Summary

  • It will take 100+ years to mine all the Bitcoin but over 90% will be mined by 2020
  • The average electricity cost of mining the first 90% is about $10 billion (~$516 / Bitcoin)
  • Mining the remaining 10% brings the total electricity cost to over $76 billion (~$3,625 / Bitcoin)

One of the founding principles of Bitcoin is that the blockchain longest in length (i.e. has the most “work” put into it) is the most valid.  This article takes a look at how much work (in electricity) is put into the system to determine how much a Bitcoin theoretically is worth at cost.

The assumptions here are an extension from my previous article on the block reward driving the speculative value of Bitcoin.  In that article, I received thoughtful feedback which highlighted the fact that I did not address the 100+ year time frame before the last Bitcoin would be mined.  That being said, let's take a look at the next 100+ years.

Based on the below table, we can see that over 90% of all Bitcoin will be mined in just a couple years by 2020.  At this point, miners would have spent about $10 billion in electricity to gather 19.7 million of the total 21 million Bitcoin (or about $516 per Bitcoin).  Assuming miners are exchanging Bitcoin into USD at a rate of $12,000 / Bitcoin to pay their monthly electricity bills, they would be operating with a gross profit of ~95%.  That's better than almost any company!

What happens as they continue to mine the remaining 10% of all Bitcoin?  The total electricity cost jumps to over $76 billion (or about $3,625 / Bitcoin). Does that mean that Bitcoin should be valued at $3,625 / Bitcoin?  Probably not.  However, betting on Bitcoin being around 100+ years from now given the potential leaps in technology during that time frame is a losing wager.  Bitcoin is a new promising technology and naturally suffers the same fate of all technology, obsolescence.  I believe Bitcoin is an amazing Beta test of the blockchain concept and look forward to the future innovations to come from it.

Feel free to update the inputs in the table to see how they impact average electricity cost of a Bitcoin real time.  Please note, for simplicity, I assumed the average electricity cost per block is constant.