A fellow from Vice investigated bitcoin and the network’s power consumption. What he found will blow your mind (did I do that right?).

The title says it all.

Here are the particularly worrisome findings:

Unfortunately for Bitcoin advocates, the currency uses too much electricity right now — way too much: According to my calculation, a single Bitcoin transaction uses roughly enough electricity to power 1.57 American households for a day. (Ed. the bold type got A LOT of attention today)

What’s going on here? Let’s dust off .xls and take a look.

Objective: Discover if the chap’s analysis is valid and if the figures quoted are worrisome.

The Enormous(ly insignificant) Electricity Burden of the US American Household

Now that 1.57 figure quoted above is framed in such a way as to sound frightening and exorbitant.

But wait, we live in a Western capitalist society. And for all its sins, these systems end up creating heaps of consumer surplus. And this surplus results in lots of really useful stuff being really cheap.

So how much does it cost to run an average US household? To keep “the lights on” as it were.

EIA says average US HH monthly electric bill is ~$100, so it checks

Oh. About three bucks.

All your lighting, hot water, clean clothes, clean dishes, and electrical entertainment. $3.61/day. Less than an iced coffee. That doesn’t seem so bad, right?

But that phrase was so good! So much hand-wringing! Look how well it works on some other things:

“This bottle of Sea Smoke Pinot Noir is delicious but the cost is roughly equivalent to powering 100 American households for a day.”

Water for the rest our lives then :(

Anyways, let’s do a practical example. Say I go to Cosme tonight. I take friends and pay for dinner. The bill comes to $250 and I pay with an AmEx. Fine?

More fun with denominators

NO!

Just the fees for dinner could power three and a half American households for day!

Well then, if Bitcoin is unsustainable so is eating out for dinner (or going to the movies or anything really).

So maybe this household electric figure isn’t really a useful metric, right?

Instead of using random denominators, let’s try to put the Bitcoin infrastructure costs in context.

Fees for Transacting AND for ‘Money-ness’

One of the issues with the Vice analysis is that the author amortizes the maintenance costs of the bitcoin network against the still limited bitcoin transaction pool. He ignores all the other benefits created by the decentralized, distributed ledger.

But the bitcoin network fees do a lot of other stuff too. Sure, they allow transactions to settle but they also give bitcoin its power as a medium of exchange and a store of value. In other words, the maintenance costs allow bitcoin to be money.

At one point, the Vice author weirdly compares this per transaction fee cost vs Visa. Bitcoin appears more expensive. But remember, Visa is just one transaction processor and, unlike bitcoin, it performs no currency functions for USD or EUR or anything else.

Here is the Vice un-analysis:

According to Network Computing, the VISA network can process more than 80 billion transactions per year or 2,537 transactions per second, using two mirrored data centers, each capable of running the entire network. The larger data center is currently pulling enough power for 25,000 households’ daily electricity, so we’ll double that to account for VISA’s total draw. In 2013, VISA’s investor reports say the company processed 58.5 billion transactions.

Again with the daily American household comparison metric thing! And this time it’s comparing the entire Bitcoin Network against one Visa data center. Huh?

Maybe he meant to look at the $V financials?

Source: 2014 $V Annual Report

Anyways, it takes $5bn to run the Visa network. That’s something? Just think: $5bn could power 1.5 billion American homes for a day (this metric is weird).

But still, this comparison isn’t even fair.

Why? As mentioned above 1.) bitcoin is meant to be an entire payment/currency infrastructure and 2.) new functionality is coming to bitcoin that will massively increase transaction volume capability w/o increasing cost.

For one, this E&Y report shows that annual global banking revenues are at least $1.5 trillion. This is 300x greater than the Visa expense figure above. So maybe the bitcoin per transaction fees are only 1/300th as egregious as the author claims?

And secondly, in the near future we will see Bitcoin lightning networks which will clear a huge number of transactions off the chain.

Get ready for those per transaction fees to decline by an order of magnitude.

And as the big wallet providers (Coinbase, Circle) take share in the developed world, they will settle a huge number of internal transactions off network as well.

Conclusion

Go out to dinner tonight. And don’t worry about the cost in terms of US Daily Household Energy Consumption. And don’t worry about bitcoin either.