Dynamics of Bitcoin mining

TL;DR

This paper models the complex dynamics of Bitcoin mining, analyzing how price, technology, and energy factors influence its sustainability, costs, and environmental impact over the long term using a fundamental, mathematically rigorous approach.

Contribution

It introduces a scale-invariant feasibility constraint to analyze Bitcoin mining dynamics and long-term sustainability from first principles.

Findings

Mining feasibility depends on energy and computational limits.

Long-term analysis suggests potential sustainability challenges.

Key invariants govern the interplay of incentives and technical constraints.

Abstract

What happens to mining when the Bitcoin price changes, when there are mining supply shocks, the price of energy changes, or hardware technology evolves? We give precise answers based on the technical forces and incentives in the system. We then build on these dynamics to consider value: what is the cost and purpose of mining, and is it worth it? Does it use too much energy, is it bad for the environment? Finally we extend our analysis to the long term: is mining economically feasible forever? What will the global hash rate be in 40 years? How is mining impacted by the limits of computation and energy? Is it physically sustainable in the long run? From first principles, we derive a fundamental scale-invariant feasibility constraint, which enables us to analyze the interlocking dynamics, find key invariants, and answer these questions mathematically.