Bitcoin

Mining:
A Global
Economic
Perspective
2 <<<< Bitcoin Mining: A Global Economic Perspective

Welcome to CORE+ Reports

At CryptoEQ, we decrease the learning curve to make crypto and

blockchain simple. Our CORE+ Reports are the latest iteration
that help newcomers and established crypto enthusiasts get a
fresh take on the latest trends in the market.

With articles and exhibitions that focus on newest topics, CORE+

will help distill the different ways that blockchain can change
the way we think about everything from finance, sporting events,
supply chain optimization, and even gaming. You‘ve probably
heard of NFTs in the news recently, but even less monetized
outlets have seen rapid innovation from enabling and integrating

Crypto is complex. blockchain technology.

As we delve into these complex and multi-modal topics, we

We make it simple. hope you will gain a better understanding of the potential that
blockchain has to truly transform technology—and the world
around us—as we know it.
CryptoEQ CORE+ Reports >>>> 3

Contents

I. Understanding Bitcoin Mining 4

1. Executive Summary 4

2. Miners 4

3. Proof of Work 6

i. Why is Mining Necessary? 6

ii. The Actual “Work” in PoW 7

iii. Consensus and Sybil Resistant Mechanisms 9

iv. Block Rewards vs. Fees 10

II. Bitcoin’s Energy Use 13

1. Context Matters 13

2. Bitcoin’s Utility 14

3. But My Financial System Works Great 16

4. Utility Versus Emissions 17

i. Actual Emissions 17

ii. Network Efficiency 19

iii. What About the Energy Mix? 21

iv. A Note on Transaction Throughput & Performance 22

5. Empower 2023: Energizing Bitcoin 24

6. About CryptoEQ 26

i. Final Words, Our Story 28

4 <<<< Bitcoin Mining: A Global Economic Perspective

Understanding Bitcoin Mining

Executive Summary
Bitcoin “mining” is the process of performing a computational effort to create the next valid block of transactions on the
blockchain; a valid block being confirmed across the network sees the creator (miner) rewarded with newly issued BTC. However,
taking a step back to understand blockchains, blocks, and transactions is helpful.

Blockchain is a distributed database that tracks the balances of Bitcoin users. Each "block" contains a transaction collection
representing the transfer of bitcoins between users, with each transaction represented by an address. Network users broadcast
these transactions to a shared network resource known as the mempool (memory pool). The network does not recognize
transactions until they have been added from the mempool to the blockchain. To send bitcoins to an address, the sender must
include transaction fees to incentivize miners to select their transactions from the mempool. Blocks have a maximum size;
therefore, miners (typically) choose to include the transactions with the highest fees, generating maximum revenue for the
miner. They then generate a block from these transactions and transmit it across the network so that the nodes may validate it.

Miners
Miners are critical to the network's health, and the idea of including proof of work (PoW) as part of the consensus mechanism
(i.e., a network’s process for agreeing on the order of valid transactions) represents a key innovation of the Bitcoin network.
Bitcoin miners are responsible for block generation and committing blocks of confirmed transactions to the blockchain. Beyond
that, mining aids in:

» Securing the network and preventing corruption from malicious actors

» Minting new bitcoin into circulation in a predictable, predetermined manner

» Maintaining a historical record so that the chain remains auditable and transparent allowing global consensus to
be reached

Miners are the global network of computers that:

» Group bitcoin transactions into blocks (since the block size is ~1 MB, each block can only fit so many transactions;
should the mempool contain more transactions than can be fit into one block, the
transaction overflow will be added to the next block)

» Perform computations to solve a cryptographic puzzle (performing the “proof

of work”)

» Bitcoin miners pool ‘valid’ transactions into blocks; anyone can run a Bitcoin
full-node and act as a ‘validator’ for proposed blocks; these people are typically
miners since they have the incentive to invest in the network’s security

» Send the blocks out over the network to be cross-checked and verified, and
they will validate other proposed blocks

» Propagate approved blocks across the network and move on to the next
block of transactions
CryptoEQ CORE+ Reports >>>> 5

Miners are the backbone of the Bitcoin network and are invested in the network in a way in which investment funds
and Hodlers aren’t necessarily. As Bitcoin mining hardware has become highly specialized, and economies of scale have
facilitated the advent of industrial Bitcoin mining in warehouses, professional miners have emerged, making major
capital investments over long time horizons. This investment has led the Bitcoin mining industry to become a global,
highly-competitive business.

ASIC Mining Rigs have 4+ year life cycles and can only be used
to mine SHA-256 Protocols (almost entirely Bitcoin). Bitcoin
mining facilities operate similarly and are typically restructured
warehouses specially designed for cooling mining rigs. On
average, it will take a miner 18 months to break even after
deploying capital to mining rigs, facility buildout, and electricity
expenses. To break even and realize a profit, miners must sell the
BTC they mine, providing constant sell pressure on the bitcoin
price. This sell pressure is especially acute in bear markets and
times of distress. The mining industry is living through one of
these periods as we speak.

Source

On average, it will take a miner 18 months

to break even after deploying capital,
facility buildout, and electricity expenses.
 6 <<<< Bitcoin Mining: A Global Economic Perspective

Proof of Work
Why is Mining Necessary?
Mining is vital to the network security of Bitcoin. To eliminate the requirement for a trusted third party, Bitcoin must prohibit
funds from being spent by an unauthorized user or an authorized user multiple times. Digital signatures, a 1970s cryptographic
breakthrough, resolve the first problem. The pair of private and public keys offers a strong proof of control that allows only the
owner of a private key to spend or transfer bitcoins.

Source

However, digital signatures alone are insufficient to guarantee the recipients of a transaction
that the bitcoins they have received have not been sent elsewhere. To provide this assurance,
the network must devise a way to validate that the same person cannot spend the same BTC

Interactive Links
twice. This issue, known as the "double-spend problem," is resolved via PoW based on hash
functions, initially conceived by Adam Back in 1997 to prevent email spam. Hash functions are
discussed more in the following sections.
Text that appears underlined
PoW enables transactions to be sorted into blocks and added to the chronological chain of
in green is your entry into an
blocks dating back to Bitcoin’s genesis block. Should conflicting transactions/blocks arise, the
interactive experience! These
network of nodes reaches a consensus on the correct state by examining the chain with the most
hyperlinks will bring you to
cumulative hashing power (“heaviest chain rule,” discussed more in later sections). Because
additional sources continuing
each new block contains a hash of all the older blocks that have existed, transactions are only
your educational journey. Please
reversible if a malevolent actor recomputes all previous PoW back to their attack point, as we will
use these to guide your research
discuss later. Due to the network's continual production of new blocks, it is incredibly difficult
process.
for any actor ever to catch up.
CryptoEQ CORE+ Reports >>>> 7

Source: NYDIG Research

The Actual “Work” in PoW

Hash algorithms play a critical part in all cryptography, as well as in Bitcoin. Hashing any amount of data results in a fixed-length
hash. Bitcoin and its PoW use the Secure Hash Algorithm, SHA-256, a mathematical function that takes an input of any size and
produces a fixed-length output every time. Hash functions are critical private-public key cryptography and have several key
characteristics:

» The input into a hash function cannot (realistically) be determined from the output, i.e., it is a one-way function

» The same input into a hash function will always generate the same output

» The input can be any length, while the output is always the same length. Like all computer data, hashes are large
numbers and are usually written as hexadecimal.

» Any change to the input, no matter how trivial or minute, will change the output

» The output cannot be predicted. It must be guessed—or brute force calculated—by trial and error.
8 <<<< Bitcoin Mining: A Global Economic Perspective

In the PoW Sybil-resistant scheme, Bitcoin miners must try and solve incredibly complex cryptographic puzzles. The
mathematical problems can only be solved by “guess and test,” meaning there is no way to gain an edge over the competition
other than increasing the number of guesses per second your computer/mining farm can facilitate. Every hash has the same
probability of delivering the correct solution making the entire process similar to a lottery.

To properly “solve” the puzzle and create a new block, a miner takes a set of pending transactions from the mempool and runs
the data through a hashing function along with a number called a nonce. The "nonce" is simply a random value that miners
adjust after each failed attempt. The goal is to discover the correct combination of transaction hash + nonce that is less than
or equal to the current target of the network.

If the hash function's output is less than the target, a valid block is discovered, and the miner broadcasts it to the rest of the
network. If not, the miner modifies the nonce and runs the identical data through the hash function again.

There are several crucial takeaways from this procedure. First, because this is a high-speed guessing game involving random
numbers, the probability that a miner will discover a legitimate block is proportional to its share of the network's hash rate.
In Bitcoin mining, size matters, which is one of the reasons mining entities join so-called mining pools, which allow groups of
miners to split the rewards of the lucky miner.

The winning miner with the correct nonce adds a new block of verified transactions to the blockchain. If there are more pending
transactions than can fit into one block, the unconfirmed transactions wait in the Bitcoin mempool. After confirmation, the
transactions form part of a block.

Source

Once miners have solved the puzzle and found the correct answer, they will send their work across the network to be checked
by other miners. After all, the entire network must come to a consensus about whether or not this block (and the transactions
inside) are indeed valid.
CryptoEQ CORE+ Reports >>>> 9

Consensus and Sybil Resistant Mechanisms

Consensus Algorithms

For a decentralized network of nodes/computers to function properly, the independent participants in the network need to
agree on a shared state (e.g., who owns what on a blockchain). And while doing this, the network should remain fault tolerant with
valid consensus despite imperfect information or malicious actors (Byzantine Fault Tolerance). Different blockchains implement
different methods of doing so, but all are attempting to create a “consensus algorithm” that best fits their chain.

Consensus algorithms are used in public blockchain/distributed computer design in order to convince nodes in a decentralized
system to agree on the next valid state. Bitcoin uses the established rule that the longest/heaviest chain wins, i.e., the chain
with the most computational work behind it. This rule ensures that the proposed block has the required work performed. The
longest chain not only determines the sequence of blocks, but also demonstrates that it was formed by the largest computing
resource. Therefore, as long as the majority of hashing power is under the hands of honest nodes, they will continue to produce
the longest chain and eventually overtake potential attackers.

This protocol, referred to as the “Nakamoto Consensus,” creates a system by which a permissionless network can agree on
ordering valid transactions while preserving Byzantine Fault Tolerance (BFT). As long as a majority of CPU power is controlled
by honest nodes not cooperating to attack the network, they’ll generate the longest chain/most work and prevent attackers on
the network. PoW makes the Bitcoin blockchain a single, linear version of “truth” that users can trust will not be reversed while
also issuing new bitcoins into the network in an unbiased and incorruptible manner.

Source
10 <<<< Bitcoin Mining: A Global Economic Perspective

Bitcoin’s Nakamoto Consensus, coupled with PoW, is 100% permissionless and scalable but takes ~30 minutes to one hour
for a block to be considered final (relatively high latency). This is because Nakamoto Consensus is probabilistic rather than
deterministic. It requires waiting for “enough” blocks to be mined on top of that block so that reorganizing or reverting the
blockchain becomes economically impractical, ensuring some “economic certainty” but never theoretic/deterministic certainty.

As a result, Nakamoto chains have high uptime (they do not go down or stall) but low transaction speed due to their
probabilistic finalization guarantee. Other proof-of-stake (PoS) networks that use Classical Consensus offer faster finality but
do so by limiting the validator set. They do this because, in Classical protocols, validators perform all-to-all communication,
requiring more coordination and an updated view of the global validator set. Many PoS consensus algorithms prioritize safety
over liveness, meaning the network will halt if issues arise rather than pushing forward anything invalid. This protocol is the
opposite of the Nakamoto Consensus.

Would-be attackers in a PoW system who act maliciously have their blocks rejected (because they disagree with the current
shared global consensus) and lose out on the bitcoin reward. Not only that, but they also bear the cost associated with PoW
mining, thus incurring the cost of electricity without compensation.

Sybil Resistance

One issue with allowing anyone to participate in the consensus of an open network is that one malicious actor can create
endless nodes, thereby creating multiple identities, as seen by the blockchain. If one person could create enough nodes, they
could theoretically control the network, known as a Sybil attack. For this reason, blockchains also need a Sybil Resistance
mechanism in addition to its Consensus algorithm.

On the other hand, a Sybil resistance mechanism is the process through which a decentralized system deters Sybil attacks.
A Sybil assault occurs when a single node can flood the network with several identities and utilize them to obtain excessive
power.

Ideally, each node in a decentralized system would represent one vote. If a node can impersonate multiple other nodes and get
100, 1,000, or more than 10,000 votes instead of one, then the system is vulnerable to assault. Sybil attacks are often deterred
by requiring nodes to show proof of a difficult-to-fake resource (unlike online identities, which are easy to forge).

Proof of Work - Hash power (e.g., Bitcoin)

Proof of Stake - Tokens (e.g., Cosmos, Polkadot, Tezos)

Proof of Space-Time - disk space (e.g., Chia, Filecoin, etc.)

Proof of Authority - (e.g., Algorand)

Block Rewards vs. Fees

Block Rewards and Difficulty Adjustment
The PoW model engrains real-world costs to the Bitcoin network, making spamming, attacking, or changing the network costly.
The economic cost attached to the blocks (electricity, mining rigs, infrastructure, etc.) incentivizes miners to act honestly or
else all their work and costs are for naught.

So, why would miners run these vast, expensive computer farms just to solve a quirky puzzle? It’s because they get paid in
bitcoin for every puzzle they solve that leads to adding the latest block to the blockchain. This reward is called a block reward
and is how bitcoins are born.
CryptoEQ CORE+ Reports >>>> 11

Despite Bitcoin’s popularity and the number of total miners on the network over the years varying greatly, the Bitcoin protocol
is programmed to deal with this volatility.

Approximately every ten minutes, a new block is mined, and new bitcoins are created. This consistency and predictability in
the monetary policy is part of the magic of Bitcoin. The Bitcoin system was designed to become progressively more difficult to
“mine” bitcoins as more computing power is added to the network. This design is known as the Difficulty Adjustment and is a
global ‘difficulty’ parameter that adjusts once every 2,016 blocks (~2 weeks) based on the overall computational power of the
network. The difficulty adjustment ensures that the production of blocks and, consequently, the supply of bitcoins remains
constant as the network hash rate increases. It does not matter if 100 computers are mining or 100,000,000; the Bitcoin network
will dynamically correct itself thanks to the Difficulty Adjustment so that, on average, a new block is produced every ten minutes.

Source

In the long run, there will never be more than 21,000,000 BTC. No matter how high the price of Bitcoin goes, the protocol cannot
increase production. Instead, the difficulty simply adjusts higher.

This characteristic makes Bitcoin “mining” very different from the traditional mining of natural resources, where economic
drivers—like market price or improved extraction methods—can alter production. For every other commodity or resource,
production increases as price increases to capture new profit potential and bring supply and demand into equilibrium. Changes
in the total hash rate are accounted for every two weeks by the Bitcoin protocol.

This adaptive structure of the network allows for a very predictable supply schedule, including predetermined “halvenings.” In
May 2020, Bitcoin underwent its third halvening in which the issuance rate of new bitcoins got reduced by 50% (halved). These
halvenings will continue approximately every four years until all 21 million bitcoin have been created sometime around 2140.
After that, the miners will no longer receive new bitcoin for their efforts. Instead, they will be forced to sustain their operations
through transaction fees for their work.
 12 <<<< Bitcoin Mining: A Global Economic Perspective

Transaction Fees
Because miners are profit-driven, they are incentivized to select the transactions with the largest transaction fee, which gets
paid to them if they are successful in mining the next block. In times of high demand/network congestion, bitcoin users can
manually increase the transaction fees they are willing to pay to increase the likelihood of being included in the next block.
This is known as a first-price auction or pay-as-bid mechanism. When the spender’s transaction makes it into a block, the miner
collects the included fee as a reward. This highest-bidder system enables high-time preference Bitcoin users to outbid low-time
preference spenders, ensuring that the most economically critical transactions get confirmed first. Bitcoin transaction fees are
highly cyclical, spiking to notoriously high levels ($50+) during bull runs but falling to near-insignificant levels in bear markets
(image below).

Source
CryptoEQ CORE+ Reports >>>> 13

Bitcoin’s Energy Use

Context Matters
Inarguably, Bitcoin mining utilizes electricity to power its PoW mechanism. Whether it is a lot or a little depends on your frame
of reference. But remember, PoW is essential to a decentralized consensus, network security, and the issuance of new BTC (i.e.,
Bitcoin’s predictable monetary policy). Bitcoin is not Bitcoin without PoW.

In absolute terms, Bitcoin mining used an estimated 82 TWh of electricity in 2021, a 9% increase from 2020, according to
CoinShares’ 2022 report on the Bitcoin mining network. As of December 2021, the current annualized draw is 89 TWh. To put this
in perspective, the Bitcoin network consumed 0.05% of the total global electricity consumed in 2019, essentially a rounding error
when it comes to global energy consumption. For comparison, NYDIG reported in Q3 2021 that domestic tumble dryers and data
centers used 108 TWh (0.07%) and 204 TWh (0.13%), respectively, in 2020.

Bitcoin energy use versus similar products. Source: CoinShares

Therefore, yes, Bitcoin consumes approximately the same amount of energy as a small nation-state, such as Finland with its
~5 million inhabitants…. Or clothes dryers. Both are true. But strangely, there aren’t many (any?) campaigns targeting clothes
dryers, data centers, cruise lines, video games, gold mining, etc. In fact, when Bitcoin’s electricity consumption is plotted against
major polluting countries, the popular argument appears tenuous.
14 <<<< Bitcoin Mining: A Global Economic Perspective

Source

As for 2022, the Bitcoin network is projected to consume an estimated ~114 TWh/yr in total. Meanwhile, the global annual
electricity generation is ~27,000 TWh/yr or 237x that of the Bitcoin network. Of that, ~27,000 TWH/yr, the amount of electricity
lost in transmission each year is ~2,200 TWh/yr or 19x that of the Bitcoin network (based on World Bank and IEA estimates).

Observing Bitcoin’s energy consumption to be similar to that of a small nation makes sense when one sees the utility Bitcoin
offers. Bitcoin is a programmable, permissionless, sound currency, something that many nations are not able to provide to
their citizens. It is a top-10 base money in the world today. In contrast, the Finnish markka is not one of the top 30, nor used by
anyone outside of the 5 million people in Finland.

Despite these eye-opening statistics and comparisons, Bitcoin critics remain unconvinced because they do not see the utility
of Bitcoin. However, just because one person doesn’t benefit from something, does it give that person the right to try and take
it away from those who do? What if this same stance was taken with the above examples? Many people do not play video games
or go on cruises. Should they, therefore, cease to exist, too? The fact that these industries exist at all proves that someone
somewhere values them. So, why is Bitcoin any different?

Bitcoin’s Utility
Bitcoin mining is frequently denigrated for its "wasteful" energy use, which implies that the Bitcoin network is not useful, a
claim that Bitcoin’s 100's of millions of users might refute. The energy, and associated costs, required to secure the network
are precisely how Bitcoin generates its security. If there were no costs, then there would be no security.

The Bitcoin network’s energy efficiency and utility are not comprehensively understood by focusing entirely on the particulars
of mining; broadly, it is essential to appreciate the societal merit of non-state money. The gross and systematic distortion of
price signals caused by costless and arbitrary monetary inflation creates malinvestment, economic inefficiencies, and waste
on a scale that would dwarf Bitcoin’s approximate 0.05% share of global energy consumption.
CryptoEQ CORE+ Reports >>>> 15

The Bitcoin network provides a globally-inclusive, censorship-resistant, incorruptible, self-sovereign monetary network for
the entire world. Within that context, the amount of energy used (again, 0.05% of the global energy) is absolutely worth the
cost. Especially considering,

» nearly everyone on the globe is currently living under double-digit inflation

» Two billion+ people live under authoritarian regimes where their rights are suppressed and are subjected to
capital controls

» 3 billion+ are underbanked or have no access to bank accounts

Bitcoin gives BILLIONS of people an alternative currency/savings technology where there otherwise are no alternatives. To
claim Bitcoin has no utility or value is to deny the lived experience of millions of less fortunate individuals cut off from the
Western world’s living standards and freedoms.

Note the chart below from Chainalysis, which attempts to rank crypto usage/adoption by adjusting for things like population,
wallets, purchasing power, etc. for more representative comparison of actual adoption. This is a list almost entirely of emerging
economies and countries in distress. While the citizens of Pakistan, Nigeria, Argentina, and others may not have billions to
convert into cryptocurrencies, even their small purchasing power is being protected thanks to cryptocurrencies.

Source: Coinshares and Chainalysis

 16 <<<< Bitcoin Mining: A Global Economic Perspective

But My Financial System Works Great

“It is well enough that people of the nation do not understand our
banking and monetary system, for if they did, I believe there would be
a revolution before tomorrow morning.”
- Henry Ford
We touched on fiat money initially, but it is worth revisiting just how new and flimsy the idea of “money backed by the government’s
word” really is. Historically, most currencies were pegged to scarce physical commodities such as gold or silver, but today, fiat
money is backed by neither anything physical nor scarce. Since it is not linked to any physical reserves (or based on math like
in the case of Bitcoin), fiat is subject to artificial manipulation, experimentation, and adulteration. One of fiat's biggest risks is
becoming worthless due to hyperinflation, a scenario that has played out repeatedly in history. If people lose faith in a nation’s
paper currency, like the U.S. dollar bill, the money will no longer hold any value.

The rise and fall of global reserve currencies throughout time. Source: AnilSaidSo

Governments control fiat money and, throughout history, have frequently abused their control on the issuance of money. It is
not hard to understand the consequences of a system in which a small minority controls the money for everyone. As Dergigi
penned, ”If you control the money, you control the purchasing power. Which, in turn, allows you to control most other things.”

Government abuse and/or incompetence throughout history has led to the destruction of economies and money, oftentimes
by hyperinflation. Infamous examples include ancient Rome, Weimar Germany, the Balkans and Zimbabwe in the 1990s, and
present-day Argentina, Venezuela, Turkey, and Lebanon. Beyond that, 2B+ people across the world are considered “unbanked,”
meaning they do not have access to a bank account or banking services. These people have almost no way to save their money
or provide for themselves beyond the day-to-day.
CryptoEQ CORE+ Reports >>>> 17

Utility Versus Emissions

Until now, we have only discussed Bitcoin’s energy usage. However, when discussing climate impact, we must also consider:

» What is the energy source?

» Is this energy that could be used elsewhere, or is it “stranded”?

» How does the energy mix compare to others?

» What are the actual emissions?

Actual Emissions
We’ll touch on all these but let’s focus on emissions for now as they are what ultimately matter, right? How does Bitcoin stack
up to some other major industries?

According to the most recent report from the CCAF, annualized greenhouse gas (GHG) emissions have decreased considerably
over the course of 2022. The CCAF estimates that Bitcoin mining is currently responsible for ~48 MtCO2e annually, down ~37%
from its peak in Q2 2021. This decrease is primarily attributable to a fall in electricity usage as miner profitability has become
strained in the crypto bear market.

The ~48 MtCO2e of annual GHG emissions from Bitcoin mining projected by the CCAF are a small part of the ~50,000 MtCO2e
of annual GHG emissions worldwide (in 2019). The White House Office of Science and Technology Policy produced a paper a
few weeks ago estimating that all PoW mining, including Bitcoin, contributes between 0.2% and 0.3% of global greenhouse
gas emissions. Although the amount is not zero, it is considerably less than the sensationalized media headlines would have
investors assume.
 18 <<<< Bitcoin Mining: A Global Economic Perspective

Remember, Bitcoin mines simply use electricity. “Green” energy can be used to mine Bitcoin, meaning fewer emissions for the
same energy usage. The latest CCAF estimates are that the Bitcoin network is powered by ~38% of renewable energy from its
energy mix. Bitcoin’s security is ultimately entirely generated from electronic hardware and electricity, which is much easier to
decarbonize than some of the other means of securing currency. The U.S. military, instrumental in securing the value of the U.S.
dollar, emits more Co2 than many industrialized nations.

Now that we have an idea of the absolute numbers surrounding BTC mining GHG emissions (~48 MtCO2e and ~0.2% of global
emissions), let’s provide some context and compare that in a relative sense to other industries. For one of the most straight-
forward comparisons, the emissions resulting from the gold industry are estimated to be between 100 and 145 Mt of CO2
annually (2-4x of Bitcoin mining).

Galaxy Digital estimates the global banking system used 264 TWh of energy in 2019. Using the average global carbon intensity of
492 gCO2/kWh, CoinShares was able to equate this to 130 Mt of CO2 emissions per year (or ~3x Bitcoin mining).

Google consumed approximately 15 TWh of power in 2020 (~0.01%), the same order of magnitude as the Bitcoin network.
Google’s purported transition to renewable energy has astutely noticed the PR risk associated with its users thinking about how
much energy is required in order to offer their service, with some estimates placing each search as about as energy-intensive as
turning on a 60W light bulb for ~20 seconds. This transition to renewables is on the basis of Renewable Energy Certificates (RECs)
rather than actually, say, generating clean energy and directly utilizing this to power Google’s data centers.

Nevertheless, this is a solid indicator of the social acceptability of maintaining highly energy-intensive industries, so long as
their output is useful, valuable and perceived to be sustainable.
CryptoEQ CORE+ Reports >>>> 19

Network Efficiency
Bitcoin's energy consumption is increasing (on a long-term trajectory), but it is also growing more efficient. Despite a decline
in electricity consumption in 2022, the network hash rate, which represents the combined computational effort of all network
miners, remains near an all-time high in Q4 2022. This combination of decreased electricity use and increased hash rate has
resulted in a more efficient network. One factor contributing to the efficiency gains miners have found it cost-effective to
replace old, inefficient mining AISICs with new, more efficient ones.

Developers continue to find new ways to maximize Bitcoin’s efficiency from a code and mining standpoint. One example is SegWit,
enhancement introduced in 2017 that removed superfluous information from the transaction’s code without compromising
security. Today, SegWit transactions constitute the bulk of all network transactions.
 20 <<<< Bitcoin Mining: A Global Economic Perspective

Source

Among other advantages, SegWit enabled the development of the Lightning Network, which enables Bitcoin payment channels
that can execute millions of transactions between two parties with no additional mining hardware or costs.

Another area of optimization is in the mining hardware. Each newly manufactured ASIC still consumes electricity but is using the
same amount of energy with increasing efficiency. The Antminer S19 is five times more efficient than the Antminer S9, which was
manufactured only a few years earlier.

Network efficiency (average monthly hash rate divided by monthly electricity usage) can be conveyed with the ratio EH/s / TWh.
This relationship is the amount of exahash produced by all Bitcoin miners per second divided by the terawatts per hour used to
produce those exahashes. One of the biggest jumps in mining efficiency has been due to the semiconductor chips used in ASICs.
As the chips find new ways of becoming more efficient, the mining industry should continue to improve in terms of hash rate per
unit of energy usage, everything else being equal.

According to the Bitcoin Mining Council, Bitcoin mining has become ~5,800% more efficient over the past eight years. In other
words, the economic value of a hash produced by a miner eight years ago is vastly different from that of a hash produced
today. The council also determined that the average estimated Joules per Terahash (J/TH) of a typical machine is 48.9 J/TH,
representing a roughly 200-fold increase in efficiency since the introduction of the first ASICs in 2013.
CryptoEQ CORE+ Reports >>>> 21

What About the Energy Mix?

In 2020 China provided approximately ~2/3rds of Bitcoin’s overall hashrate, with the majority of this electricity being generated
by burning coal. As of 2022, the Bitcoin network looks to be on a path to a greener future, with ~39% of the power used coming
from renewables.

Maybe 39% does not sound like a lot? You may be thinking, Bitcoin can do better! Again, we’ll emphasize context. How does
Bitcoin, the global money, compare to other countries? Spoiler: it’s “greener.” Even the U.S., the most advanced, developed,
affluent country in the world utilizes renewable energy at half the rate Bitcoin mining does.

Additionally, where Bitcoin sources its energy has only improved since the above chart was created. Before May 2021, China
contributed a sizable portion to Bitcoin’s emission totals. Per CoinShares, in 2020, China contributed upwards of 65% to Bitcoin’s
carbon intensity.

Bitcoin Hashrate Global Geographic Distribution Source: cbeci.org

22 <<<< Bitcoin Mining: A Global Economic Perspective

However, in May 2021, all that changed when China outlawed bitcoin mining and miners began shutting down throughout the
country. While this was a shock to the network in the short term, the silver lining was that many of those Chinese miners would
have to relocate somewhere else, most likely “greener” places. And in fact, many relocated to the U.S., which uses far less coal-
powered energy sources than China.

Source

A Note on Transaction Throughput & Performance

Many Bitcoin critics often claim that each Bitcoin transaction requires the same amount of energy as would be required to power
a typical house in the U.S. for six weeks (or a similar outlandish comparison). Such claims fundamentally do not understand
how the Bitcoin network works. An individual Bitcoin transaction does not have a particular energy requirement, nor does
adding more transactions require more energy. This relationship does not exist. In fact, most of these “reports” claiming to cite
a widely debunked “academic paper” were later revealed to be a 2-page report written by college undergraduates as a class
assignment. We highlight this to drive home the point of just how minimal effort mainstream detractors put into understanding
Bitcoin.

As Cambridge University’s Center for Alternative Finance explains, the number of transactions the Bitcoin network can process
is independent of energy use. Adding more hash power to the network (using more electricity) won’t increase the protocol’s
transaction throughput. In the opposite way, processing more transactions does not require additional energy consumption.
The hash power is the total security over the network. More hash power means Bitcoin is more secure, which means users can
have more confidence in storing and transacting in the Bitcoin network.

The Bitcoin network hash power is (crudely) akin to a vault for regular money. The vault is a big, expensive barrier to keeping
your money safe. However, you do not have to add more steel every time you add another dollar to the vault. The vault can
handle $1 or $100 million with the same security budget.

Also, not every transaction on the Bitcoin network is the same. As mentioned, the Lightning Network enables one transaction
on the Bitcoin network to include thousands (or even millions) of individual payments to and from people. Similarly, tools like
OpenTimestamps enable linking potentially billions of data points to a bitcoin transaction.

“This isn’t just speculative. It’s happening today. As Fedwire’s 800,000 or so daily transactions reveal little about the total
payments volume supported by the network, Bitcoin’s 300,000 daily transactions and 950,000 outputs do not tell the whole
story.” –“The Frustrating, Maddening, All-Consuming Bitcoin Energy Debate,” Nic Carter
CryptoEQ CORE+ Reports >>>> 23

This is precisely how traditional payment networks of today have scaled. The Bitcoin network is a final “cash” settlement
layer without needing a trusted party. Often, Bitcoin is compared to, or described as it is competing with, payment processor
companies like Visa in facilitating global payments. While it does facilitate payments, this comparison is flawed in many regards.

High-performance retail payments networks, like PayPal or Visa, do not offer final settlement between banks — they are credit-
based systems that rely on a monetary base layer of central banks for final and irreversible settlement. In fact, all legacy retail
payment systems, including traditional banking, are layered (see here).

Bitcoin is more sensibly comparable to base money: fiat money like the USD, Euro, Yuan, and others, as well as gold. Gold is the
base money of the past, while government fiat is the current base money. Fiat base money includes the physical cash (bills
and coins) and, more importantly, the digital accounts/reserves held at the central bank. These represent the final settlement
between parties, while all other monetary measurements (M1, M2, M3, etc.) represent claims on other money or someone else's
debt.

When discussing the “performance” of the Bitcoin blockchain, one must consider the time, trust, and costs involved in
a transaction. Bitcoin facilitates trustless peer-to-peer transactions with a truly digital bearer instrument. Performance is
measured in 2 ways:

» Throughput: The number of transactions the system can process per second.

» Latency: The time it takes for a transaction to be processed.

Trust can be measured along a spectrum, but here we’ll divide it into two parts again.

» Low Trust: anyone (including Bitcoin users) can run node software to independently compute the latest state and
verify that all rules in the system were followed. Each user can check, at any time, that there has been no fraud, no
cheating, no rule changes, etc.

» Low Cost: If the node software is expensive to operate, individuals will rely on trusted third parties to verify the
state.

Where Bitcoin truly outperforms is in trust and cost. There is no counterparty risk associated with Bitcoin. No bank freezes,
banking limits, transaction censorship, fractional reserve lending, or bank insolvency risk. While Bitcoin’s transaction throughput
and latency aren’t enticingly competitive with Visa, its settlement times measure quite favorably to actual banks or remittance
payments.

Bitcoin is the equivalent of giving someone a $20 bill. Once it has traded hands, you own it. It is in your control, and no bank
or government was required to facilitate that transaction. Now, imagine doing that at any time, with anyone, anywhere, for any
amount of money. Banks have numerous downsides but sticking to actual transfer times, they take days to settle via SWIFT.
Remittance payments can take weeks!

Bitcoin completely replaces central banks' real-time gross settlement (RTGS) base layer with a global and neutral monetary
settlement network. If one wants to compare payment systems accurately, the media and academics should be comparing
Bitcoin to the transactions of central bank RTGS systems — and include the impact of the militaries and institutions that
legitimize them. Bitcoin is most accurately compared to Fedwire in the United States and TARGET2 (the successor to TARGET) in
the Eurosystem. Retail payment systems can and will plug into Bitcoin the same way they do with permissioned state-sponsored
systems.
 24 <<<< Bitcoin Mining: A Global Economic Perspective

Empower 2023
Energizing Bitcoin
March 7–9, 2023
Bringing Bitcoin Mining to the World’s Energy Capital

Empower is the only bitcoin mining event with

a focus on energy — bringing together energy,
mining, finance, and other professionals in the city
that powers the world.

Take over Downtown Houston with Digital

Wildcatters for an iconic three-day event to learn
and network with energy producers, capital groups,
miners, and other builders in the space.

Empower brings the most forward-thinking names

together to speak on topics such as natural gas
and renewable mining, power generation, venture
capital, institutional adoption, regulatory, and
more.

The Empower audience is an impressive mix of

entrepreneurs, energy pros and crypto experts. In 2022,
attendees included companies from Riot Blockchain,
Bloomberg, Asic Jungle, Compass Mining, Google,
ExxonMobil, Foundry, J.P. Morgan Chase, Talen Energy, and
so many more.

The Digital Wildcatters believe in getting smart people

together and allowing collisions to happen — collisions
that catalyze ideas, collaboration, and progress. You will
have the opportunity to hang out with other like-minded
people in a fun environment with live music, networking
parties, and free beer.
CryptoEQ CORE+ Reports >>>> 25

By The Numbers
1000+ 3
Attendees Days

Empower is the only

bitcoin mining event

24 with a focus on energy —

bringing together energy,

80
mining, finance, and other
2022 professionals in the city
Corporate that powers the world. Speakers
Sponsors
 26 <<<< Bitcoin Mining: A Global Economic Perspective

About
CryptoEQ™ is an independent digital asset analysis and rating agency that provides
unbiased, objective, and transparent research you can trust. We help people navigate
their investment journey and trading decisions.

Spencer Randall Brooks Vaughan Michael Thoma

Principal & Co-Founder Head of Innovation & Co-Founder Lead Analyst & Co-Founder

8+ Years in System 17+ Years in Product Design/ 11+ Years in Technical

Architecture Implementation Management Research/Analysis

5+ Years in Crypto Trading/ 8+ Years in Crypto Trading/ 5+ Years in Crypto Trading/

Investing Investing Investing

Bachelor of Science in Bachelor of Industrial Design Master of Science in Geology

Engineering
CryptoEQ CORE+ Reports >>>> 27

Company
Statistics
+85% +175% +340% +100,000
Algorithm Win Average CORE Y/Y Revenue Total Active Users
Rate Rating ROI

We help you gain the market insights We provide research and analysis for
you need to grow your cryptocurrency quickly-evolving blockchain technologies
portfolio. Our team’s supportive and to make navigating the digital asset
interactive approach helps you refine class less intimidating. Our research
your crypto investing and trading encourages informed decisions for
strategies. long-term investments or short-term
strategies.

Our proprietary algorithms, exhaustive research and helpful community are key to
our success as we follow strict principles and ethics to deliver honest information.
We actively seek to identify scams and low quality nefarious projects relieving you
of that burden.

Platform
Highlights
v1 launched in 2019

» Signal over noise.

» Direction over data.

» Quality over quantity.

» Usability over complexity.

28 <<<< Bitcoin Mining: A Global Economic Perspective

Final Words
Our Story

Like most disruptive tech startups,

CryptoEQ started as a small group of
like-minded people with a big idea.
Each of our co-founders—Spencer Randall, Michael Thoma and
Brooks Vaughan—were cryptocurrency investors and traders
before the crypto explosion of 2017. They met attending local
crypto conferences and immediately began to admire each
other‘s perspective and maverick approach to the assets
available on the market. After seeing one another in action, they
each noticed a glaring hole in the crypto-asset market—truly
unbiased, thorough insights and deep research.

In July 2019, we launched CryptoEQ and acquired approximately

3,000 new users—so we set a goal to continually rethink our
products. CryptoEQ v2 debuted in January 2020 with new all
features. Our third iteration, v3, launched in June 2020 with an
average quarterly revenue growth of over 300%. We also blew
through our 5,000-user milestone. v4 incorporated a new and
intuitive user interface and exclusive 1-on-1 bespoke solutions
pushing us past 50,000 users. v5 was on track to exceed 75,000
users, but markets move fast, so we pushed v6 live September 1,
2022. We also upped our target to hit 100,000 users by 2023.
CryptoEQ CORE+ Reports >>>> 29

Need More?
Reach Out!
Refine your trading and investing strategy to
make optimal decisions. We help you gain the
market insights you need to efficiently manage
your exposure across a variety of digital assets.

Our enterprise solutions help your company

leverage our teams’ collective three decades of
experience investing and trading digital assets.
Whether it’s publishing key sector-specific
reports, end-to-end solutions, or data licencing,
our teams can take on your research efforts to
produce an institutional-grade report for your
audience. All of our sessions are scheduled for
direct face time with CryptoEQ Co-Founders and
Partners. With each session, you have the option
to schedule either a virtual experience or an in-
person experience at one of our Houston-area
offices. So if you need a deep dive on a specific
asset or a broad re-balancing of your portfolio—
we can remove your research bottleneck!
Bitcoin Mining:
A Global Economic Perspective
CryptoEQ CORE+ Series

Contact

[email protected]

Houston, Texas

United States

CryptoEQ.io