Introduction
As it is now customary, we hear radically different opinions on Bitcoin. The good news is that we have moved on from the revolution/fraud debate. Indeed, Bitcoin has earned widespread reputability, primarily thanks to a better understanding of its technology, a growing ecosystem, and adoption by big industry names. The main debate has recently moved and revolves now around its environmental impact. Regularly, mainstream media accuses Bitcoin of being an energy glutton with catastrophic ecological consequences. It is quite the opposite. Let me explain why Bitcoin is not a threat but an opportunity for the environment.
On Bitcoin’s energy consumption
The issue of timing.
New technologies are, by nature, immature and energy inefficient. For example, iron production was initially so wasteful that we wiped out entire European forests to power blast furnaces. The first light bulb’s efficiency was so bad that it made candles look unbeatable. And let’s not even talk about combustion engines and the transportation industry!
Let’s go further than that. Let’s talk about the most significant life-changing discovery for us humans. Between the discovery of fire and that of the wheel, we made the risky move to agriculture. Agriculture began quite sporadically. We were a species of hunters and gatherers, and it didn’t seem right to wait months and stick around to grow food. It took time and social acceptance for agriculture to become effective. In fact, agriculture was at first a very energy inefficient endeavor that led to harsher living conditions and lower life expectancies. But its long-term advantages soon took foraging societies by storm. Today there is no going back, and agriculture is so perfected that we are thinking of growing crops in space.
Bitcoin is no exception to this. It is still immature; thus, we can expect its technology and energy efficiency to improve over time. If we were to judge every innovation in its early stage because of its lack of efficiency, we would still live in caves.
The issue of number accuracy.
One of Bitcoin’s key characteristics is its transparency – “code is law”, open for anyone to look at. The transactions are all recorded, unalterable, and available for anyone. These are standards of transparency that the current financial system can never achieve, no matter how much energy we dedicate to it. This unparalleled transparency also indirectly applies to how much electricity Bitcoin consumes.
While Bitcoin does not keep track of its energy consumption per se, it does keep track of its hash rate. The hash rate refers to the computational power used to run Bitcoin. It is a health signifier for the network. The higher the hash rate, the stronger the security and, therefore, the more trust in the Bitcoin network. The hash rate is also a good proxy for the energy Bitcoin consumes. True, going from hash rate to energy consumption is not as straightforward as it looks. Yet, no other human activity can be as transparent as Bitcoin when it comes to calculating its energy consumption.
This transparency does not prevent the media from quoting overblown estimates of the electricity needed to power Bitcoin as high as 3 percent of the world energy. And let’s not even talk about apocalyptic forecasts that Bitcoin will end up using half the world energy or more. These numbers come from unreliable and questionable sources to say the least. More reputable sources, such as the University of Cambridge, put Bitcoin’s energy consumption at a much lower 0.5 percent of the world’s total.
The issue of meaningful comparison.
Bitcoin’s energy consumption is often compared to the energy used by an entire country. For example, mainstream media once compared Bitcoin’s energy consumption to Luxembourg, and now to Sweden. This comparison is not only wrong but meaningless and detrimental to a healthy debate. Stating, for example, that Bitcoin consumes less than half the electricity used by always-on inactive home devices in the USA provides a totally different picture indeed. Instead, it would make more sense to compare Bitcoin’s energy consumption to human industries or activities. The most meaningful would be to compare Bitcoin and its ecosystem with the very industry it aims at replacing. Unfortunately, this is a complex undertaking because Bitcoin can be so many things, from peer-to-peer e-cash, to digital gold to an alternative to the current financial system. In the end, only a free-market economy can decide if one human activity or another is worth the overall resources it requires.
The issue of energy sources.
But there is more to an accurate and meaningful comparison than just how much energy a human activity consumes. What matters even more, is how it is produced, where it is produced, and what alternative usage it could have. Driving your diesel car around Paris to show how beautiful the city is to your American guests introduces pollution in the place that needs it the least. Worse, the energy consumed for deforestation or mining gold is just terrible for the planet on so many levels. While we can understand the drivers behind deforestation, it is quite nonsensical to keep mining gold. After all, an overwhelming amount of the gold stockpile is locked in vaults as investment and gold reserve. The well-documented catastrophic ecologic and human cost to mining gold is simply indefensible at this point.
In contrast, powering Bitcoin with excess energy impacts the environment quite literally next to nothing. This rarely makes the news, but only around half the energy produced on Earth is used productively. The USA leads the world with an energy efficiency of only 42 percent. Some of this wasted energy comes from a production surplus. Bitcoin increasingly takes advantage of this vast reservoir of cheap, untapped energy that would otherwise go to waste. As a result, Bitcoin’s energy consumption is substantially carbon-neutral, with estimates varying from 39 percent to 73 percent. In summary, and despite Bitcoin’s technological immaturity, its overall impact on the environment is already negligible – quite a far cry from the catastrophic presentation given by mainstream media
On Bitcoin’s sustainable transformation
Bitcoin as an accelerator to the energy transition.
We could stop here and conclude that in the crucial fight for building a sustainable planet, Bitcoin is not the foe we thought it was. But that would be missing another critical point – that of Bitcoin as a friend of the environment. Indeed, Bitcoin is becoming one of the few accelerators to the much-needed energy transition. So, let’s take it step by step.
Bitcoin is run and secured by a globally distributed network of specialized datacenters called miners. Miners compete against each other and are paid in Bitcoins for their essential work. The two key factors to be a successful miner are to invest in efficient hardware and to secure access to cheap electricity. As written in a memo from Square research: “Bitcoin miners are unique energy buyers in that they offer highly flexible and easily interruptible load, provide payout in a globally liquid cryptocurrency, and are completely location agnostic, requiring only an internet connection. These combined qualities constitute an extraordinary asset, an energy buyer of last resort that can be turned on or off at a moment’s notice anywhere in the world.”
As I previously mentioned, there is much excess energy out there – as much as 4,000 TWh, considering the gap between world energy production and world energy consumption. That could power the entire Bitcoin network 40 times! This is especially true for new power plants that may at first be oversized for the market they are eventually intended for. That’s the case of large hydroelectric power plants in developing countries. Bitcoin miners, unsurprisingly, are setting up their mining facilities near such power plants to secure low energy prices for long periods of time. That’s far better than being exposed to market price fluctuations of other energy sources such as fossil fuels.
As a result, Bitcoin increasingly runs on clean, sustainable energy that would otherwise go to waste. This also means that new power plants can now sell their excess energy to an unanticipated new kind of client. In turn, it makes new power plants profitable faster than expected and incentivizes the construction of more of them. Bitcoin mining, therefore, is contributing to accelerating the transition to newer and more sustainable power plants.
This trend is speeding up. China’s recent so-called “crackdown” on cryptocurrencies only meant it was time for miners to move to quieter and greener neighbors. While miners took advantage of inexpensive, subsidized coal power in the past, now the push is towards renewables. Hydro, solar, wind, and even geothermal energy (as proposed by El Salvador) could soon power a 100% sustainable Bitcoin network.
Taking steps to safeguard the environment is crucial today more than ever. And we can certainly use more than just the Paris agreement to fight climate change and build a sustainable planet. Bitcoin might be the unexpected ally that will help save the day.
Bitcoin as an accelerator of economic development.
Ross Stevens, CEO of Stone Ridge, goes even further. He thinks that Bitcoin can both accelerate energy transformation and bring economic development to underdeveloped areas. He says: “Bitcoin mining is the only profitable use of energy in human history that does not need to be located near human settlement to operate. The long-term implications of this are world-changing and hiding in plain sight.”
Indeed, as Stevens tells us, the problem of energy was never one of scarcity. Quite the contrary, the problem was: how to channel energy where it’s needed most? And again, before Bitcoin, says Stevens, that was where humans lived. But Bitcoin’s mining solves an entirely different problem – thanks to satellites and wireless internet connections, mining can occur anywhere. Hence, Bitcoin mining can change the economic paradigm by making energy consumption highly profitable and location independent. Stevens also underlines that fossil fuels are already too expensive to be a profitable energy source for Bitcoin mining. He believes that in the future, Bitcoin mining will be powered by hydro.
“Imagine a future,” says Stevens, with Bitcoin mining firms, unsubsidized, in extraordinarily isolated locations – visualize a waterfall in a largely population-free part of an African country suffering from abject poverty – easily connected to the Bitcoin network, building serious energy infrastructure to monetize the local clean energy source for mining.” But that, of course, is just the beginning of Bitcoin’s power for social change.
“However, once the industrial-strength, profitable infrastructure is in place, let’s extend it,” continues Stevens. “Let’s build roads. And housing. And schools. And hospitals. Ultimately leading to human settlement. The net result can be people locating around new, Bitcoin-driven hydroelectric energy infrastructure, with more and more of humanity clustering around cheap, clean energy sources. Historically, our energy challenge has been to move the power to the people. With Bitcoin, we can move the people to the power.”
Conclusion
Bitcoin is a technological breakthrough that has brought about intense polarization. That’s because it’s a technological breakthrough that challenges many building blocks of our society. Bitcoin is a trust revolution and, as such, touches on the core of what matters most to us.
With its ultra-secure blockchain, growing ecosystem, and massive worldwide adoption, Bitcoin is building the foundation of a new global financial system one block at a time. Every day, Bitcoin moves effortlessly around the world billions of dollars in value, showing how blatantly inadequate the current payment infrastructure is. Bitcoin is also proving its potential to be a far better alternative to physical gold in finance, addressing the gold industry’s age-long issues and associated ecologic and human cost. Lastly, Bitcoin and its ecosystem are consistently devising new capabilities to take on the world financial system. It’s a tall order: Rome wasn’t built in a day. But the old system’s complexity and flaws are no longer tolerable. Bitcoin’s quantum leap towards simplicity, transparency, and efficiency is the rational way forward.
And now, in an unexpected turn of events, what many thought was Bitcoin’s Achilles heel turns to be an opportunity for the planet. Far from being an environmental threat, Bitcoin could be the best tool we have right now to accelerate our economic transition to sustainable energy. We might even see Ross Stevens’s vision come true soon. A world where instead of moving the power to the people, we can move the people to the power, rebalancing the distribution of human centers on the planet.
It is a tough time to be a Bitcoin hater. Bitcoin is a gift to humanity that keeps on giving.
