Bitcoin and Cryptocurrency Technologies

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we can use as an estimate that electricity costs around 10 cents per kilowatt‐hour (kWh) at an industrial rate in the US, or equivalently 3 cents per megajoule (MJ). If Bitcoin miners were spending all 11 dollars per second of earnings buying electricity, they could purchase 367 megajoules per second, consuming a steady 367 megawatts (MW). Units of energy and power.In the International System of Units (SI), energy is measured in joules. A watt is a unit of power, where one wattis defined as one joule per second. Bottom‐up approach. A second way to estimate the cost is to use a bottom‐up approach. In this approach, we look at the number of hashes the miners are actually computing, which we know by observing the difficulty of each block. If we then assume that all miners are using the most efficient hardware, we can derive a lower bound on the electricity consumption. Currently, the best claimed efficiency figure amongst commercially available mining rigs is about 3 GH/s/W. That is, the most cutting‐edge ASICs claim to perform three billion hashes per second while consuming 1 watt of power. The total network hashrate is about 350,000,000 GH/s, or equivalently 350 petahashes per second (PH/s). Multiplying these two together, we see that it takes about 117 MW to produce that many hashes per second at that efficiency. Of course this figure excludes all of the cooling energy and all of the embodied energy that's in those chips, but we’re doing an optimal calculation and deriving a lower bound so that’s okay. Combining the top down and bottom up approaches, we can derive a ballpark estimate of the amount of power being used for Bitcoin miners is probably on the order of a few hundred MW. How much is a megawatt? To build up intuition, we can see how much large power plants produce. One of the largest power plants in the world, the Three Gorges Dam in China is a 10,000 MW power plant. A typical large hydroelectric power plant produces around 1,000 MW. The largest nuclear power plant in the world, Kashiwazaki‐Kariwa in Japan, is a 7,000 MW plant, whereas the average nuclear power plant is about 4,000 MW. A major coal‐fired plant produces about 2,000 MW. According to our estimates then, the whole Bitcoin network is consuming perhaps 10% of a large power plant’s worth of electricity. Although this is a significant amount of power, it's still small compared to all the other things that people are using electricity for on the planet. Is Bitcoin mining wasteful? It’s often said Bitcoin “wastes” energy because the energy expended on SHA‐256 computations which don’t serve any other useful purpose. It’s important to recognize, however that any payment system requires energy and electricity. With traditional currency, considerable energy is consumed printing currency and running ATM machines, coin sorting machines, cash registers, and payment processing services, as well as transporting money and gold bullion in armored cars. You could equally argue that all of this energy is “wasted” in that it doesn't serve any purpose besides maintaining the currency system. So, if we value Bitcoin as a useful currency system, then the energy required to support it is not really being wasted. 148
Still, if we could replace Bitcoin mining with a less energy‐intensive puzzle and still have a secure currency, this would be a positive change. We’ll see in Chapter 8, however, that we don’t know if that’s actually possible Repurposing energy. Another idea to make Bitcoin more eco‐friendly is to capture the heat generated from Bitcoin mining do something useful with it instead of just heating up the atmosphere. This model of capturing waste heat from computation is called the approach is called the data furnaceapproach. The concept is that instead of buying a traditional electric heater to heat your home, or to heat water in your home, you could buy a heater which doubled as a Bitcoin mining rig, mining bitcoins and heating up your home as a byproduct of that computation. It turns out that the efficiency of doing this isn't much worse than buying an electric heater, and perhaps this would be no more complicated for a home consumer than plugging their heater into their Internet connection as well as their electricity outlet. There are a few drawbacks to this approach. Although it’s about as efficient as using an electric heater, electric heaters are themselves much less efficient than gas heaters. Besides, what happens when everybody turns off their Bitcoin mining rig during the summer (or at least everybody in the Northern Hemisphere)? Mining hash power might go down seasonally based on how much heat people need. It might even go down on days that happen to be warmer than average! This would caused many interesting effects for Bitcoin consensus if the data furnace model actually caught on. The question of ownership is also not clear. If you buy a Bitcoin data furnace, do you own the Bitcoin mining rewards that you get, or does the company that sold them to you? Most people don't have any interest in Bitcoin mining — and probably never will — so it might make more sense to buy it as an appliance and have the company that sold it to you keep the rewards. This might mean the heater is sold at a slight loss then, in which case some enterprising users might want to buy them and modify them to keep the mining rewards for themselves, leading to a potentially ugly DRM (Digital Rights Management) battle. Turning electricity in cash. Another long‐term question posed by Bitcoin is that it might provide the most efficient means of turning electricity into cash. Imagine a world in which Bitcoin mining ASICs are a readily‐available commodity and the dominant cost of mining is electricity. In effect, this would mean providing free or low‐cost electricity is open to new forms of abuse. In many countries around the world, governments subsidize electricity, particularly industrial electricity. Among other reasons, they often do so to encourage industry to be located in their country. But Bitcoin provides a good way to turn electricity into cash, which might cause governments to rethink that model if their subsidized electricity is converted en masse to bitcoins. Electricity subsidies are intended to attract businesses that will contribute to the country’s economy and labor market and subsidizing Bitcoin mining may not have the intended effect. 149
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Bitcoin and Cryptocurrency Technolo
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Preface — The Long Road to Bitcoi
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work, there is also the issue of co
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Finally, CyberCash has the dubious
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This was the first serious digital
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and so on — powers of two. That w
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Figure 3 shows the user side of the
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initial cost to acquire all the equ
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the system is to record the relativ
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original design. However, after Bit
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A final reason that’s often cited
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Chapter 1: Introduction to Cryptogr
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Figure 1.2 Because the number of
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Property 2: Hiding The second pr
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ecome: ● ● Hiding: Given H(
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SHA‐256 uses a compression functi
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Figure 1.5 Block chain.A block c
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Figure 1.7 Merkle tree. In a Mer
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throughout this book. 1.3 Digital S
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Figure 1.9 Unforgeability game.
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andomness just in making a signatur
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1.5 A Simple Cryptocurrency Now let
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The first key idea is that a design
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Figure 1.13 A PayCoins Transa
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Perusing the NIST standard that def
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Chapter 2: How Bitcoin Achieves Dec
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state of the system. The implicatio
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consensus is somewhat pessimistic,
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Implicit Consensus. This assumpt
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Figure 2.2 A double spend attempt.
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In general, the more confirmations
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Figure 2.4 The block reward is c
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puzzle‐friendliness property from
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possible outcomes, and the probabil
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theory problem that’s not easily
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this interlocking interdependence b
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Further reading The Bitcoin whitepa
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Chapter 3: Mechanics of Bitcoin Thi
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In this example, Alice specifies tw
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3.2 Bitcoin Scripts Each transactio
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the Bitcoin language and one has to
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exactly the same script, which is i
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in the normal case, this isn’t th
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Technically all of these transactio
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The header mostly contains informat
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in turn sends it to all of its peer
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Figure 3.10 Block propagation ti
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that actually affect them. So they
Page 97 and 98: that the old version would accept a
Page 99 and 100: Exercises 1. Transaction validation
Page 101 and 102: Chapter 4: How to Store and Use Bit
Page 103 and 104: software can automatically turn the
Page 105 and 106: The cryptographic magic that makes
Page 107 and 108: may never know (or care) who the co
Page 109 and 110: Given this stringent requirement, s
Page 111 and 112: There is a formula called Lagrange
Page 113 and 114: Ideally, the site will encrypt thos
Page 115 and 116: seen exchanges that fail due to bre
Page 117 and 118: Figure 4.5: Proof of liabilities.
Page 119 and 120: crypto and we won’t cover it here
Page 121 and 122: Figure 4.8: Payment process involvi
Page 123 and 124: transaction can't create coins, but
Page 125 and 126: of U.S. dollars per day pass throug
Page 127 and 128: Now if you look at a particular sec
Page 129 and 130: alance of 500,000 BTC. It then sign
Page 131 and 132: Chapter 5: Bitcoin Mining This chap
Page 133 and 134: In most cases you'll try every sing
Page 135 and 136: You can see in Figure 5.3 that over
Page 137 and 138: steady‐state, the period to find
Page 139 and 140: TARGET=(65535
Page 141 and 142: Disadvantages of GPU mining. GPU
Page 143 and 144: may be the fastest turnaround time
Page 145 and 146: Figure 5.10: Evolution of mining
Page 147: Hopefully, over time the embodied e
Page 151 and 152: Figure 5.11: Illustration of uncert
Page 153 and 154: Figure 5.13: Mining rewards. Thr
Page 155 and 156: Some mining hardware even supports
Page 157 and 158: By April 2015, the situation looks
Page 159 and 160: Figure 5.15 Forking attack.A mal
Page 161 and 162: Temporary block‐withholding attac
Page 163 and 164: the transaction from address X
Page 165 and 166: Chapter 6: Bitcoin and Anonymity
Page 167 and 168: Unlinkability. To understand unl
Page 169 and 170: eason is that use cases that we cla
Page 171 and 172: But this reveals something. The tra
Page 173 and 174: the other hand, are often not new a
Page 175 and 176: Figure 6.5. Labeled clusters.
Page 177 and 178: Luckily, this is a problem of commu
Page 179 and 180: they are unhappy with anonymity pro
Page 181 and 182: Fees should be all-or-nothing. M
Page 183 and 184: Somebody looking at this transactio
Page 185 and 186: a single transaction that combines
Page 187 and 188: just minting one doesn’t automati
Page 189 and 190: Efficiency. Recall the statement
Page 191 and 192: We start with Bitcoin itself, which
Page 193 and 194: An alternative design to Zerocoin i
Page 195 and 196: elieve the same thing. So consensus
Page 197 and 198: of developers who maintain Bitcoin
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The interesting case is if the fork
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eing effectively bankrupt. As of ea
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In an important sense it doesn't ma
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of illegal items becomes potentiall
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arrest. So although Ulbricht was th
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kind of business that will handle l
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een enough time for sellers to buil
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The text refers to “activities in
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A book that looks at the history of
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It’s easy to see how Bitcoin’s
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Why might memory‐hard and memory
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Until recently, it wasn’t known i
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meaning the exponential growth peri
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Next, consider the problem that SET
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In Permacoin, each miner Msto
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Interestingly, these concerns have
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they can perform the signatures on
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schemes also require a small amount
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to provide an effective solution, t
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Chapter 9: Bitcoin as a Platform In
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means that if you actuallydo
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CommitCoin exploits this property.
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features without needing to change
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would just look like a dollar bill.
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you. In particular, you can’t use
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To solve this problem we can once a
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NBA draft lottery.One example th
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that there’s no way for anyone to
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to predict the low‐level fluctuat
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design, because miners have to veri
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Here's another example, this time f
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You can also trade shares for futur
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Order books.The final piece o
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Chapter 10: Altcoins and the Crypto
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Attracting miners has special impor
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with the launch date of the altcoin
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Namecoin is technically interesting
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10.3 Relationship Between Bitcoin a
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Switching costs are certainly not z
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If our altcoin is merge‐mined, we
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When we think about a rational mine
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DepositA [Altcoin block chain] Refu
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Sidechains. The sidechains vision i
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lock themselves could tell us. This
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written in bytecode and executed by
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Bitcoin. In particular, there are c
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The simple binary Merkle tree used
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Chapter 11: Decentralized Instituti
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Bitcoin, Alice can remotely transfe
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only these signatures of limited fo
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11.3 Template for Decentralization
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Sidebar: trust.Some people in th
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competition among intermediaries. P
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To drive home the mismatch between
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Conclusion to the book Some people
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