Jevons paradox on the blockchain
Greetings patrons,
It’s time for another research update. In this letter, two things:
Jevons paradox on the Bitcoin blockchain
While I was writing my recent analysis of Bitcoin’s energy intensity, I couldn’t help but think of the Jevons paradox. Discovered by the economist William Stanley Jevons, this is the pattern whereby gains in efficiency lead to greater use of energy.
Jevons discovered the paradox while studying British coal consumption. In the mid 19th century, steam engines were becoming steadily more efficient. Now, since greater efficiency allows you to do the same amount of work using less energy input, you’d think that the growing efficiency of steam engines would reduce the demand for coal. But as Jevons discovered, the opposite seemed to be happening. As steam engines became more efficient, British coal consumption tended to increase.
Now, this energy rebound is only a ‘paradox’ when viewed using economists’ favorite logical statement, the ceteris paribus clause. If ‘all other things remain the same’, greater efficiency should lead to less energy consumption. But of course, all other things do not remain the same.
In the case of steam engines, greater efficiency meant that coal-powered work became cheaper. This cheapening then led to a positive feedback loop of greater coal consumption. As cheap steam-engine work was used to mine coal (initially by pumping water out of mines), coal prices dropped. And as coal got cheaper, it increased the demand for coal-driven engines. The result was that efficiency gains became the engine of greater coal consumption.
Since Jevons discovered this pattern, the Jevons paradox has been found in all kinds of places. And one of those places, it turns out, is the Bitcoin blockchain.
To dive in, let’s start with efficiency. The chart below shows the stunning rise in the efficiency of Bitcoin mining technology. (As a brief review, Bitcoin miners solve ‘hash’ problems — the purpose of which is solely to waste energy in order to prevent fraud.)
Looking at the charts above, you can see that in the early days, Bitcoin mining was done using ordinary computer hardware — first Intel chips, and then Nvidia GPU’s. But soon, an efficiency arms race ensued. By the mid-2010s, Bitcoin miners were using purpose-built machines designed solely for hashing. (The idea was to encode the hashing algorithm directly onto the computer chip, rather than on software.) The result was an explosion in the efficiency of Bitcoin mining. In 2009, an Intel Core i5 could crunch about 0.1 hashes per microJoule of electricity input. But by 2024, purpose-built mining machines were crunching 70,000 hashes per microJoule — an efficiency improvement of nearly a million-fold.
Naively, you’d think that this greater efficiency would cause the Bitcoin network to consume less energy. But in reality, the opposite happened. As Bitcoin mining got more efficient, the energy budget of the Bitcoin network ballooned in kind. In short, the Bitcoin blockchain offers a stunning example of the Jevons paradox in action. The chart below paints the picture.
In the coming weeks, I’m going to work on a more general post about the Jevons paradox. It’s a phenomenon that is ubiquitous, yet not widely known.
New paper in the Real-World Economics Review
In other news, the Real-World Economics Review (RWER) has published my piece ‘Stocking Up on Wealth … Concentration’. The paper is a slightly cleaned-up version of my November post about how wealth inequality among billionaires tracks tightly with the performance of the stock market.
I’d like to thank all the patrons who support me at the Companion level and above. You got a shout out in the paper.
Also, If you haven’t already subscribed to RWER, I highly recommend doing so. It’s free, open access, and one of the best venues for reading about research in heterodox economics.
Until next time
That’s it for this update. Thanks again for supporting my research!
Cheers,
Blair