Addressing Concerns About Bitcoin’s Electricity Use

Bitcoin mining is a catalyst for more sustainable energy production.

Bitcoin uses electricity through a process called proof-of-work mining in order to preserve the integrity of its distributed network and add new blocks of transactions to the ledger. Without getting too technical, the electricity expenditure demanded by proof-of-work mining is the only mechanism through which bitcoin can exist as an incorruptible and leaderless network.

Most critiques that focus on bitcoin’s electricity use are misguided and require a deeper understanding of bitcoin mining’s unique characteristics. Bitcoin mining serves as an economic incentive for more sustainable energy production. And that’s a GOOD thing!

But Bitcoin mining wastes electricity!

There have been many criticisms referencing “bitcoin’s energy waste.” These critiques often conflate electricity waste with electricity use. It’s true that bitcoin mining uses electricity to maintain its network. Bitcoin mining operators convert electricity into additional bitcoin and security for the network. This function is necessary for the network and is highly valued by its users. By definition, electricity used by the bitcoin network is NOT wasted.

Some may also incorrectly argue that playing video games, using jacuzzi hot tubs, or watching Netflix is a waste of electricity. However, simply because these activities consume electricity does not mean that energy is wasted. People purchase the electricity for those activities because they value their output, and value is subjective. Similarly, bitcoin mining is able to use electricity because its output is highly valuable to its users.

Electricity use in and of itself is not a bad thing. Quality of living has improved enormously with the increasing ability to generate, transmit, and convert energy into electricity. Historically electricity use has closely tracked economic growth.

But Bitcoin is unnecessary, the current system is just fine!

Before one criticizes bitcoin for its electricity use, it might be helpful to consider its value proposition versus the current monetary and fiscal experiments. Bitcoin serves as transparent and egalitarian alternative to fiat currencies created and distributed by central bankers and their counterparts in government.

Governments and central banks find themselves in a precarious situation in the wake of record spending, deficits, and balance sheet growth during times of historically low interest rates that are beginning to rise. The need for an alternative to the unsustainable trajectory of these trends is becoming more apparent. Owning bitcoin is now a viable corporate strategy to hedge against the inevitable consequences of unprecedented monetary policy and historic government spending.

Bitcoin’s unparalleled transparency allows for misguided critics to easily point to bitcoin’s hash rate and corresponding electricity use estimations without an obvious comparison to the system for which it aims to be an alternative. The energy consumption of central banks and government treasury operations is opaque in contrast. If one could measure all of the inputs required to keep current banking systems operating, such as retail banking locations, executive offices, ATM networks, armored transport trucks, armed guards, data centers, paper money and coin production, etc., bitcoin’s electricity use may seem relatively small. Not to mention trying to measure the consequences of the dollar-backed military industrial complex, gold mining, or the petrodollar dynamic that reigns over global energy markets.

Additionally, the current legacy system allows authoritarian governments to remove people’s access to the traditional banking system with the stroke of a pen or click of a mouse. These draconian measures often leave bitcoin as the only alternative to corrupt government fiat hegemonies. Bitcoin has proven to be a necessary tool to help human rights activists in the fight against oppressive regimes around the world. Bitcoin is an equalizer in the struggle of the individual versus dictatorship.

But Bitcoin’s carbon footprint will boil the oceans!

It’s important to distinguish between energy use and pollution generation. Most bitcoin miners understand that reducing pollutant emissions is important for the sustainability of their industry and for society at large.

The bitcoin mining industry is extremely competitive. Miners are incentivized to seek out the lowest cost energy supply. Any possible strategy to reduce costs or increase efficiency must be adopted or miners will be muscled out of the market by their competitors. This cut-throat competitiveness dovetails nicely with the use of low-cost renewable energy.

According to a recent study, 76% of miners use renewable energy as part of their energy mix. Another study estimates 73% penetration of renewable energy as a percentage of the overall energy mix.

Demand for relatively inexpensive energy such as hydropower, wind, and solar, incentivizes the expansion and creation of additional renewable power plants. Building new renewable generation stations is often challenging due to inconsistent local demand and higher barriers to entry. Bitcoin mining creates a baseline demand for this energy, allowing these producers to break ground with less economic uncertainty. Notable bitcoin investors believe that bitcoin “will eventually be powered completely by clean power, eliminating its carbon footprint and driving adoption of renewables globally.” One such example is a new 100% renewable wind farm in Morocco that will mine bitcoin while also providing cheap electricity for local residents who may otherwise not have access.

In addition to using clean renewable sources of energy, bitcoin miners are also taking advantage of underused and stranded natural gas. Oil and gas producers often have excess gas that they are unable to sell or transport, which forces them to shut down production or flare gas into the atmosphere. Many governments and legislators are placing restrictions on oil and gas producers in order to reduce or entirely eliminate flared gas, leaving them with the threat of suspending operations.

This has been an opportunity for some bitcoin miners to partner with oil and gas producers with lucrative and sustainable off-take agreements. The bitcoin miners convert the otherwise flared or stranded gas into additional bitcoin and security for the network. This partnership incentivizes the producers to run cleaner while also making them more profitable. Installing bitcoin mining operations at upstream oil and gas production sites may soon be a competitive necessity in order to lower pollutant emissions and simultaneously add to bottom line revenue.

But Bitcoin mining deprives others from energy consumption!

It’s difficult for bitcoin miners to compete for electricity in high demand areas as the increased cost would handicap their business model. Instead, Bitcoin mining creates demand for otherwise underused energy sources, which is a welcome development for the future of reliable grid management.

Inconsistent demand and excess production is a constant problem for efficient grid management. Bitcoin mining equipment is unique in that its self-contained and revenue-producing, which offers appealing solutions for grid operators. The installation of bitcoin mining equipment can offer profitable on-demand consumption of excess energy to help with load balancing. Grid operators can mine bitcoin with excess energy during times of low demand and gradually turn the miners off as demand increases. This flexibility allows grid operators to be more efficient, flexible, and profitable while managing load imbalances.

Another factor to consider is that most traditional energy consumers require the energy to be transported to them. Alternatively, bitcoin miners are mobile and can be transported to remote areas that have additional capacity to generate energy.

But Bitcoin’s energy consumption per transaction is too high!

Calculating the electricity cost per transaction is a flawed methodology. Electricity use is not a function of the number of transactions. Using more or less electricity does not have a direct impact on the number of transactions performed on the network. Additionally, transactions can be performed on supplemental network layers, such as the lightning network and sidechains. Simply put, bitcoin’s energy use does not necessarily scale with the number of transactions or network participants.

Conclusion

Bitcoin is a seminal breakthrough for individual empowerment and an increasingly attractive alternative to the legacy financial system. This alone is more than enough to justify its electricity use.

Furthermore, bitcoin mining serves as an economic incentive to increase the production of clean renewable energy, reduce overall pollutant emissions of oil and gas producers, and increase the reliability of electric grid operators through more efficient load balancing.

Bitcoin mining does NOT waste electricity, but instead, it will be a catalyst for more sustainable energy production.

Thanks to Marty Bent, Beautyon, Nic Carter, Dan Held, Steve Jeffress, and John Belizaire, among others for producing content that helped me frame my thinking.

#bitcoin 🍊 🪙 👍

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