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A person using the pen name “Satoshi Nakamoto” released a paper in 2008 introducing Bitcoin in an attempt to solve a problem with internet commerce: trusted third-parties needed to mediate online transactions resulted in increased costs and eliminated the anonymity buyers have when using cash. In Satoshi’s plan, we could avoid these problems by replacing trusted third parties with cryptographic security—basically just math.
What Satoshi envisioned was more than just Bitcoin. He proposed a way to make a shared online ledger where anyone can record data like financial transactions in a way that can’t be edited after the fact. This is known as a “Blockchain” and bitcoin are the reward for creating a new block in the chain.
While Satoshi’s math works, and the invention has potential uses, there is an underlying flaw. The “proof of work” mechanism that controls how and when new blocks are added to the blockchain is very energy intensive and wasteful by design. Currently, the network uses over 15 gigawatts of energy—in other words, the network as a whole consumes more energy than the average Pennsylvania household uses in 40 years for each Bitcoin it creates. With most of that energy coming from polluting fossil fuels, that results in an enormous amount of pollution including climate destroying greenhouse gases. It doesn't need to be this way—Satoshi picked one way of regulating how Bitcoin’s blockchain operates, but there are alternatives that can do everything that Bitcoin can do without being nearly as energy intensive.
Moving to a more efficient “coin” than bitcoin will be challenging. As the first cryptocurrency to be introduced, it has inertia in the market that will be challenging to overcome. The system also has powerful supporters among people who sell energy—particularly the fossil fuel industry—who like the idea of a new industry that heavily relies on their product.
On January 20, 2022 the U.S. House Committee on Energy and Commerce held a hearing on “Cleaning up Cryptocurrency: the Energy Impacts of Blockchain.” While the Committee and the panel of speakers made some good points and accurate observations, the hearing also provided a platform for several pro-bitcoin boosters to repeat really bad arguments in favor of wasteful crypto-mining. Below is a quick review of some of the bad arguments the committee didn’t challenge:
I’d gladly pay you Tuesday for a Hamburger Today
Polluting industries often claim they use fracked gas now, but sometime later they will voluntarily switch to hydrogen, install carbon capture, or otherwise stop polluting. Bitcoin is no exception with claims that it will eventually clean itself up. Even if that happens (and there is no guarantee it will) energy will still be wasted. If we adopt a cleaner alternative to Bitcoin instead, we can still get all the benefits of blockchain technology while we use the clean energy for other priorities or reduce consumer prices because supply exceeds demand.
Wasting energy is good for [reasons]
A recent claim noted that using fracked gas for mining Bitcoin is a “better” choice than flaring it, but that is a strawman argument. An even better choice is investing in energy efficiency and clean renewable generation so we don’t have to frack the gas in the first place. Even if one concedes some fracking is inevitable, the flaring might not be. More stringent regulations of fracked gas emissions and leakage can often solve the flaring problem.
A similar spin on this argument is to say that mining Bitcoin could “absorb wasted clean energy.” It is true that some areas with very high levels of clean generation have seen days with so much generation that electric prices go negative and people are literally paid to take it. Getting paid to use energy would be a good deal, but Bitcoin miners aren’t going to spend huge amounts of money on mining hardware with a useful life measured in months and then sit idly by waiting for such an opportunity.
Look! A Squirrel!
Bitcoin miners will rely on distraction tactics such as redefining “value” to claim Bitcoin isn’t actually wasteful after all. For example, some have claimed that because they use Application Specific Integrated Circuits (ASICs) that are heavily optimized for their job, they can crunch numbers much more efficiently than the more general-purpose machines that fill the average corporate data center.
An ASIC may be the most efficient way to do one particular calculation 100 trillion times every second, just like using a single enormous mining truck may be the best way to move 400 tons of dirt around a mine. But, if you can accomplish the same job without moving 400 tons of dirt, you can’t really call the giant truck an efficient choice. Similarly, if you don’t really need to do 100 trillion calculations per second, being able to do that better than anyone else is pointless.
Another distraction tactic relies on redefining pollution. In this case, a company PR department will promote the fact that they are complying with required environmental permits, or have installed emissions control systems, thereby implying that they aren’t polluting. It should be obvious that doing the minimum required by law to reduce pollution isn’t the same as being clean—cars have emissions controls too, but we know not to run the engine in a closed garage.
Greed is Good
Another way of redefining value is to argue that miners are not being wasteful if they are producing something people are willing to pay for.
There is undoubtedly a lot of money invested in Bitcoin. At the time of this writing, the Market Cap of Bitcoin was over $700 billion. Compared to corporations, that is only exceeded by Apple, Microsoft, Saudi Aramco, Alphabet (Google), Amazon, Tesla, and Meta (Facebook). Is Bitcoin really worth $700 billion, or is it a giant speculative bubble—the modern version of the seventeenth-century dutch tulip mania?
Famous value investor Warren Buffet, who’s own company Berkshire Hathaway falls just below Bitcoin on the Market Cap list, once said “If you buy something like Bitcoin or some cryptocurrency, you don't have anything that is producing anything. You’re just hoping the next guy pays more. And you only feel you'll find the next guy to pay more if he thinks he's going to find someone that's going to pay more." Buffet’s vice chairman Charlie Munger was more concise and compared Bitcoin to “rat poison.”
Blockchain technology has some interesting use cases, but there are thousands of chains to choose from ranging from serious corporate platforms to jokes that took on a life of their own. Bitcoin may use a blockchain, but it’s not the only game in town, and countless other blockchains that can do everything Bitcoin’s can do if not more. Except for name recognition, it’s hard to see any value unique to Bitcoin nevermind anything worth $700 billion.
Even if Bitcoin could justify its market capitalization, using that as the measure of its value is deeply problematic. Mining Bitcoin is causing pollution that harms public health and exacerbates the climate crisis. Not counting the negatives when you talk about value only gives you half the picture.
So, where do we go from here?
The first step should be to end subsidies for bitcoin mining that come out of the pockets of Pennsylvania ratepayers and taxpayers. This is the easiest and most common sense solution to tackle this issue.
Second, we need to educate policymakers and investors about the energy and environmental impacts of bitcoin. Hearings like the one held recently in Washington, D.C., are a good first step, but we need much more than that, both federally and here in Pennsylvania.
Then, finally, we need to move away from “proof of work” cryptocurrencies that are wasteful by design. Bitcoin relies on solving a difficult and energy-intensive math problem to create a new block in the chain, but that isn’t necessary and isn’t compatible with environmental and climate goals.
Simply put, bitcoin mining has proven to be wasteful and dirty, and that likely won’t change any time soon. For more information on the environmental impacts of cryptocurrency mining in Pennsylvania, be sure to check out my recent interview with ABC News, as well as another interview with the Allegheny Front.
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