Newsweek: Bitcoin Mining on Track to Consume All of the World’s Energy by 2020
Bloomberg: What if there were a safe digital currency that *didn’t* wreck the planet or disappear when you forget the password?
New York Times: In Coinbase’s Rise, a Reminder: Cryptocurrencies Use Lots of Energy
News broke today the European Securities and Markets Authority wants to ban Proof of Work (PoW) consensus used in Bitcoin and other cryptocurrencies because of its energy expenditure. Tomorrow, the House Committee on Energy and Commerce will hold a hearing on “The Energy Impacts of Blockchains.”
Bitcoin answers to no one. It doesn’t need permission. It can’t be browbeaten to conform by bureaucrats, movie stars, or academics. Its power derives from coded rules, validators, and millions of users. One reason Bitcoin can thumb its nose at cultural enforcers is that PoW decentralizes operation and consensus.
PoW secures the system via thousands of computers operating globally and independently. It validates the next block of transactions through open computational competition. The winning computer rig or “miner” wins Bitcoins, the rest verify the winner and the process restarts. Energy use is the price of an open, secure, permissionless system. Current estimates place Bitcoin energy use at around 110 Terawatt hours per year, comparable to that of a country the size of Malaysia or Sweden.
Bitcoin’s energy use, though substantial, will not “wreck the planet.” Following are six myths of Bitcoin energy use.
Myth Number One: Bitcoin energy use equals carbon emissions
Crypto critics often conflate energy use with carbon emissions, but a large portion, anywhere from 28 percent to 74 percent, of Bitcoin’s energy comes from renewables. This number is growing since China’s mining ban last year.
As Harvard Business Review columnist Nic Carter points out:
While determining energy consumption is relatively straightforward, you cannot extrapolate the associated carbon emissions without knowing the precise energy mix—that is, the makeup of different energy sources used by the computers mining Bitcoin. For example, one unit of hydro energy will have much less environmental impact than the same unit of coal-powered energy.
Bitcoin’s energy consumption is relatively easy to estimate: You can just look at its hashrate (i.e., the total combined computational power used to mine Bitcoin and process transactions), and then make some educated guesses as to the energy requirements of the hardware that miners are using. But its carbon emissions are much harder to ascertain. [Emphasis in original]
Hass McCook, a civil engineer, who has written extensively on this topic, notes:
Bitcoin is a rounding error in the global scheme of things, and from a carbon-intensity point of view, has significantly less emissions per kilowatt than finance, construction, healthcare, industry or the military, and will only improve further in time. My prediction still stands: Bitcoin’s carbon intensity will go from 280 g CO2 per kWh today, to around 100 g in 2026, and zero by 2031, and maybe, finally, we’ll be done with this debate.
Myth Number Two: Bitcoin miners compete with people for electricity on grids
Bitcoin miners can’t use normal grid energy because mining would be unprofitable. Competition incentivizes miners to seek the cheapest energy available, which often means wasted energy like flared natural gas from oil fields or energy accessible only to miners because of rig portability. Miners are incentivizing a race to transform the world’s wasted energy into productive use.
As Drew Armstrong and A.J. Scalia write in Bitcoin Magazine:
Bitcoin mining directly incentivizes new and more efficient forms of energy generation by offering a “bounty” to anyone, anywhere, at any time, who finds a cheaper way to produce energy at scale. This direct financial incentive for more efficient generation and the newfound viability of previously uneconomical sources of energy will cause a general decline in the price of energy worldwide.
Myth Three: Bitcoin energy use should be measured per transaction
Critics often divide Bitcoin’s slow transaction throughput by its energy use and compare that with per transaction costs of payment providers like Visa. But this is a false comparison. Bitcoin energy use occurs during the mining process. Like Visa, individual transactions do not use energy, and more network transactions would not increase energy.
As Coin Center’s Peter Van Valkenburgh writes:
It’s a common misconception that energy usage scales up with the number of bitcoin transactions and that if Bitcoin ever became widely adopted for payments, then the energy usage would be enough to boil the oceans. This is incorrect. … [M]iner energy usage moves up or down with the amount of competition between miners, not the number of transactions being validated. Digital signature validation uses a trivial amount of computing power. …
This competition is healthy because it means that the effort spent securing the network scales automatically with the value of the transaction data on the blockchain—not the number of transactions.
Myth Four: Bitcoin mining energy use will Keep expanding at the current rate
Some assert as Bitcoin grows more popular its energy consumption will follow linearly, but that ignores structural and market constraints. First, Bitcoin’s relatively small number of transactions per second limits its “Layer One” utility as a payment network. As Nic Carter states, “Bitcoin is a settlement, not a payments network.” “Layer Two” applications built on top of Bitcoin like Lightning and Liquid can handle vastly more transaction but do not require more energy because they only “settle” once for unlimited tranches.
Not even a massive increase in Bitcoin price would spur energy use as investment strategist and Bitcoin commentator Lyn Alden writes:
If we say [Bitcoin] reaches an outrageously high price of one million dollars per coin, for a critically important market capitalization of $20 trillion, with billions of users, then at 0.50% annual security cost, that would be $100 billion, or about 6x as much energy usage as bitcoin was using at an annualized rate in the first half of 2021. This would represent maybe 0.6% of global energy usage, which seems appropriate for a network used by billions of people for multiple purposes, as it would need to be at that point in order to reach such a high value.
Myth Five: Bitcoin mining is inherently wasteful
Some detractors object to any energy use for mining at all, even if completely obtained through renewable sources. They point to the adequacy of legacy payment systems or other consensus mechanisms, namely “Proof of Stake” (PoS, see Myth Six). But these arguments fail to grasp the benefits in decentralization and security that Proof of Work brings. Throughout history, people have used energy expenditure as a proxy for value. That is why gold has retained its value through the centuries. Bitcoin simply makes this relationship explicit.
As Coin Center’s Peter Van Valkenburgh writes:
This energy usage is anything but useless, it is securing data about transactions worth hundreds of billions of dollars. Unlike the energy used by a gold miner, it goes directly to providing a public good: online peer-to-peer payments infrastructure that anyone on Earth with a smartphone and internet connection can use.
Bitcoin produced a new way of securing transactions online as analyst Dan Held writes:
The Bitcoin ledger can only be immutable if and only if it is costly to produce. The fact that Proof of Work (PoW) is “costly” is a feature, not a bug. Until very recently, securing something meant building a thick physical wall around whatever is deemed valuable. The new world of cryptocurrency is unintuitive and weird — there are no physical walls to protect our money, no doors to access our vaults.
Myth Six: Proof of Stake works just as well without the energy burden
Critics also point to an alternative consensus mechanism known as Proof of Stake as an efficient alternative. It is true, Proof of Stake consumes much less energy and provides a market alternative for those solely focused on energy consumption. But it comes with drawbacks, particularly in centralization that PoW avoids. PoS determines governance by crypto holdings (stake). Validators are rewarded additional stake. This system is vastly more complex from a security standpoint.
Furthermore, it centralizes the governance in those that have the most stake or perhaps are willing to buy it. This invites all the issues of censorship, exclusion, and rule by cultural elite that plague the current Web.
As Nic Carter states:
‘Proof of Stake’ is just a fancy phrase meaning “those who have the most wealth wield political control.” That sounds a lot like our current system, which Bitcoin is specifically designed to solve. Bitcoin explicitly rejects politics, and doesn’t grant any special privileges based on coins held. If holding more coins gave you more control, the attempted takeover of Bitcoin through the 2X movement (backed by the largest custodians and exchanges in the industry) would have succeeded.
Lyn Alden compares this to voting:
It would be like a political system where you get a vote for every hundred dollars you have, and then also get paid a dollar by the government for casting a vote. Mary the high school science teacher with $20,000 in net worth gets 200 votes, and earns $200 from the government for voting. Jeff Bezos, with $200 billion in net worth, gets 2 billion votes, and earns $2 billion from the government for voting. He’s a more valuable citizen than Mary, by a factor of a million, and also gets paid more by the government for already being wealthy.
Bitcoin and Proof of Work consensus represent a new way of transacting and interacting, but they also threaten those at the top of the cultural pyramid. It is not surprising that some in legacy media, academia, and government would so oppose this paradigm shift. But the coming world Bitcoin points us all toward a world without need of self-appointed stewards. It enables us to choose our own path, even if it costs some energy.