Why I changed my mind on Bitcoin's energy consumption problem
October 19, 2022
About two years ago I worked with Evelyne on a piece about the energy consumption of Bitcoin. We shared a strong opinion with many online commenters, that if a bitcoin transaction uses almost a million times the energy of a credit card transaction, then accepting bitcoin as payment is not sustainable.
Elon Musk eventually changed his mind, and Tesla stopped accepting bitcoins. Or maybe it was just a pump and dump ploy… never mind.
Since then a lot of interesting developments have shaken the crypto market several times. And I've had some time to think about energy in a broader context.
Is energy consumption bad?
The popular line of reasoning here is this:
higher consumption demands higher production,
energy production causes co2 emission,
co2 emission in turn causes climate change,
climate change is bad, therefore…
…energy production is bad.
I agree mostly, but I don't agree with the second premisse. There are two missing bits of information hiding under that premisse. First, most energy production on the planet is causing carbon sequestration, and second, all bitcoin mining produces heat. That first claim should raise some eyebrows, so I'll go into that. But first the trivial issue of heat production.
The majority of all heat is produced right now with fossil fuels, if we could electrify that, and make sure electricity is sustainable, that would do a lot of good. Some heat, such as for aluminum and steel, can't be produced by bitcoin mines, but most of it can.
The earlier point of energy production causing carbon sequestration is a bit hairier and needs some explanation. The earth receives a little less than two petawatts of solar energy. Due to reflection and absorption around a petawatt of this energy is available to harvest using plants (photosynthesis), and solar panels. It is impossible to cover the entire surface of the planet with plants and solar panels, so we would have to estimate how much of that energy is used for photosynthesis. We can either do that by estimating plant coverage and photosynthetic efficiency, or look at captured carbon by plants and reason from there. Either way I estimate that plants harvest an order of magnitude more solar energy than the total energy consumption of humanity. Energy consumption does not sequester carbon. And that is where most reasoning about energy consumption is flawed.
A power plant does not really produce energy.
A power plant merely transforms one type of energy into another type. The sun, basically a giant fission power plant (among other things) also doesn't technically produce energy, but for our earthly perspective you can assume it does in the form of sunlight, which here on earth can be transformed into chemical energy by photosynthesis, or to electricity by solar panels. The main point being, that the only reasonable forms of energy 'production' from the perspective of our planet, is capturing sunlight. I'm intentionally leaving out wind, hydro and nuclear here, as they don't change the overall argument much.
The storage is kind of important, because electric energy is great for consumption, but not so great for storage. Storing it as chemical energy (f.e. in the form of carbon based remnants of life) is much more effective.
Is energy consumption bad?
Let's continue on the assumption that energy consumption is any process that turns electricity, movement, or chemical energy into heat. These are processes such as fire, driving a car, or bitcoin mining. To make life interesting and possible, energy consumption is essential. The more life we have, the more energy consumption will inevitably happen. This is in itself not bad. A rainforest or a corral reef consumes more energy than a desert, and we prefer it usually.
What is bad is when we upend the balance of the carbon cycle by consuming or wasting more than we produce.
Currently Bitcoin mining makes up for less than 1/100th of humanity's total energy consumption, and humanity's total energy consumption makes up for less than 1/1000th of the total energy budget for life on earth. Bitcoin is not the problem. Not yet at least.
To make a decision on how we should deal with Bitcoin, we need to quantitatively understand the pros and cons of both Bitcoin and it's alternatives. To understand the parameters that determine the decision a little better it helps to read this detailed article about bitcoin energy consumption. It explains among other things that:
the emissions per transaction are not as high as some previous articles have claimed,
the built in incentives to reduce mining will lower the emissions,
spending energy on things we deem valuable is necessary and defensible.
This challenges all of us as a community to decide how we want to use Bitcoin, and where we want to look for alternatives. It's not black and white, as usual.
Bitcoin as a value store is ok
If we store our long term savings in Bitcoin, we will maybe do one transaction per month on average, probably much less. Even if this transaction takes the claimed 800.000 times of energy of a VISA transaction, it's not going to be significant compared to the impact of say, buying gold, diamond, or real estate. In my mind, storing our wealth outside of centralized control is extremely valuable. This will ensure no pension fund will secretly invest in weapons or fracking against our better judgement. It will potentially put the people back in charge and the wolves of wall street out of business. The cost of this in my mind is minimal compared to the benefits.
Bitcoin as a means to pay for coffee may be too expensive
There are many ways for Bitcoin transactions to be optimised for minimal energy waste, such as the lightning network. But for small transactions, using a layer 1 network that has a better balance between cost and security may be the way to go. The problems that Bitcoin aims to solve, are not so much a problem in small transactions. The same way that you buy tokens on a festival (and are somewhat scammed by the festival organisers), you may lose some control and some money to the actors controlling various coins. But when you buy coffee, some people that are not making coffee always profit. If you don't want that, you should become completely self sufficient (great idea by the way, in theory ;) ).
Bitcoin mining to heat a home is financially feasible
There are many articles out there of people optimising their home setups using all kinds of smart home equipment, solar panels, bitcoin miners. The basic takeaway is that a bitcoin miner is in essence a really expensive electrical heater, with the added benefit that it generates money, as well as heat. With some clever thinking, you can make a small profit heating your home with it. The competition between mining nodes is going to chip away at these profits, but also at the costs of the miner equipment. The energy market and the bitcoin market will balance each other out this way.
Through these incentives the whole world starts to shift from fossil to electrical heating, the incentive for on-site solar and wind increase. And at the same time the energy markets incentivise home energy storage more and more. This bodes well for a smart green grid. As mentioned, we can grow our total energy consumption by a factor of 1000 and still not use the abundant solar energy that is available to us. So in conclusion, I changed my view on Bitcoin and recommend you reconsider yours. I'd love to hear your opinions :)
