Image by Rob Whitehead (cc-by-2.0)
Introduction
Last Sunday, I wrote about the highest achievable price of Bitcoin. The annualized energy consumption of the Bitcoin network is now 68 TWh according to this tool created by the University of Cambridge. In 2019, the total electrical power consumption of the world was about 27,000 TWh according to statistics compiled by the Global Energy Statistical Yearbook 2020. Bitcoin's current share of that is 0.25%.
It is simple why the energy cost of mining one bitcoin will gravitate towards a level slightly below the price of bitcoin. Mining is a competitive business and the Bitcoin network adjusts the difficulty of mining according to the total hash rate of the network until an equilibrium is achieved.
I'm now going to talk about why a much higher price of Bitcoin could be a problem in more detail.
The energy cost of mining Bitcoin in 2025 and in 2029
The number of bitcoins mined in 2025 will be half of what is this year. This year's bull market top is predicted to be in the low six figures in dollars by the stock-to-flow model. The highest estimate I've seen has been $288,000. It is predicted to drop to $50,000 in the following year. The next bull market top in 2029 could see the price of BTC in the seven figures.
Institutional investors are driving the demand for Bitcoin
At this point, retail demand is no longer the dominant source of demand for Bitcoin. Instead, most of the demand will come from institutional investors who have the cash reserves to drive the price of Bitcoin extremely high.
Assuming the price of Bitcoin tops out at $1.45 million in the market cycle one halving from now in 2025, the annualized cost of mining Bitcoin would be 50 times higher than this year at $14,500 because the cost of mining one bitcoin would be 100 times greater than now but only half as many bitcoins would be mined that year. That would be 12.5% of electrical power generated in the year 2019. The total power generated in the world has doubled in the last 30 years. The next five years are unlikely to see drastic exponential gains in generating capacity.
Will Bitcoin's excessive energy use be a problem for investors?
The question is whether participating in Bitcoin will become an image problem for the institutions investing in it. They are after all interested in it for the profits generated. But if seen as the bad guy responsible for wrecking the climate and crowding out productive uses for all that power will begin to hurt the core business of the corporations investing in it, they could start losing interest.
Would the crypto space be hurt by this?
Not necessarily because Proof-of-Work is not the only consensus model. Ethereum will be a PoS chain by then. In fact, the launch of Ethereum 2.0 using the PoS consensus model will be launched next month. It seems obvious that institutional investors will gradually broaden their interest towards other chains, most of which are PoS chains. Technology companies are technology companies. Google is interested in becoming a blockproducer on EOS.
Conclusion
I believe there is a very good chance that Bitcoin dominance will decrease in the long run and technology based chains like Ethereum (and hopefully Hive) will grow much faster.