Power Efficiency Theory: A Simplified Analytical Analogy

Power Efficiency Theory states that the value of a thing is determined by how fast its performance improves and how quickly its energy cost per unit output declines.

(1/6) Power Efficiency Theory states that the value of a thing at a future time t, written as V(t), is determined by how fast its performance improves and how quickly its energy cost per unit output declines. https://t.co/QodR3NBXMu
— BitcoinVersus.Tech 📟 (@BitcoinVersus_) January 18, 2026

Starting from an initial value V₀, the value grows each year by the performance improvement factor (1 + rₚ) and is scaled upward by the inverse of the efficiency factor (1 − rⱼ), because lower energy required per unit of output (should increase) the value of the system.

So, the value of a system increases when the system produces more output per second and uses less energy to do it.

The longer those improvements continue, the higher the valuation becomes.

This equation expresses how a system’s value at time t evolves from a starting value V₀ by compounding two forces over time: growth in output per second, represented by $(1 + r_p)$ , and improvements in energy efficiency, represented by the inverse of $(1 – r_j)$ , because lower energy required per unit of output increases value. The exponent $(t − 2025)$ (t−2025) indicates that both effects compound annually from the 2025 baseline.

If a system does not increase its output per second and does not reduce the energy required per unit of output, then both improvement rates are zero.

So, if nothing improves within the system, the value of that system also should not increase.

_{When both the performance improvement rate and the efficiency improvement rate are zero, the valuation multiplier collapses to one, meaning the value of the system remains constant over time. In this case, V(t)=V0, showing that without gains in output per second or reductions in energy per unit output, no value growth should occur.}

This would also mean that, if a system’s output per second declines and its energy efficiency worsens, then its value should decrease accordingly.

Keep in mind that the valuations are in a vacuum.

The results of the equations are seemingly optimistic, and we should take evidential caution when analyzing any new and emerging system.

^{Power Efficiency Theory as described in the Lexicon}

To make Power Efficiency Theory easy to understand for people who are not well versed in #bitcoin mining energy analytics, it helps to translate the concept into something familiar like cars.

Most people already understand miles per gallon (MPG) and miles per hour (MPH).

MPG is an efficiency metric. It tells you how far you can go using one unit of fuel.

MPH is a performance metric. It tells you how much travel output you get per unit of time.

^{Power Efficiency Valuation Projection using the Power Efficiency Theory model, where Bitcoin’s valuation scales from a $100,000 baseline by compounding a 20 percent annual rise in computational performance and a 20 percent annual improvement in energy efficiency, with the efficiency term inverted so lower joules per terahash increases the valuation multiplier. Under these assumptions, the curve reaches about $1M in 2031, $10M in 2037, $100M in 2043, and $1B in 2048.}

The average (new) gas powered vehicle today costs roughly $50,000, achieves about 25 miles per gallon, and operates at an average speed of around 60 miles per hour.

So, as an amusing thought experiment, imagine a world where cars experience an order of magnitude improvement, similar to a major generational leap in ASIC mining chip performance.

Over a 10 year period, it improves by ten times in the two metrics people immediately recognize (MPH and MPG).

So, the average rate of efficiency goes from 25 MPG to 250 MPG.

And The average rate of speed goes from 60 MPH to 600 MPH.

That’s 10x gain in efficiency and a 10x gain in speed.

Ten times more efficient multiplied by ten times faster becomes a 100x improvement in the combined performance score.

If the market priced the average vehicle in proportion to that combined improvement, then a $50,000 car multiplied by a 100x capability jump implies a market value of $5,000,000.

_{Alternate Power Efficiency Equation: The future value V(t) equals the starting value V₀ multiplied by a compounded multiplier, where that multiplier is the performance growth factor per year divided by the remaining energy cost factor per year, all raised to the number of years after 2025. it is divided by one minus the efficiency improvement rate, because $r_j$ represents a yearly reduction in the cost metric (like J/TH output).}

In a world where a mainstream car can reliably cruise at 600 mph while also achieving 250 MPG, the product is no longer competing with normal cars.

It starts competing with airplanes, high speed rail, and premium transport services.

Under that reality, a $5,000,000 price is a plausible reflection of how markets tend to value an overall improvement in performance (when it is real, safe, legal, and usable at scale).

_{Power Efficiency Valuation Projection (Multiple Rate Scenarios) showing how a $100,000 baseline value V₀ scales over time when the annual performance improvement rate and the annual efficiency improvement rate are set equal within each scenario, using paired rates of 5%, 10%, 15%, 20%, and 30%, with the y axis on a log scale so the valuation paths and milestone levels remain easy to compare across years.}

When performance improves by an order of magnitude in multiple dimensions, it stops feeling like a normal product upgrade and starts behaving like a totally different class of technology.

The same concept applies when you talk about Bitcoin mining hardware with joules per terahash (J/TH) and also the computational power – terahash per second (TH/s).

When you apply (performance) efficiency theory in ASIC mining, you are not saying a machine is slightly better.

You are describing compounding jumps in how efficiently energy can perform computational work.

When a machine gets dramatically more efficient, it completely changes the economics of operation. It changes operational variables, like how much hash (or how many machines) can be deployed per megawatt.

The vehicle power efficiency analogy is a way to help people understand why power and/or efficiency can reshape what something is worth.

J/TH and TH/s are simply the mining industry’s version of measuring computational efficiency and power, respectively.

Disclaimer: I’m not a financial advisor. This is comprehensive technical advice on a new and emerging technology. I report on financial subjects purely for informational purposes.

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Power Efficiency Theory: A Simplified Analytical Analogy

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