Calculaton methodology of bitcoin network electricity consumption.
Electricity consumed by bitcoin network depends on two factors: network hashrate and mining equipment efficiency.
Electric power is measured in watts (W), electricity consumption – watt-hours (Wh), hashrate – trillions hashes per second (TH/s), mining efficiency – watts per trillion hashes per second (W/TH/s).
Mining equipment efficiency is constantly improving, consequently, with time, less electricity is required to produce the same computing power (hashrate). On the other hand, newly arrived miners join the bitcoin network, thus increasing hashrate, causing electricity demand to grow as well.
Hashrate can drop over a short period
Once the bitcoin price falls below the miner's break-even threshold, they can't cover electricity expenses with new bitcoin production (i.e. a miner spends more than he/she earns). In this case miners, who have no access to low-cost electricity, disconnect their equipment from bitcoin network and go out of mining business. Such cases usually take place during downward trends on the cryptocurrency market.
During the downward time, the network hashrate drops following the bitcoin price. However, with time the hashrate starts to go back up again, and, eventually, becomes even higher than the previous peak value. Further on the hashrate continues to grow even more.
Hashrate grows continuously over a long period
First of all, bitcoin price downtrends always change to uptrends, so miners don't experience losses any lomger. And those who dropped out of business before can spring back into the game. Moreover, a number of new miners join in the ranks.
Second of all, manufacturers constantly upgrade mining chips. Upgraded chips use less electricity to produce the same hashrate, turning in more profit. It means they have a comparative advantage over the previous generation chips. When the bitcoin price is low advanced equipment allows miners to stay in the game longer, while during high prices these miners enjoy a higher profit.
Bitcoin network hashrate is open-source information available publically.
Hashrate growth is shown on the left top chart
Assumptions behind calculations methodology
We take it to an assumption that all economic processes in the mining industry are absolutely rational. So, if the network hashrate decreases, we presume the equipment with the lowest efficiency disconnects from the network first. If the network hashrate increases, we expect that equipment with the highest efficiency available on the market joins the network.
Also, we assume that the market competition forces manufacturers to keep up with each other in developing a more effiicent hardware. For this reason, if some manufacturer introduces the next-generaton chips to the market, other manufacturers start producing chips with the same characteristics around the same time.
These assumptions are rather conservative. It means that our results of bitcoin network electricity consumption are in the lower limit of the possible volumes range.
Evolution of mining power efficiency
We've made an educated guess that the evolution of all mining hardware can be approximaded relative the advancement of Bitmain's hardware (Bitmain is the world's largest ASIC manufacturer, exerting the greatest impact on the bitcoin mining indusry). Once Bitmain releases a new generation equipment, other manufacturers come up with the same perfomance technology soon after.
The evolution of all mining equipment can be tracked by following the development of Bitmain equipment:
Improvements of mining efficiency are shown on the left bottom chart
The incremental volume of electricity consumption in bitcoin network is calculated by multiplying newly added hashrate by the best mining efficiency available at that moment.
The sum of incremental volumes represents a cumulative amount of electriciry consumed by bitcoin network. The metric is expressed in watt-hours (Wh). To get annualized volume in watt-hours, we multiply that consumption by 24 hours and 365 days.
We apply a 100-day moving average to hashrate to make the final result less dependent on short-term hashrate fluctuations.
Annualized electricity consumption is shown on the right chart
Comparison of electricity consumption (bitcoin network vs countries) for illustrative purposes.
To help visitors get an idea of how much electricity the bitcoin network consumes, here is a comparison with some countries: