The Coffee Rule: 1 byte = 1kWh = $0.01

The true cost of the Bitcoin network?

The Bitcoin network consumes over 60 TWh per year. Bitcoin miners mine 52560 blocks in a year. Thus one block consumes over 1141 MWh per block.

Average Bitcoin block size (with SegWit) during the past year was just under 1.1MB.

Your coffee purchase is usually a one input, two output Bitcoin transaction. One input, because buying a coffee is a low value transaction, thus it is unlikely you will need to use more than one input. Two outputs: one is the active output, you are paying for the coffee, and the other one is the change back to you.

An input is at least 147 bytes of data and an output is typically 34 bytes of data. Finally the transaction has about 10 bytes of overhead. [Source]

Therefore 1.1MB / (147 + 2*34 + 10)B = 4888 coffee transactions can fit into a block. Which means, in order to your Bitcoin network to process your coffee transaction, it burns 1141MWh / 4888 = 233kWh.

In other words, after every byte you put onto the Bitcoin Blockchain today, in 2018, the miners burn 1kWh of energy.

In 2016, the average annual electricity consumption for a U.S. residential utility customer was 10,766 kilowatthours (kWh), an average of 897 kWh per month. [Source]

The Results

Bitcoin miners burn 233kWh after each of your Bitcoin coffee purchase. An US household burns 897 kWh monthly. Thus, your Bitcoin coffee purchase energy consumption is comparable to an average US household’s monthly energy consumption.

The Catch

However this is misleading. Let me propose a better question to answer: How much does it cost to the Bitcoin network to process your coffee transaction?

We would think, in order to answer that we need to know the average energy prices per person (globally, not in the US.) Now, it is really hard to answer without some coding, because energy prices vary country by country between 0.1 to 50+ US cents per kWh and the top ten most populous country adds up only half of the world population. But here is the catch: Bitcoin mining gravitates to where the electricity is cheap! It would be great to know how much miners in average pay for electricity, but we can conveniently assume they pay 1 or less US cents per kWh. Thus

1 byte = 1kWh = $0.01

This means, after every coffee you purchase today, the Bitcoin miners burn (147 + 2*34 + 10)B = 225B = 225kWh = $2.25 of energy.

That sounds much better than a coffee purchase burns an US household of energy, doesn’t it? How much better? The average energy prices in the US is 12.89 cents per kWh. Which means 225kWh * $0.1289 = $30 of energy.

The ratio between $2.25 and $30 can tell just how misleading some statements on mining energy consumption is. So spread the word and Coffee Rule: 1 byte = 1kWh = $0.01. Write your PhD thesises on it. Prove it or disprove it. Speculate on if this rule will prevail in the future or not.

Bonus

From this rule we could deduct more things. For example, mining a block costs about $11 000 of energy (for the most efficient, largest miners), where the block reward with today’s price is about $80 000 dollar. The difference is the profit, not counting the hardware, human, storage and other costs. This is not surprising, considering the 50x price increase during the past year or so.

If this rule would turn out to be somewhat accurate you could base your price speculation on it or even set a dynamic block size/block weight limit or the money supply based on the Coffee Rule for your next altcoin.