Green money
The New York Times announced to its readers in March that it had a redesigned website. A single bitcoin transaction requires more than 2000 kilowatt-hours (or enough energy to power an average American household for 73 nights).
To the vast majority who view bitcoin with suspicion, this claim will have been accepted. It was also the time of the Greenpeace lobbying campaign, which directly linked Bitcoin’s proofof-work mining system with climate change. At the same time, European Parliament lawmakers voted to ban bitcoins energy-intensive type of mining. However, they decided against doing so.
It is becoming more difficult to support bitcoin without compromising your environmental conscience if you are not familiar with its design and purpose. The New York Times, among others, portray bitcoin as a gas-guzzler.
This is what the newspaper should’ve told its readers: The energy required to keep bitcoin afloat is so great that, when compared to the current low levels of user engagement, individual transactions seem to reflect a high capital expense. This statement is factually correct. It acknowledges that bitcoins environmental impacts would be detrimental if the network was not scaled up efficiently, but it also places the status-quo in its proper context. Bitcoin transactions don’t consume more than 2,000 kilowatts of electricity. They happen in a flash of an eye, with just a few lines of text entered into the network transaction record. They cost as little as sending an email. True, it is true that behind the scenes, the massive digital infrastructure that supports Bitcoin, like the sprawling web exchange points and data centers, is capital-intensive. Bitcoin is, however, worth it.
Imagine an airline that only has one plane and only one route: London to New York. On Christmas Eve, 200 passengers are carried by the airline to New York. The airline’s next scheduled departure from London on Boxing Day is also fully booked. As most people avoid Christmas Day travel, only 20 seats have been booked on the New York return leg. This flight might be criticized by environmentalists as being socially irresponsible. They argue that each passenger’s carbon footprint is 10x greater than it should be. However, if the airline did not run the return leg, it would be stranded in New York and its plane wouldn’t have the ability to carry any (highly efficient), Boxing Day passengers. The unpopular Christmas Day flight is an operational anomaly that was necessary, but it is not indicative of the airline’s carbon footprint.
This essay will argue that bitcoins current stage in development should be looked at through the same prism, which is long-term averages and projected utilitiy. A flight’s performance is not enough to judge an airline. A manufacturing plant cannot be judged on the performance of its first product. Bitcoin, which is a peer to peer monetary network, was created to protect the interests billions of global citizens. It cannot be judged until a few thousand people cotton onto its benefits.
It’s normal for society be confused and skeptical when there is a technological revolution. People are unable to comprehend why and how their old ways of doing business are losing their relevance. They worry about the impact of these changes on their future. If you want to write objectively about Bitcoin, then you must start with the facts. Accuracy and clarity are essential. This must be accompanied by the firm caveat that it is impossible to know how much this technology will benefit, harm, or neutralize humanity. Predicting the impact of technology on social, economic and environment change is only a conjectural task. The best approach, but the one most people are unwilling to take, is to spend your time learning new concepts and in contemplating how they might impact your world of tomorrow.
Let’s start with a refresher. HowBitcoin functions as a monetary network. Why?This is how it was deliberately designed. Only by understanding these basics, can we assess bitcoin’s carbon footprint from a sane perspective: what purpose it serves; how large it is; and, ultimately whether its beneficial or harmful to society.
Why does bitcoin consume so much electricity?
Bitcoin is the first monetary blockchain that is decentralized. This means that it does not depend on a central authority such as a bank to move funds around. Instead, it relies upon multiple identical copies distributed around the world of one ledger. These ledgers are updated approximately every 10 minutes with a new set of data. Each block contains details about the most recent transactions across the network. Your request to send bitcoins goes through a queue. If the fee was paid, your transaction will be confirmed in a newly mined bloc. At this point, the coins are transferred to mine wallet. There they will stay until I make a new transaction using my private keys. The transaction was confirmed by all the ledger copies that circulated around the globe. Therefore, everyone in the network agrees that the coins are mine. Someone could steal them by rewriting their ledger. To do this, they would need a new block with different historical data than all the other blocks. Because of the mathematical process used to mine new blocks (cryptographic hashing), this type of reverse engineering would be impossible. The network would reject the fraudulent block immediately.
Do not worry if cryptographic hashing does not explain how immutable data is achieved. I am a journalist, not a mathematician, and I don’t understand it. I don’t know much about aerodynamics, but that doesn’t stop me from flying planes with confidence. The key point is this: For many decades, the world’s most brilliant mathematical minds have dissected cryptographic hashing and public-private cryptography to the nth extent. There has never been a flaw in blockchain technology’s use. These algorithmic functions are mathematically sound and can be used to create distributed ledgers. I recommend that you do not buy bitcoins or board any planes if you are uncomfortable with this assumption.
None of these answers, as you’ll see, answer the question in my subheading, Why does bitcoin consume so much electricity? However, it does lay the foundation for an explanation if you’ll just keep reading.
Remember that any attempt at fraudulently altering a blockchain’s history will be rejected by the network. That’s okay. It’s very good. But WhoIs the network functional? At the time this article was written, the network is 15,259 people share copies of the ledger. (nodes).Unknown number of people trying to mine the next block (miners). These people use power-hungry hardware to try to guess the unique cryptographic hash needed to mine the block. Why bother? Because they get bitcoin for their efforts when they are successful. This is why the network was built around this convoluted proof of work game. Because energy is security. If it were easy to mine fraudulent blocks and validate them, hackers would be able to launch a 51%-attack. This is a scenario where more than half of the network’s users are controlled by malicious actors. In other words, if criminals or hostile governments wanted your bitcoin, they would be able to. Bitcoin would be null.
Consider aviation again. It is not enough for an aircraft manufacturer just to be able to understand aerodynamics on paper. Boeing and Airbus have to take this scientific knowledge and apply it in real life through an engineering process that uses only the best raw materials, components, and practices. Only then can they create a safe, reliable plane that people will want to fly on. Bitcoin is no exception. Without a reliable, energy-intensive mining infrastructure bitcoin would be unsecure and not attractive as a monetary system. It would exist as an idea. It is important who the network’s members are, and why. Only a complicated and expensive process like proof of work mining can ensure that the broad interests and society prevail over the narrow interests and threats to the community..
What is the cost of this magic trick
Although estimates of the network’s total energy use vary because of the anonymity of mining, the University of Cambridge’s most recent analysis puts it at approximately 138 Terawatt-hours per annum. Digiconomist, a tech website, suggests it more like 205 Terawatt-hours per Year. Critics worry that these figures are comparable with the total primary energy consumed by a Small country like Ireland.
However, these analogies can be misleading. The society cannot determine the cost of something unless it first identifies the thing being costed and agrees to it. In Ireland, the energy consumed by the nation fulfills an uncontroversial and clear purpose. That includes powering businesses and homes; supplying energy to industries and public services; and transporting people and goods. Many energy resources are wasted at the microcosmic level. As with all countries, there is plenty to criticize Ireland’s carbon footprint. On a macro scale, however, even the most radical environmentalist would not dare suggest that Ireland should stop all energy consumption. The thing that is being costed, is the very ability for the State and its peoples to function. That’s got to be worth a few emission.
Things are more complex when it comes bitcoin. Thirteen years after the creation of cryptocurrency, humanity is only scratching the surface on what decentralized sovereign digital currency means for our species. We have only begun to experiment with ideas. Some are farcical, such as meme-coins, others are exploitative, such as pump-and-dump scheme, and some are so powerful that superpowers fear they will ban them altogether, like bitcoin or decentralized finance. The world’s wealthiest man believes that a joke cryptocurrency may one day be viable money despite its many security flaws. He is wrong. The majority of bitcoin supporters and critics agree with him. Yet, bitcoin’s potential is more important than ever. It will allow society to create a new currency that society and not government can value and fungibly. It will make it easier to transact between people and across countries than any other means of exchange. This monetary policy has such a classical, puritanically classical approach that it banishes inflation by fixing supply for eternity.
It’s a lot to absorb, especially when you consider that none of it has actually happened yet. But, if you return to the Ireland analogy, this abstraction becomes quite enlightening. Everyone can agree on the nature of Ireland’s economy and why it should continue to exist. Bitcoin is a topic that few people can agree on. It is difficult to define bitcoin for costing purposes.
If you’re in the camp that considers bitcoin a frivolous game without any real-world application, then it is probably best to ban it. This is a growing trend that sees bitcoin as a frivolous game with no real-world application. Younger generations, who have seen rising inequality, falling opportunity and negative real interest rates, have a strong incentive not to dismiss new economic models. Their digital intuition makes it easier to learn bitcoin. This isn’t a game for the faint of heart. Africans have been exempted from financial platforms and tools for decades, which Westerners often take for granted. Many of these people also benefit from the profits in the developing world. There are also no Venezuelans or Iranians whose lives savings could be lost in a flash of hyperinflation. These are complex, nuanced topics that deserve their own discussion. The point is universal. If bitcoin is a force for good, it will move humanity away from an era in which governments control and manipulate money supply. To an epoch where money is a personal, uncorruptible asset, then the cost of running the network is immeasurable higher than what environmentalists claim.Even an exorbitant expense will still yield a tremendous return on investment.
There have been attempts to quantify bitcoins utility by comparing it ($900 billion) to Irelands GDP ($418billion), but no one has been able capture its abstract benefits or future potential. It is impossible to predict bitcoins eventual size, as we have already stated. Comparative efficiency is the best way to gauge bitcoin’s future scale. Is it more environmentally friendly than existing global financial infrastructures?
A better question is: How efficient does it work?
This is where we need to be cautious. Most of the information written about bitcoin’s environmental credentials has been biased. Authors have chosen unscientific statistics to support their claims. People who support bitcoin mining solely on the grounds of renewable-energy consumption ignore the fact that very little is known about the fuel sources that power the network. Let’s stick to the facts, and not over-interpret them.
Recognizing that the current global financial infrastructure is not environmentally friendly should be the starting point. It is difficult to find accurate statistics and the ones that do exist are often misleading. Greenpeaceces analysis of UK financial sector found that it was responsible in 2019 for 805million tonnes of CO2 emission (nearly twice the UKs total carbon footprint). This figure was reached by including financed CO2 emissions, which are indirect resulting from loans and investments made in financial institutions. This is clearly an inefficient method to inflate numbers. Researchers said that they broke down their data into more specific channels to get a better picture of the use company vehicles and offices; the use leased assets; commutes and business travel by employees and so forth. They did not include any details in their report. We can only say that the global financial industry has a significant environmental impact. Its skyscrapers, computer networks and jet-setting bankers do not help climate change. We can also assume that central banks, and their money-printers, are not greener.
Bitcoin’s use of energy becomes less secretive and more openly transparent. You can eliminate the need for many financial middlemen by removing centralization. The advent of algorithmic smart contract technology means that virtually everything that traditional banks do can be done with bitcoin and decentralized finance. Combining these efficiency gains with the social benefits of financial sovereignty, you can see why some people think that bitcoin mining is worth the environmental cost. There is a stronger argument.
The stranded power problem, which is a major obstacle to global expansion of renewable energy harvesting, is the biggest obstacle. It is one thing for a poor country build a hydropower, solar, or wind plant. Foreign investors are lining up to finance these projects. It’s quite another to connect a plant that is likely in a remote area to the developing nation’s power grid. A functioning plant is not enough to generate energy. You also need an infrastructure that can absorb that energy and distribute it across the country. Africa’s renewable energy sources are not commercially viable without powerlines or transformers and without stable demand. It is a terrible blow. If only there was a way for those countries to build renewable plants; to serve their communities to the extent that infrastructure and local demand allow; and to transform all the surplus energy into a guaranteed income, 24 hours per day, 365 jours a year. It’s hard to not smile at this sentence if you are a bitcoiner. All who are familiar with bitcoin mining technology will see the solution. Ethiopias Project Mano is an advocacy group that works hard to raise awareness with governments. It takes only time and effort.
There are other instances where bitcoin can solve an environmental problem that traditional finance simply cannot. Due to the logistical and economic impracticality of transporting fossil fuels for processing, gas flaring at oilfields is acceptable in the developed world. Excessive gas from wells is vented to the atmosphere and burned off, creating nothing more than a visual spectacle. Bitcoin mining has allowed oilfields all across the US to feed that gas into generators on-site, creating value from otherwise wasteful combustion.
This unique ability of harnessing stranded and wasted energies adds weight to the argument bitcoin may indeed for all its emission, and as absurdly as it sounds, be a green tech. But there is one last piece to the efficiency puzzle.
Bitcoin is often criticised for processing a small number of transactions by design. The primary layer of the network currently processes about 4.6 transactions per seconds, compared to 1,700 by Visa payment processor. You can speed things up to match or even exceed Visas capability. Either increasing the data in each block or decreasing the time it takes to generate them.. The former would result in centralization because fewer nodes would have enough bandwidth to keep up. The latter would be a compromise in security because blocks could not propagate quickly enough to allow nodes their oversight function.
Critics claim this is bitcoin’s Achilles heel. It prevents the network from scaling; transactions will never work efficiently; and the environmental cost will be high. They are wrong. Bitcoin is not more limited by its primary-layer Blockchain than the internet by the TCP/IP protocol’s limitations. It was launched in 1983. Second-layer solutions, such as the Lightning Network, are already in widespread usage. Bundling a theoretically infinite amount of off-chain payments into one on-chain payment.
Bitcoin is more secure, more egalitarian, and more efficient than any form of money. It incentivizes renewable energy harvesting and optimizes plants that are not renewable. It is also the most scalable and flexible payment system ever invented. We don’t know how bitcoin will affect our world in abstract ways. Bitcoin is a technological and financial leap for humanity that anyone who really understands it can see.