“Bitcoin wastes electricity”
An energy efficiency specialist begs to differ
Most critiques of Bitcoin’s energy balance seem flawed because they tend to miss the forest for the trees.
Bitcoin is infamous for its consumption of electricity. News articles have reported that extracting this cryptocurrency from the digital domain takes more than triple the energy needed to mine gold from the soil, sparking outrage about Bitcoin’s wastefulness.
But as an energy efficiency specialist, I’ve come to the conclusion that it’s reductive and misleading to fume against its supposedly extravagant energy habit.
Yes, Bitcoin consumes loads of energy, because the higher the number of Bitcoin miners and their electricity demand, the more bad actors would have to spend to control 51% of the Bitcoin network, what’s needed to rewrite the history chiseled onto Bitcoin’s master ledger — the blockchain.
The way Bitcoin makes it hard to subvert its promise of sound money is by forcing dishonest people to spend more electricity and energy trying than their potential gain would be worth.
The idea here is that financial regulations, social norms, political constitutions, moral obligations, and other historical constructs are no match against the physical laws of thermodynamics in enshrining a reliable base for monetary interactions among human beings.
So, let’s accept as a fact that Bitcoin is an energy-intensive system and that such intensity is a purposefully designed feature and not an accidental bug. But let’s also look at the energy savings inherent in Bitcoin yet overlooked in estimates of its energy consumption.
The Energy Picture
Bitcoin miners use electricity as brick and mortar to build a high wall of energy around the Bitcoin castle, making attempts to breach it very expensive. But as digital cash, Bitcoin eliminates most of the actual brick and mortar overhead banks have. It also reduces the security infrastructure and personnel needed to protect and manage traditional money circulation.
True, creating one-dollar worth of Bitcoin or validating a Bitcoin transaction consumes more energy than printing a one-dollar bill or validating a transaction in dollars. But if one counts all the resources devoted to power the fiat currency systems, Bitcoin suddenly appears a lot less wasteful.
Let’s look at gold. A key advantage Bitcoin has over gold is that whereas one new ounce of gold or one new gold transaction does nothing to make the whole gold-system more secure, every new Bitcoin and Bitcoin transaction does. Each new block makes it more difficult for bad actors to try to rewrite the history timestamped in all previous blocks down the chain.
Bitcoin might consume more energy than gold, but because of the extra security it provides, does that really make it energy inefficient?
Of all the comparisons proposed to evaluate Bitcoin’s energy intensity, the most accurate is that with data centers. Bitcoin lives and breathes inside a network of hardware and software, just like data in data centers do. So, what’s the energy impact of data centers?
According to the International Energy Agency (IEA), data centers consume just 1% of global electricity and contribute around 0.3% to overall carbon emissions. Bitcoins equals in turn only 1/10 of data centers’ electric consumption.
Even assuming that Bitcoin’s energy consumption is now double or triple the one measured in the figure above for 2014 by the IEA, it would still represent a tiny fraction of global energy demand and at most 20 to 30% of all data centers’ energy consumption worldwide, with a reasonably small carbon footprint of around 0.1–0.2% of global CO2 emissions.
It must be noted that these estimates are based on the electricity produced in 2014 with a “dirty” energy mix, where fossil fuels played a bigger role than renewable sources play today. With today’s greener energy mix, where a larger amount of electricity is produced with clean sources, the climate and environmental impacts of Bitcoin are decreasing relative to its “output”.
In a 2019 study, researchers from MIT and the Technical University of Munich estimate the emissions produced by Bitcoin sit between the levels of Jordan and Sri Lanka. Neither are exactly high emitters.
But what if Bitcoin were to be widely adopted? Wouldn’t its energy-consumption be devastating for world resources?
As engineering professor and co-author of the IEA report “Digitalization and Energy,” Eric Masanet told Nature,
“There have been many alarmist predictions of growing ICT energy use over the years, and all have proven to be bunk.”
The Big Picture
Bitcoin prevents double-spending the same money; resists censorship and attempts by institutions to financially control coin holders; doesn’t require anybody’s permission to acquire it; resists confiscation like no other asset; is not tied up to borders or physical assets; doesn’t require a trusted third party for two people to transact even if they don’t know or trust each other; makes tampering with its main ledger extremely difficult.
In essence, Bitcoins wants to reduce the need for “middlemen” and “trusted third parties.” It’s also an attempt to succeed where the Internet failed, maximizing peer-to-peer relationships and minimizing centralized, winner-takes-all organizations.
Yet the fact that Bitcoin — made up of bits and intangible strings of obscure computer text — requires loads of energy to exist infuriates some. Even more unnerving for many is that Bitcoin wants to shift the locus of our trust from “tried and true” institutions to lines of codes.
Admittedly, the paradigm shift from the dollar’s “In God, we trust” to Bitcoin’s “In Code we trust” is an existential one, and it has understandably generated strong reactions. But it would be a mistake to see Bitcoin as selfish and anarchical. Space, time and energy saved by reducing the need to trust somebody, in particular, are poured back into a system that allows one to trust more or less anybody.
Far from being “trust-less,” Bitcoin requires a wholly trustworthy system. The difference with what we are used to is that trust, instead of being concentrated in a centralized authority, like a central bank or a banking group, is distributed over a decentralized, cryptographically secure, self-organizing network, teeming with a plurality of subjects. In this new configuration of personal freedom and responsibility lies the challenge and opportunity of Bitcoin.
This cryptocurrency is an attempt to weave the quintessence of:
· physics (one cannot fudge energy, only change its form);
· economic behaviour (responding to incentives);
· ethics (maximum individual freedom and responsibility);
· social participation (peer-to-peer, cryptographically secure, distributed trust);
· record-keeping (digital, tamper-proof, decentralized master ledger);
· political philosophy (“Code” instead of “God” as a base for governance).
It’s a tall order. I’m not surprised Bitcoin is energy intensive.
But, is it possible to make Bitcoin at the same time even more energy efficient and just as securely based on ironclad physical laws? Can we reach the same effects that Bitcoin’s energy wall ensures, by using a different mix of economic incentives and block validation rules? Can hard work expressed through energy expenditures be substituted with, or integrated by, less energy-intensive, more socially, cryptographically or algorithmically engineered forms of governance, consensus, and rewards?
It’s still too early to say, but there are thousands of attempts underway. Some build on top of Bitcoin to address issues of scaling and speed for massive volumes of transactions, user-friendliness and other issues. Some depart from Bitcoin for the block-validation mechanisms and chains they use, trying to develop new use-cases for privacy or logistics, new categories of social interactions and business contracts based on alternative cryptocurrencies. Attempts are in stages varying from white papers to proof of concepts, to traditionally incorporated companies, to decentralized applications (dApps) and so-called “DAOs,” or Decentralized Autonomous Organizations. These are new loose structures trying to organize capital, governance, and operations around a decentralized, digitally managed, “distributed firm” — some of its proponents describe DAOs as potentially one of the most profound transformations in the way businesses are organized since the invention of the firm in 12th-century Italy and its legal incarnations of corporations and limited liability companies in the 18th and 19th century.
What seems certain is that, just as renewable energy has pushed the boundaries of energy production and control toward decentralization, Bitcoin is also pushing the boundaries of monetary trust and governance toward decentralization. This should intrigue proponents of freedom and democracy, as decentralization of power — electric, political or monetary — is democracy and freedom’s next of kin.
That doesn’t mean we should be blind to the risk that Bitcoin might shift control of monetary governance from elites of central bankers to elites of decentralized computer coders.
Maybe it’s the same difference there is between a majority electoral system and a proportional electoral system. In a majority system, the winner takes all; the first past the post collects all the parliamentary seats in a riding and consolidates control of those seats under one political hat. In a proportional system, there are usually at least a few winners, seats in a riding are distributed proportionately to the votes different parties receive and are managed differently under a plurality of political hats. Will Bitcoin simply end up fostering a slightly more “representative” arrangement, like in a proportional electoral system?
Maybe Bitcoin is extending the boundaries of trust and governance by simply including coding high priests at the table, with the promise that ironclad software code, rather than financial social graces, will ensure proper table manners. And maybe this will be enough to prevent food fights — debt crisis, financial manipulations, asset bubbles, hyperinflation, etc. — from spoiling dinner too often.
What’s certain, though, is that traditional, centralized third parties are everywhere and they collectively absorb huge amounts of resources. By reducing the need for “middlemen,” Bitcoin and the blockchain could greatly reduce the energy consumption of centralized institutions.
All things considered, at a natural resource level, do we really want Bitcoin to fail or be banned because it’s energy intensive? Probably not, as on balance, the energy savings Bitcoin allows promise to be greater than its energy expenditures. There are better ways to mitigate climate change. More renewables, a carbon tax make sense.
At a high level, as uncertain as its future and role still are, it seems to me that Bitcoin’s cold-blooded generosity of spirit and visionary blind trust in humanity are worth cultivating and even celebrating until proven wrong beyond any reasonable doubt. So, instead of turning back the clock, I think we should find ways to bridge Bitcoin’s digital environment with the analog reality we all inhabit.
I sure would like Bitcoin and its offshoots to keep tinkering and streaming along, as with any really good sci-fi thriller, to see what happens.