DIGITAL NECKLACE: An analogy for blockchain value
Transcript:
One of my previous posts aimed to justify the price that Bitcoin has. It's value is the accumulation of work put in by miners over quintillions of hashes. The current block is 491040. Taking data from historical hashrates, I get 193,142,784,388,787 terahashes in total. The data I can't easily get is how much each hash or terahash costs. Using 200 W power draw for 1 GH/s and 0.08 USD KW/h for prices. Let's try doing this via assuming Bitcoin were fully centralized.
- Suppose a single person is hashing this.
- His hashrate is 702,161.589 TH/s since 2009.
Finally his power draw would be
Hashrate / WattageCard. This gives a total of 3.5 GW. This person has been drawing 3.5GW on his rig since 2009. Now taking in the price into account:
Operational cost = 2.46M USD/year @
{3.5GW, $0.08 KW/hr}
Since that's the cost per year, and the data I used spans averages over 9 years, total cost of the network has been around 24M USD. If the calculations are valid, that means that in the market, the cost of operation is only 20% of the price. Note that since this is from the supply side, no prices of Bitcoin have to be taken into account. It's simply operational cost assuming constant electricity prices.
If we now consider capital, if each card costs on average 600 dollars, and 1 out of 100 ARM/AMD/NVDIA units are dedicated to mining, I speculate that 100,000 cards and cores have been dedicated to mining. That cost makes mining go up to 60M USD.
In total, electrical costs and invested capital, we could approximate that 80M USD have gone into Bitcoin mining. According to the current price and market cap report, there is a 20M surplus in costs not considered here and speculation. At the time of writing, the market value is 101M.
That brings me to the second part of this writing. While we can agree that Proof-of-Work is an abstract concept, the previous calculations don't make it that different from the invented jobs without purpose throughout the history of the United States, trying to cover up financial failure and trying to keep unemployment at bay.
Once we take history into account, that 20M gap can be explained with what we, people in crypto, appreciate. Let me exemplify with a tangible creation, more relatable to non-savvy users. Consider the following:
There is a group of people at the beach. They find a string and some beads, so they decide to tie a really string knot and add their beads. On those beads, they write their names, and they write the name of the previous bead. They leave the beach with some instructions for the necklace. As time goes on, people find the necklace and add their own beads, following the rules. If someone notices that a bead isn't following the rules, that bead is taken out and the necklace keeps the tradition.
This necklace started tied to a pole on the beach. The first users added a few dozen beads. That makes the necklace perhaps 10 centimeters long. That's shorter than an adult hand. But after years, 9 to be more precise, the line has almost half-a-million beads. That's already around 2 kilometers long. It's no longer just the price of the beads and the effort people have put into threading them. There is some human value put into the trust and care. It's more than just a beach object with beads. It's part of the history of everyone involved in the creation of this.
That is how we see Bitcoin, in a more abstract sense. It's more than just electrical costs and burned GPUs. It's forks and news. Fighting FUD and losing money over hacks. It's seeing your networth rise despite others telling you to sell, because you are part of the chain.
One of my previous posts aimed to justify the price that Bitcoin has. It's value is the accumulation of work put in by miners over quintillions of hashes. The current block is 491040. Taking data from historical hashrates, I get 193,142,784,388,787 terahashes in total. The data I can't easily get is how much each hash or terahash costs. Using 200 W power draw for 1 GH/s and 0.08 USD KW/h for prices. Let's try doing this via assuming Bitcoin were fully centralized.
- Suppose a single person is hashing this.
- His hashrate is 702,161.589 TH/s since 2009.
Finally his power draw would be
Hashrate / WattageCard. This gives a total of 3.5 GW. This person has been drawing 3.5GW on his rig since 2009. Now taking in the price into account:
Operational cost = 2.46M USD/year @
{3.5GW, $0.08 KW/hr}
Since that's the cost per year, and the data I used spans averages over 9 years, total cost of the network has been around 24M USD. If the calculations are valid, that means that in the market, the cost of operation is only 20% of the price. Note that since this is from the supply side, no prices of Bitcoin have to be taken into account. It's simply operational cost assuming constant electricity prices.
If we now consider capital, if each card costs on average 600 dollars, and 1 out of 100 ARM/AMD/NVDIA units are dedicated to mining, I speculate that 100,000 cards and cores have been dedicated to mining. That cost makes mining go up to 60M USD.
In total, electrical costs and invested capital, we could approximate that 80M USD have gone into Bitcoin mining. According to the current price and market cap report, there is a 20M surplus in costs not considered here and speculation. At the time of writing, the market value is 101M.
That brings me to the second part of this writing. While we can agree that Proof-of-Work is an abstract concept, the previous calculations don't make it that different from the invented jobs without purpose throughout the history of the United States, trying to cover up financial failure and trying to keep unemployment at bay.
Once we take history into account, that 20M gap can be explained with what we, people in crypto, appreciate. Let me exemplify with a tangible creation, more relatable to non-savvy users. Consider the following:
There is a group of people at the beach. They find a string and some beads, so they decide to tie a really string knot and add their beads. On those beads, they write their names, and they write the name of the previous bead. They leave the beach with some instructions for the necklace. As time goes on, people find the necklace and add their own beads, following the rules. If someone notices that a bead isn't following the rules, that bead is taken out and the necklace keeps the tradition.
This necklace started tied to a pole on the beach. The first users added a few dozen beads. That makes the necklace perhaps 10 centimeters long. That's shorter than an adult hand. But after years, 9 to be more precise, the line has almost half-a-million beads. That's already around 2 kilometers long. It's no longer just the price of the beads and the effort people have put into threading them. There is some human value put into the trust and care. It's more than just a beach object with beads. It's part of the history of everyone involved in the creation of this.
That is how we see Bitcoin, in a more abstract sense. It's more than just electrical costs and burned GPUs. It's forks and news. Fighting FUD and losing money over hacks. It's seeing your networth rise despite others telling you to sell, because you are part of the chain.
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