Integrated Power Plant and Bitcoin Mining Economics

Abstract

Bitcoin mining can be a difficult process to understand much less model. It is confounded by currency exchange rates and jurisdictional taxes along with rapid historical technological development. We present a framework for simplifying the economic modeling process for bitcoin. To account for historical and potential future technological changes, we model trends in bitcoin miner performance showing that further gains in efficiency have plateaued. Then, we derive the marginal value of bitcoin treating the process of the block reward in a quantum mechanical framework and show that the measure of bitcoin’s value is the energy used to mine it. Finally, we use the energy value of bitcoin to model the dollar price of bitcoin with a power law relationship over bitcoin’s entire price history.