When I set out to research bitcoin in September of 2019, I started with the development of a market price model to estimate at what price bitcoin would be a good deal and I should accumulate some units of account. The model was founded on the mining cost of bitcoin; thus it begins with the cost of electricity for the production of one bitcoin, then estimates fixed costs such as hardware, software, depreciation, bandwidth, and land and building; then variable costs of labour. I would include the specifics of the model and the online calculators here, but I have learned from my first post that longer posts do not really fly on Publish0X.
It was difficult to find the cost of electricity, in USD, for 1 Terahash (‘TH’) at the time, and I had to use a figure put forward by Genesis Mining (referral code: qojpzc) who offer cloud mining contracts to the public when they have resources available. The figure was high, but I found it useful. Shortly after completing the model, Hut 8 Mining, which is listed on the Toronto Stock Exchange, apparently published in one of the corporate reports that their cost was 0.08 USD per TH; however, I could not confirm the information. November 2020, enter Standard Hashrate, the first de-fi cloud mining project, with one BTCSC token pegged to an audited 0.1TH of BTC mining productivity. Standard Hashrate, which seeks to offer what its name claims, lists a current cost of electricity which must be fair, inclusive of efficiency loss, and the figure stands currently at 0.0860256 USD.
The cost of electricity in mining a bitcoin is a function of the market price of bitcoin, as the electricity USD cost must be converted to the current cost in bitcoin; thus, any calculation is only relevant for one day. Today I estimate the cost of electricity for producing one bitcoin at 17142.86 USD. To get to the market price, the model dictates that one will have to add the fixed and variable costs, with the difference between that value and the market value being consumer perceived value based on expectations. It is steep, and one hopes that, like Genesis Mining, the industry will seek out not only the lowest cost of electricity but also source it from renewable sources.
In fact, the cost of electricity in producing one bitcoin is sufficiently hair-raising that I went one step further, and conceived of a perspective on bitcoin where it is a pseudo-commodity of past productive electricity. I found this perspective rather inspiring; some value for electricity already consumed to produce a bitcoin unit of account of 1.0. Electricity consumption is expensed where it can be, but once used is of no value. Disposed of, if you will. “Here,” I thought, “is where bitcoin actually inspires me.” To make the electricity already spent a pseudo-commodity in the present does remind me that renewable and alternative sources of electricity to environmentally compromising processes could potentially be a by-product of bitcoin’s success.
With the right perspective and attitude; i.e, nothing about attacking the importance of central banks.