Why did Cambridge revise its bitcoin electricity consumption index?

In case you adopted bitcoin mining information over the past two weeks, you could have seen social media chatter about how the apply doesn’t really use as a lot electrical energy as you’ve been led to imagine.

And that’s true, based mostly on the Cambridge College Bitcoin Electrical energy Consumption Index (CBECI), which provides every day estimates on the community’s power calls for.

Upon revising the favored index on Aug. 31, researchers realized that earlier assumptions relating to Bitcoin’s power consumption had beforehand been overstated.

For instance in 2021, when bitcoin mining was extraordinarily worthwhile, Cambridge’s earlier mannequin estimated that the community sucked up 104 terawatt-hours (TWh) of electrical energy. The revised mannequin reveals that Bitcoin consumed 89 TWh, representing a 15 TWh distinction.

Based mostly on knowledge from the US Power Data Administration, 15 TWh might energy over 1.4 million common American properties in a 12 months.

Following these revelations, Daniel Batten, the co-founder of local weather acutely aware CH4 Capital, took to X, previously Twitter, to say “the tide has turned within the narrative round Bitcoin & power.”

JPMorgan additionally responded to Cambridge’s downshift of Bitcoin’s power footprint, reducing its bitcoin manufacturing value estimate to $18,000 from $21,000.

However why did Cambridge researchers change the methodology of the CBECI? Alexander Neumüller explains.

Why the sudden pivot?

Neumüller is a analysis affiliate on the Cambridge Middle for Various Finance, the place he leads all investigations into the local weather influence of digital property, together with Bitcoin.

Neumüller informed Blockworks that researchers wanted to revise the CBECI to extra precisely replicate how totally different mining machines contribute to the general hash fee.

The earlier mannequin assumed that every one miners, irrespective of how highly effective, have been contributing equally to the community hash fee.

“This doesn’t make sense,” Neumüller stated bluntly.

Neumüller defined that the computing energy of ASICs — a kind of devoted {hardware} used to mine bitcoin and different proof-of-work cryptocurrencies — has drastically elevated within the final a number of years.

For instance, Bitmain’s Antminer S9 from 2016 had a hash fee of 11.5 terahashes per second (TH/s), whereas the Bitmain S19 XP Hydro from 2022 achieved 260 TH/s.

Moreover, the earlier mannequin factored in all mining machines that have been worthwhile, which ended up skewing electrical energy consumption numbers throughout instances of excellent mining profitability.

Neumüller referenced older mining machines like Bitmain’s Antminer S5, launched in 2014 with a hashrate 1.155 TH/s, which clearly don’t require as a lot power as the present top-of-the-line fashions.

“Out of the blue mining profitability spiked in 2021,” Neumüller informed Blockworks. “I believe an […] Antminer S5 was nonetheless worthwhile. And what which means is that out of the blue, an S5 fueled an equal quantity of hash fee as a a lot newer gadget.”

“Essentially the most just lately launched gadgets by that point have been already having as much as 100 terahashes. So this was the difficulty,” Neumüller added.

Contemplating this explosion in hashing prowess, the mannequin for calculating electrical energy consumption needed to change.

Now, the CBECI doesn’t contemplate miners that aren’t worthwhile at “cheap electrical energy charges.” It additionally takes under consideration the age of mining gear and the way gadgets are likely to depreciate in worth.

Many public mining firms, Neumüller defined, use a five-year depreciation schedule for his or her {hardware}. Because of this a model new gadget’s worth drops 20% annually till it’s thought-about virtually out of date after 5 years in operation.

Neumüller posits that when a miner’s worth decreases, it contributes much less to the general community hash fee and subsequently consumes much less power. So, even when a miner older than 5 years stays worthwhile, it gained’t be accounted for within the CBECI.

That assumption briefly sums up the brand new mannequin for the CBECI, and in response to Neumüller, it avoids the earlier entice of outdated mining machines being erroneously included within the index.

That was what was resulting in the overstated electrical energy consumption, particularly since 2021.

“It’s actually extra […] how can we discover an anchor that helps us to account for a lot older machines being much less weighted than the brand new machines. As a result of ultimately, that helps us to affiliate the precise weight by way of what drives hashrate,” Neumüller informed Blockworks.