Bitcoin Mining, Electricity Consumption, and Climate Damages

Spring 2023 Actuarial Science and Financial Mathematics Seminar

Date and Time: Friday, April 14, 2023, 2:00 PM (CST)

Speaker: Steven Kou (Boston)

Abstract: We propose a tractable dynamic industry equilibrium model for Bitcoin mining by incorporating miners’ endogenous exit and entry with technology innovation. A key modeling step is to track the average operating costs rather than the exact operating costs, thus overcoming the difficulty of strong path dependency incurred by the interaction among endogenous exit, entry, and technology innovation. The model can capture and predict co-movements of miners’ electricity consumption, computing power, and mining revenue. The model also predicts that Bitcoin mining is not long-term sustainable regarding climate damages. This is joint work with Min Dai. Shuaijie Qian, and Ling Qin.

About: Steven Kou is a Questrom Professor in Management and Professor of Finance at Boston University. He teaches courses on FinTech and quantitative finance. Currently he is a co-area-editor for Operations Research and a co-editor for Digital Finance, and has served on editorial boards of many journals, such as Management Science, Mathematics of Operations Research, and Mathematical Finance. He is a fellow of the Institute of Mathematical Statistics and won the Erlang Prize from INFORMS in 2002. Some of his research results have been incorporated into standard MBA textbooks.