When assessing the power consumption of crypto tokens, the consensus protocol must be understood first and foremost. The “proof of work” procedure used for Bitcoin is used for most payment tokens. In recent years, several scientific studies have been written on the power consumption of Bitcoin. The literature distinguishes between two approaches to assess the energy consumption: the economic top-down approach and the techno-economic bottom-up approach (Cambridge Centre for Alternative Finance, n.d.).
Description of the top-down approach:
This approach looks at energy consumption from an economic perspective. The underlying assumption is that miners’ revenues and costs are related. Since electricity costs are a significant component of running costs, it follows that the total electricity consumption of a cryptocurrency network must also be related to the miners’ revenues. The higher the revenue from mining, the more energy-hungry mining hardware can be operated.
The average price of a cryptocurrency over a given period multiplied by the number of coins of that cryptocurrency mined over that period plus transaction fees gives the total revenue, which is multiplied by 60% to get the electricity expenditure. This expenditure is then divided by the assumed electricity price to get an estimated electricity consumption of the network for the period under study.
Description of the bottom-up approach:
The bottom-up approach was introduced by Bevand (2017). This approach has been taken up and further developed by several researchers. The underlying idea is that the hashrate of a network multiplied by the energy efficiency of the mining hardware and the energy efficiency of the data centres (cooling, supporting IT hardware, etc.) results in the power consumption of the network. Since the exact power consumption cannot be determined, a lower estimate (floor) and an upper estimate (ceiling) are calculated. Within the limits of this range, a best estimate is given to obtain a more realistic figure of the annual power consumption. The lower bound estimate corresponds to the absolute minimum of total electricity expenditure, based on the assumption that all miners always use the most energy-efficient equipment in the most energy-efficient data centres. The upper ceiling estimate corresponds to the absolute maximum total electricity expenditure, based on the assumption that all miners always use the least energy-efficient hardware available on the market, as long as the operation of the devices is still profitable. In addition, the energy efficiency factor of the data centre is raised. The best estimate is based on the assumption that miners use different variants of profitable hardware instead of a single model in differently efficient data centres.
The Cambridge Bitcoin Electricity Consumption Index (CBECI) provides an up-to-date estimate of the Bitcoin network’s daily electricity load. Check it out at https://cbeci.org.
Cambridge Centre for Alternative Finance. (o. J.). Cambridge Bitcoin Electricity Consumption Index (CBECI). https://cbeci.org/methodology/
Bevand, M. (2017, März 10). Electricity consumption of Bitcoin: A market-based and technical analysis. http://blog.zorinaq.com/bitcoin-electricity-consumption/