A nuanced discussion about Bitcoin's energy consumption

We’ve all seen the headlines about the massive energy consumption of the Bitcoin network.

“Bitcoin is trying to destroy the planet”

“Bitcoin uses more energy than the entire country of Uruguay”

You get the idea…

While it’s true that Bitcoin uses a lot of energy in an absolute sense, can it really be that simple?

Personally, I believe our top priority as a species should be preventing our planet from ecological collapse. But does that mean we should get rid of Bitcoin because it’s current implementation consumes a lot of energy?

With most things in life, the real answer is not black or white, but instead shades of grey.

This debate regarding Bitcoin’s energy consumption is far more nuanced than any mainstream media source that’s just begging for attention.

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Before we can slander bitcoin as the “anti christ” of the green movement, let’s dive into the important discussion points we must understand before forming our opinions…

How much energy does the current banking industry use? And how does that compare to BTC?

Before saying “bitcoin consumes too much energy” we first need to understand how much energy our current system (ie banks) consumes. It’s a tricky calculation because comparing banks and bitcoin are like apples and oranges. Or more like rotten apples (banks) and unlimited potential of a seed bank (bitcoin).

Carlos Domingo compares the electricity consumption of Bitcoin vs Visa in-depth here.

How will the free market react to the increasing demand of energy to secure the Bitcoin network?

Currently most of the electricity for mining comes from cheap energy sources such as coal. Turning coal into energy is not a good solution for our environment and I sincerely hope our planets stops this as soon as possible. Luckily we’re starting to see renewable energy sources fulfilling a larger share of the total demand.

Examples include: Geothermal in Iceland, hydroelectric in China, and the waste to energy cryptocurrency mining setup from PRTI and Standard American Mining.

In my opinion, the future energy demands of mining Bitcoin will cost too much that the only economically feasible approach will be through reusable energy. Green energy production is becoming cheaper every year and will soon become cheaper than coal.

Will the Lightning Network decrease Bitcoin energy consumption?

Yes and no.

Yes: because lightning network transactions are "off chain" meaning the POW energy requirement from the miners is not needed for each lightning transaction. This would mean, we could see between 50% - 80% of total BTC transactions "off chain" through the Lightning Network. Most people assume that only very large value transactions would be sent directly “on chain.”

No: because if Lightning Network work (or another scaling solution) as anticipated this would dramatically increase adoption which would lead to a net increase in total on chain BTC transactions - which could also increase net energy cost for the entire network.

That being said, some theorize that BTC will never need to increase it's energy consumption, even if it scales to wide spread usage.

Social Scalability and the paradox of the energy debate

I’m sure we can all agree that it’s important to save our planet from ecological collapse (if it isn’t too late already). If we continue down the path we’re headed, most of the animals including homo sapiens will perish.

I’d like to introduce a concept called social scalability, which was first discussed by Nick Szabo here.

Social scalability is the process by which humans can increase our ability to make effective decision as a collective. Initially we could only organize groups of 150 people any more than that and the group would break down. Later we invented agriculture and the city state emerged - still fighting over resources with its neighbors.

Fast forward the internet: Technology such as the internet has allowed us to increase our social scalability tremendously. We’ve gone from isolated nation state into a global neural network of information flow and communications. But this isn’t enough, our governments still fight over resources.

In order to prevent ecological collapse we need to increase our social scalability yet again. It’s time to organize the entire human race into a unified, coordinated effort.

Our current nation state + capitalism system will never be able to coordinate the efforts needed to prevent ecological collapse globally.

We must transcend nation-state boundaries in order to make/efforce decisions globally.

Until now this has been impossible.

Thankfully, distributed ledger technology such as the blockchain has been invented. There is no way to put the genie back in the lamp.

Thankfully so, because I believe the only way to prevent ecological collapse is to leverage distributed ledger technology to achieve a global consensus mechanism.

Back to energy consumption with bitcoin…

Is BTC’s “wasteful proof of work” mechanism our only chance to save the planet? Or will another consensus mechanism such as POS or DPOS allow this grand vision to be realized.

How does electricity costs and mining pools affect the geopolitical landscape?

Cheap energy sources is the main reason the majority of BTC’s mining comes from China.

When governments (like China) subsidize energy consumption for mining operations, which leads to centralization and unforeseen consequences in our geopolitical landscape.

Most of the mining is done with cheap energy produced by burning coal. Should we ban mining from “dirty” energy sources? Or force mining to be down with 100% renewable energy? Is it fair for countries to allow “dirty energy mining” which hurts our entire planet in the form of climate change.

How does China subsidize mining?

China is building brand new cities and in order to subsidize the infrastructure costs for these municipal energy production plants, they offer miners extremely cheap energy for a few years until the new city’s becomes populated and demand significant energy.

Does high energy costs for Bitcoin (and others) lead to increased innovation in green energy tech?

For example: PRTI and Standard American Mining built the first waste-to-energy cryptocurrency mining setup. Completely off grid and comes from a renewable energy source.

Looking long term: PoW will continue to require high amounts of energy. Especially as we see widespread adoption.

Will the demand for energy outpace our green energy technology? Or will green energy become cheaper and more accessible and make this debate irrelevant?

What about future energy production methods we haven’t conceived of?

Yes of course this is a long ways out. However, it’s inevitable that distributed ledger technology is here to stay. If we don’t come up with an alternative to POW, we will need an energy source to scale with the usage of cryptocurrency.

I've heard crazy ideas like sending satellites to orbit the sun to mine bitcoin. Who knows where our future energy tech will go as our global demand skyrockets.

Can we use Silver to harvest electricity from the sun more efficiently?

What about free energy systems ?

Morse law says eventually producing energy will be almost free

Although BTC consumes a ton of energy, how much is "immutable, censorship resistance, global ledger consensus" actually worth to our species?

Take a second to comprehend how powerful this technology is. It has wide sweeping implications far greater than any ‘currency’ could ever hope to achieve.

After we free the world from the vice grips of the baking industry, what’s next?

We can fix world hunger, prevent ecological collapse, decrease the power of harmful central governments, respond to natural disasters faster and more efficiently, prevent war, extend human life, and colonize space.

How would you put a price tag on that?

I don’t know about you, but I surely wouldn’t price it Dollars, Rupees, or Yuan.

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Let’s face it. This stuff is still new and very hard to understand.

I don’t think enough people have wrapped their head around how powerful the Bitcoin idea really is. This is the first time in history to achieve consensus via a global, trust-less, immutable ledger.

If the average person doesn’t comprehend the power of this technology, then how can they be expected to participate in the discussion about energy usage?

This stuff is hard to understand and even harder to forecast its impact. It requires unlearning what we “know” which shatters the foundation upon which our beliefs are formed.

Among many things, iIt forces us to confront difficult questions such as “what is money?”

Until we have a more widespread understanding of this technology, the question of “how energy should we spend on this stuff” is unanswerable.