Based on an electricity price of $125/mWh and power consumption of 650W/gigahash, Bitcoin costs $9m a day, or about $3.3b a year to run. The total value of Bitcoin is about $7.5b. Incidentally, the US mint and federal reserve combined 2013 budget was $8.1b for 2013 and the total value of US currency in circulation is about $800b.
This raises a few interesting questions: will the logistical cost of running Bitcoin rise linearly with its total value? If so, are Bitcoin's running costs too great to make it a viable global currency?
The fundamental problem with bit-coin is anyone willing to pay for twice the current mining costs can double spend and destroy the currency. As such there is no way even 100 billion in mining can protect 10 trillion in value. QED: the long term viability of bit-coin as a cheap world wide currency is impossible.
Anyway, the secret service and possibly the FBI one run anti counterfeiting operations so it's slightly higher than that. Beyond that, I think there is a fair amount of diplomatic operations that support the USD but it's still far far cheaper to run relative to value than bit-coin right now.
A 51% attack only gives you the ability to double-spend coins you already control. It doesn't give you the ability to crack the private keys of others. So there is no straightforward economic incentive for a 51% attack unless you own a huge amount of Bitcoin, and thus would be hurting yourself.
I think this is false. Double spending doesn't create coins, it screws someone who accepted a coin. My understanding of the 51% attack is that you can basically reliably snip the end from the block chain. That doesn't let you put arbitrary things into it.
But it'd be difficult to keep such an attack secret, and the value of bitcoin would zero pretty much immediately.
So the only way to make money on this attack would be to short a very significant amount of bitcoin. I don't know it that would be illegal - does it count as insider trading if you cause the value change?
So the mining costs do not have to cover the entire value of all bitcoins. They only have to be large enough to discourage political attacks, and large enough that a bet to short twice the mining costs worth of bitcoins would be noticeable.
Still, it's an interesting point that I haven't seen raised before.
EDIT: woops, other siblings of this posts are right. The protocol validates all chains before accepting the longest one as true, so you can't print or steal bitcoins even with 51%
You seem to be assuming that while USD has human protections, the only thing protecting BTC is the chain. But if someone were to actually destroy 10 trillion USD, there would be social consequences as well; it's not like people would just accept it quietly.
More importantly, what gains would the attacker get to compensate an expenditure of such big amounts of money?
Given that ASIC mining runs more like 10 W / GigaHash [1] (not 650W as stated on blockchain.info/stats), we are actually looking at more like ~$150K per day, or $56M per year to run.
At the moment, the value of bitcoin is $7.2B [2], so we can assume that if it scales up to $2T (about the same as M1 of the dollar[3]), then if cost scales linearly, it will cost about $15B per year to run the bitcoin network. That is probably less than it costs to pay the mint, federal reserve, and secret service.
Do we know how prevalent the ASIC rigs are? I'd be really interested to see a rigorous study of Bitcoin's energy costs. Even so, it seems like the estimates on Blockchain.info are off by an order of magnitude. I've amended my comment to include the power consumption on which my estimates are based.
Theoretically the total cost of the energy expended on mining will be equal to the value of the mining rewards and fees received by the miners, minus the cost of the hardware amortized over time and a small profit.
Additionally, mining operations will gravitate to areas of the world with excess electricity, since it will be cheaper to mine and thus more profitable.
So the "cost" of running Bitcoin will rise with price, but fall as the block rewards continue to halve every 4 years (unless transaction fees make up the difference). The users essentially pay for it through inflation and transaction fees. It's really quite elegant.
How is that even a fair comparison? Mining isn't just "creating" new bitcoins, it's verifying the transactions of the whole network. To make a somewhat fair comparison we'd have to include the electrical costs of all the physical banks and bank networking systems in the US, which is much, much more expensive. Even that's not a fair comparison, either, since bitcoin is a global currency, but let's not go there.
It's true that it's not a fair comparison. The corresponding fair comparison is interesting, though. The thing I worry about is long term. As technology gets better, running banks should become more energy efficient. Because bitcoin mining is inherently competitive, it can't become more efficient in aggregate - if it's cheaper per hash, people will generate more hashes (and/or the difficulty will rise).
The US Mint and the Federal Reserve aren't the only institutions -- there are many other similar institutions duplicated across every sovereign power. Also factor in all the national/international banks, too.
Anyway, the secret service and possibly the FBI one run anti counterfeiting operations so it's slightly higher than that. Beyond that, I think there is a fair amount of diplomatic operations that support the USD but it's still far far cheaper to run relative to value than bit-coin right now.