Byproduct Mining Fallacy

There is a theory that, to the extent Bitcoin mining can consume a necessary and otherwise unmarketable byproduct of energy production, such as unused natural gas, a reduction in net energy consumption is implied.

Given a new byproduct market, not taking advantage of the presumed lower price represents opportunity cost to each miner. Competition for the byproduct increases its price, eventually up to the level where the net advantage is eliminated. In the interim this represents a mining profit opportunity.

Paradoxically, any reduced cost results in proportionally greater consumption. The reduced cost of mining must result in increased mining so that its cost returns to the reward level. So the byproduct formerly "consumed" as waste increases mining hash rate until the same cost is consumed in mining. Net mining energy consumption is actually increased by the lower price.

Yet in monetizing a waste resource, the overall marketable energy supply is increased without an increase in its production cost. And demand for the otherwise marketable energy supply in mining is decreased. This implies a reduced market energy price.

A corresponding expansion of production generally may result from a reduced market energy price. This price stability is a general characteristic of all products. As such a consequent reduction in overall energy consumption from byproduct mining cannot be assumed, invalidating the theory. However, an overall increase in wealth is implied by greater production at the same cost or same production at lower cost.