Bitcoin and the energy waste fallacy

Jan Klosowski
Sep 2, 2018 · 2 min read

While the Bitcoin hash rate reached another ATH, a bunch of new articles and memes complaining about the energy waste struck again. Let’s debunk it for good. It’s about time.

  1. The energy used to mine Bitcoin is often an energy that cannot be used otherwise. Only that type of energy is cheap enough. In Poland, miners use the energy produced by wind farms that because of an anti-renewable energy law (Poland tries to lobby and protect its inefficient coal mining industry,) cannot be sold to the network. Bitcoin makes those businesses profitable again. That is not a rare example but rather a typical case. In China, it’s usually a highly available hydropower. The energy that miners use is always cheap for a reason. The low price is information that there is an energy surplus. Bitcoin solves this inefficiency becoming energy storage. It prevents this energy from being wasted (not the opposite).
  2. Let’s say that one Bitcoin costs $1000, and a new fancy consensus mechanism is as cheap as $1 per coin. Let’s say that as a miner you accept margin 5% for your mining business (so $50 in that case). That means that you have $949 to spend to acquire a single coin. If you don’t have to spend it on energy directly, you can spend it on additional physical protection, DDoS attacks, misinformation campaigns, and other pointless economic activities that have no other benefits for society. An expensive digital commodity cannot be cheap to mine. Another example: publishing on the Internet is free, so you have to spend a lot of money or time to stand out and reach an audience. There is no free launch. PoW is just the least convoluted way to do the job.
  3. Civilization uses energy. Nobody asks how much energy football or organized tourism use. Nobody questions if they’re “reasonable enough.” For some reason, people think that Bitcoin energy usage is a unique case, but it’s not. Traditional banking uses more energy and, e.g., the army uses so much of it that Bitcoin in comparison is a joke. So, is it too much? It depends what do you think it’s being used for. The energy used by the Bitcoin network is not “the cost of transactions” but the cost of total surplus, all benefits for our civilization that happen as a result of Bitcoin. Not a trivial calculation, but framed that way, it may be the cheapest way to do it.

Jan Klosowski

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