On Bitcoin, Part 5:
The boiling oceans
There is tremendous social and economic value in Bitcoin and in the innovation it unlocks. It threatens to disrupt and disintermediate several industries, including some that have been extremely profitable to many people. In any such situation there will be criticism from established parties, many of who have excellent relationships with the media, built over decades of profitable coexistence.
Veterans of the Linux wars remember all the articles written about how “Linux is communism”, “Linux is cancer” and “Linux destroys jobs.” Today, there is a lot of these kinds of spurious claims made against Bitcoin. Mostly, those are just noise and can be ignored, e.g.”Bitcoin is for criminals” shares its DNA with the “nothing to hide” pseudo argument made against privacy.
But there are a few points which seem worthwhile looking into. This part will deal with the most prominent of these points, Bitcoins energy usage.
Running a full Bitcoin node takes very little energy and there are thousands of nodes operated in homes and companies across the world. Validating the information on the chain is also not a very expensive operation. But adding new blocks to the chain consumes a lot of energy. That energy goes toward securing the system against manipulation and abuse by virtue of calculating the so-called Proof of Work, an activity more commonly known as “mining.”
Originally invented as a way to protect services against denial of service attacks and spam, Proof of Work protects the Bitcoin network against tampered blocks being added. Explained simply: New blocks are added based on a majority vote among all miners that have completed the current computational puzzle. A malicious entity would therefore have to outvote the benevolent miners, which means they would have to spend more computational resource than everyone else combined. This is known as a 51% attack because once a malicious party delivers 51% or more of the total computational expense they can overrule the rest of the network.
As a result, the more energy is spent on Proof of Work, the more secure Bitcoin becomes. And in order to make sure the network does not become too slow or too fast, the difficulty of the computational puzzle is automatically adjusted in regular intervals to match the computational capacity of the entire network. This way the time to create new blocks is kept roughly around the 10 minute mark, which is a good time frame for settlement and finality for all kinds of possible use cases.
This ultimately is a uniquely elegant solution to a very hard problem because there are only two known alternatives that people have come up with: Governance by committee, which is how private blockchains work, and governance by the rich, also known as Proof of Stake.
In the first case, we would need a global organisation that is democratically legitimised by all the people in the world in order to achieve a similar level of public scrutiny to that of Bitcoin. Which means the only candidate organisation to run a chain to rival Bitcoin would be the United Nations. No other global organisation has a similar political mandate for such a world-spanning infrastructure. Whether anyone would put a similar amount of confidence into a global ledger of trust under absolute control of the United Nations is a good question. But the result would be less secure, because unlike with Bitcoin, there would be a single point of failure and compromise.
The second case gives voting power to the wealthiest entities. The largest public blockchain that is currently moving in this direction is Ethereum with a market cap of 300 billion USD and a high concentration. Over 65% are in the hands of large whales. These whales will therefore be in a position to sell control of the network in future. On a purely economic level, this would be great news for all the major token holders of Ethereum, starting with Vitalik Buterin himself, but it also rules out Ethereum as a potential alternative to the role that Bitcoin can play. Any technical design decision comes with costs and benefits. Blockchain is no different in that regard.
So Proof of Work is without alternative, and central to the security of Bitcoin. All the other blockchains that advertise themselves as alternatives using Proof of Work or Proof of Resource in some way are less resource intensive not because they are more secure, but because they are smaller, which contributes to speed and agility. But the smaller scale is also making them less secure. And would any of them reach the same order of magnitude of Bitcoin, they would face the same challenges.
Boiling the oceans?
The best way to undermine your enemy is to atttribute your own failings to them, because any response will easily be spun to look like “whataboutism.” That is why Bitcoins energy usage has been the centerpiece of what can only be described as a well orchestrated Fear, Uncertainty and Doubt (FUD) campaign.
The hallmarks of this campaign areto report energy usage for securing Bitcoin in units of country energy usage, inventing a spurious “energy per transaction” unit that has no connection to the actual utility of the system, and linearily extrapolating that energy usage into the future to show that Bitcoin will singlehandedly destroy the planet. Early versions of this story line had Bitcoin “use as much electricity as the entire world does today” by February 2020,which it didn’t. Because reality is not quite as simplistic.
The Cambridge Bitcoin Electricity Consumption Index is a good indicator of the amount of electricity used to secure the Bitcoin network. According to their numbers, there is a theoretical upper bound of 370.21 TWh used per year. Their estimation of the amount of electricity actually used is around 120 TWh / year. That is a lot of electricity.
Putting this number into perspective, we also lose about 2,205 TWh / year in transport, so between 10 and 20 times as much as the entire Bitcoin network requires. Both mining for gold and the banking system individually use up to ten times as much energy as Bitcoin, depending on what is factored into the equation. At this time, most people agree the energy usage of Bitcoin is around 0.5% of the global energy consumption. In comparison, devices left on standby in households around the world are estimated to account for around 1%. So while electricity usage is significant, it is not unprecedented.
Bitcoin is the only system in which energy spent is proportional to its security. Because security is always a function of assets secured vs cost of compromising the system, this likely makes Bitcoin the most secure system on the planet.
Critics of Bitcoin of course decry every electron spent on securing Bitcoin a waste of electricity either because they do not see any value in it, or because it threatens their monopoly rent. The narrative of “energy per transaction” is the common placeholder for this sentiment.
As previous parts showed, the meaningful unit of utility for Bitcoin would be expressed in decentralisation, privacy, security and self-sovereignty for 10 billion people across a multitude of use cases for any kind of economic or social activity, one of which is to act as deflationary store of value. Bitcoin can deliver all of that with today’s energy usage.
That said, there may be no point in having many systems to deliver this function. Because energy spent on additional Proof of Work blockchains is energy that have been saved by using the existing security and utility of Bitcoin and the BILA stack.
And finally, like everything else, Bitcoin should be using only renewable energy.
Because there is no central register of Bitcoin miners and no control over their energy mix, the exact percentage of renewable energy in Bitcoins mix is unknown. Critics of Bitcoin place it as low as 40%, which is a share of renewable energies comparable to countries like Germany. Countries like the US are currently at around 20%. In general it appears that 76% of all Bitcoin mining operations use at least some part of renewable energy. And Bitcoin mining companies like Digihost report that 90% of their mining activity produces zero carbon emissions. Other projects use gas that otherwise would have been flared off, giving it utility and reducing its climate impact.
But there are also reports of people using coal powered electricity to mine Bitcoin, and many people in the Bitcoin community openly welcome governments taking steps against using this kind of energy for Bitcoin mining. But the narrative around this highlights the bias against Bitcoin that has been fostered in the media by the encumbents.
Which other sector of electricity usage had to justify itself for the local energy policy of different countries? Where are the articles about household appliances boiling the oceans? How often have electrical vehicles been described as climate killers and dirty because they use the same electricity, from the same, non-reneable sources?
In reality, the larger Bitcoin ecosystem is extremely interested in renewable energies. Bitcoin might in fact accelerate the switch to renewable energies because it provides a local energy buyer of last resort for so-called “stranded” energy. Both solar and wind are dependent on the weather, and in order to always provide sufficient energy must have sufficient excess capacity — leading to regular situations of overproduction. Hydroelectric energy is also often planned with excess capacity.
Where there is no buyer for this energy there is less money to invest into renewable energies. Some countries, like Germany, socialise the cost of this overproduction by means of a tax on electricity that is used to pay renewable energy producers for when there is no demand for their electricity in the market. That tax stifles innovation and economic activity and leaves everyone in Germany poorer. Bitcoin mining would provide an alternative to taxing all Germans for energy they did not use.
El Salvador is an example for a country embracing Bitcoin wholeheartedly. It was not only the first county to declare Bitcoin official, legal tender. It is also constructing facilities to use geothermal energy from its volcanoes for Bitcoin mining. That is 100% renewable, emission free energy that would have had no other use and now is turned into a natural resource to foster innovation, economic activity and ultimately, wealth for all El Salvadorians.
There are similar situations all around the world. And because there is no competition for this energy from other uses, Bitcoin mining naturally gravitates toward it. That will not only further increase decentralisation, it will also make sure the benefits of Bitcoin will eventually be provided by “superfluous” energy that has no other uses.
Government interventions like the prohibition of mining in China are further accelerating this trend, so that change might already be happening faster than most people realise.
This article is part five of a series of six articles exploring my personal take on Bitcoin, including its relevance, technical properties, environmental impact, social relevance and significance for software freedom. Articles will be published every couple of days. Here is a list of what has been published so far:
- On Bitcoin, Part 1: Can Software Freedom succeed without Bitcoin?
- On Bitcoin, Part 2: Centralised Trust drives Centralisation
- On Bitcoin, Part 3: Money, banks, and other financial intermediaries
- On Bitcoin, Part 4: New Opportunities
- On Bitcoin, Part 5: The boiling oceans (this article)
- On Bitcoin, Part 6: The (mood) swings
- On Bitcoin, Wrapping Up: Where next?
Links to follow-on articles will be added here as the series progresses.
Follow me to be notified when the next one comes out.
Join Coinmonks Telegram Channel and learn about crypto trading and investing
Best crypto exchange | Top 10 cryptocurrency exchanges in 2021
Crypto trading on the cryptocurrency exchanges requires knowledge about the market, which can help you gain profit…
9 Best Crypto Lending Platforms in 2021
When it comes to cryptocurrency lending, tons of factors equate to a good earning profile. Also, the borrowing part of…
Crypto Trading Bot — Best FREE Crypto Trading Bots
Best crypto trading bots for Binance, Coinbase, Kucoin, and other crypto exchanges in 2021. Quadency, Bitsgap…
Best 6 Crypto Trading Signals Telegram Channels
It is tedious to find the right crypto trading signals provider. So, in this article, we will be talking about the best…
BlockFi Review 2021: Pros, Cons and Interest Rates
Today, we came up with a comprehensive BlockFi review, a crypto lending platform founded in 2017 and has its…
Crypto Tax Software — Top 5 Best Bitcoin Tax Calculators 
Whether you’re new to crypto or if you have been in the space for a while, you’ll need to pay taxes.
Pionex Review 2021 | Free Crypto Trading Bots and Exchange
Pionex is the rising start that provides tools for trading automation. 9 crypto trading bots are provided on Pionex…