerns over the sustainability and environmental impact of bitcoin mining, which “relies on computation-heavy cryptographic operations that require significant amounts of electricity”. With reliable snapshots otherwise rare and incomplete, the index offers a real-time platform for a reliable assessment on the relational costs involved in the 24/7 bitcoin mining industry for policy makers, regulators, researchers, the media and business.

Michel Rauchs, cryptocurrency and blockchain lead at the Centre for Alternative Finance, speaking exclusively to the Cambridge Independent, said: “This is a new, freely-accessible tool. The Cambridge Bitcoin Electricity Consumption Index provides a real-time estimate of the total annual electricity consumption of the bitcoin network. The underlying model updates the network power estimate every 30 seconds based on live price and hashrate data.

CBECI dashboard home page
CBECI dashboard home page

“The index will be maintained on an ongoing basis and we plan to add more analytics and content over time.”

Bitcoin began with a 2008 paper by Satoshi Nakamoto who then created and deployed bitcoin’s original reference implementation, which led to the creation of the first blockchain database. Mr Nakamoto registered the domain name, mined the first 50 bitcoins on January 3, 2009, and walked away from the venture at the end of 2010 having mined more than one million bitcoins. Speculation about his true identity continues but the 50 bitcoins remained unspent and were worth $19billion at their 2017 peak, making its founder the 44th richest man in the world at the time.

There have been attempts to establish electricity consumption before, but the most-used model is an estimate by economist and PwC senior consultant and blockchain specialist Alex de Vries, which assumes that 60 per cent of all mining revenues - ie block rewards plus transaction fees - are used to cover electricity costs which suggests that 60 per cent of the value of any given bitcoin is tied up in electricity costs. The CBECI dashboard puts an end to such speculation.

“The 60 per cent figure seems a bit high initially," says Michel. "We wanted to provide an alternative estimate based on a different methodology – a bottom-up techno-economic analysis rather than a top-down economic approach.”

"Everyone until now has been using their own figures."

While the CEBCI data offers a reliable estimate for the amount of electricity that Bitcoin consumes on an annual basis, it will be contribute to a discussion over the environmental impact of the electricity consumption as to whether the negative externalities can be justified by the benefits/value derived from using the new format. Commentators on one side suggest that bitcoin will further boil the oceans because of the electricity requirements, while others espouse bitcoin as the most green currency there is, driving the green revolution and increasing investment in renewables.

"Both pictures are very extreme,"Michel notes, "and one reason we set up the index was to discover what the true picture is, so for instance electricity consumption looks very high at certain points when the value of bitcoin is low."

Michel Ruchs, cryptocurrency and blockchain lead at the Centre for Alternative Finance
Michel Ruchs, cryptocurrency and blockchain lead at the Centre for Alternative Finance

The CBECI's underlying methodology is bottom-up and based on the 60 different mining hardware machines in use today. Factors include the energy efficiency of the different hardware and their economic lifetime. It's not always straightforward.

"We don't know where the mining is taking place, the miners don't want to disclose that information - some of that is for political reasons, that they may be shut down. Bitcoin is designed so that no one can shut it down. There's nobody in charge and that's the way it needs to be. The CBECI uses the manufacturer specifications as part of the modelling process to determine which equipment is profitable at any given point in time, given the hashrate and price levels."

The dashboard shows that annual bitcoin electricity usage is about one quarter of one per cent of the world's total consumption. That's actually quite a lot, surely?

"It is quite a lot, yes. Bitcoin is using more electricity than the whole of Switzerland. The comparison section of the dashboard is able to present information for both sides of the debate."

A second batch of data will be available later in the year.

CBECI comparison shows how bitcoin is powered by renewable energy sources
CBECI comparison shows how bitcoin is powered by renewable energy sources

"One thing is the amount of electricity bitcoin uses - another is the environmental impact," says Michel. "To answer that you have to go to each bitcoin mining farm all over the world and make an assessment of all the miners. This second stage will allow us to get a more quantifiable carbons emissions figure. Currently it is estimated that between 20 and 70 per cent of the electricity comes from renewable energy. We've seen an increasing trend for mines to go to very remote places, such as particular regions in China, using power stations that are not connected to the grid."

This second stage won't be easy but it should take us between two and five months to have a model up, using the energy mix data from mining farms of which the Centre for Alternative Finance has already identified more than 100 globally.

The key factor in bitcoin's continuing progress is to enshrine the upper limit of 21million coins that can ever be mined, which creates scarcity.

"Digital scarcity is created without an intermediary," concludes Michel. "As long as the market has confidence in that digital scarcity, and as long as the currency holds to that, it's a very strong proposition."

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