We propose a dynamic industry equilibrium model for Bitcoin electricity consumption in a general framework, including Bitcoin miners’ optimal entry and exit with technology innovation. By adopting average operating costs as an approximation to the true operating costs, we overcome the difficulty of strong path-dependency due to the interaction among entry, exit, and technology innovation. The model can capture both the upside and downside co-movements of miners’ computing power, electricity consumption, and mining revenue. Our model shows that the Bitcoin electricity consumption will not grow indefinitely, with the ratio of Bitcoin electricity consumption to the miners’ revenue fluctuating within a range. This work is joint with Steven Kou, Shuaijie Qian, and Ling Qin.
Min Dai is Chair Professor in Applied Statistics and Financial Mathematics at the Department of Applied Mathematics, The Hong Kong Polytechnic University (PolyU). Prior to joining PolyU in 2021, he worked at the National University of Singapore from 2004 to 2021 and at Peking University from 2000 to 2004. His research focuses on mathematical finance, particularly on financial derivative pricing and optimal investment with market imperfections. Currently, he is a co-editor of Digital Finance and associate editor of Journal of Economic Dynamics and Control, Finance and Stochastics, Mathematics and Financial Economics, and SIAM Journal on Financial Mathematics.