How do you keep your digital currency safe? Jerry Brito, Executive Director of the Coin Center, explains how multisignature technology provides increased security for digital currencies such as Bitcoin.
The word “bitcoin” is as likely to garner feverish excitement as it is glaring criticism. The financial community sees speculative promise in the form of trade that currently has little to no regulation. Meanwhile, others argue that it’s a distraction that detracts from the overall longevity of US financial institutions.
Bitcoin’s energy consumption has become a recent talking point in the debate. A Forbes article published May 30 indicates that bitcoin dramatically increases global energy consumption—and that electricity is its “Achilles heel.”
I am a researcher who studies clean energy technology, specifically the transition toward decarbonized energy systems. I think that the conversation around bitcoin and energy has been oversimplified.
New technologies—such as data centers, computers and before them trains, planes and automobiles—are often energy-intensive. Over time, all of these have become more efficient, a natural progression of any technology: Saving energy equates to saving costs.
By talking specifically about just the consumption of energy alone, I believe many fail to understand one of the most basic benefits of renewable energy systems. Electricity production can increase while still maintaining a minimal impact on the environment. Rather than focusing on how much energy bitcoin uses, the discussion should center around who indeed is producing it—and where their power comes from.
Unlocking a bitcoin requires an intense amount of computational power. Think of bitcoin as sort of a hidden currency code, where its value is derived by solving a programmable puzzle. Getting through this puzzle requires computer brainpower.
Electricity is 90% of the cost to mine bitcoin. As such, bitcoin mining uses an exorbitant amount of power: somewhere between an estimated 30 terrawatt hours alone in 2017 alone. That’s as much electricity as it takes to power the entire nation of Ireland in one year.
Indeed, this is a lot, but not exorbitant. Banking consumes an estimated 100 terrawatts of power annually. If bitcoin technology were to mature by more than 100 times its current market size, it would still equal only 2% of all energy consumption.
Bitcoin is certainly consuming an increasing amount of power worldwide, but is it increasing the world’s carbon consumption? Bitcoin miners have traditionally set up shop in China, where coal supplies 60% of the nation’s electricity.
Bitcoin mining in China, with a largely fossil-based electricity source, may indeed be problematic. China is already one of the world’s major contributors of carbon emissions. However, bitcoin mining in Oregon? Not the same thing. Not all types of energy generation are equal in their impact on the environment, nor does the world uniformly rely on the same types of generation across states and markets.
In Europe, for example, Iceland is becoming a popular place for bitcoin mining. That nation relies on nearly 100% renewable energy for its production. An abundant supply of geothermal and hydropower energy makes bitcoiners’ power demand cheap and nearly irrelevant.
Similarly, in the hydropower-driven Pacific Northwest, miners can still expect to turn a profit without contributing heavily to carbon emissions.
The right discussion
Like many other aspects of the energy industry, bitcoin is not necessarily a “bad guy.” It’s simply a new, and vaguely understood, industry.
The discussion about energy consumption and bitcoin is, I believe, unfair without discussing the energy intensity of new technologies overall, specifically in data centers.
Rather than discussing the energy consumption of bitcoin generally, people should be discussing the carbon production of bitcoin, and understanding whether certain mining towns are adding to an already large environmental burden.
Although there has been extensive discussion in the media of bitcoin’s energy consumption, I’m not aware of any studies that actually calculate the comparative carbon footprint of the bitcoin process.
Global electricity consumption is going up overall. The US Energy Information Administration predicts that world use will increase nearly 28% over the next two decades. But increasing energy consumption is bad only if we aren’t shifting toward less carbon-dense power production. So far, it seems that only miners are currently shifting toward cleaner parts of the world.
So perhaps people should quit criticizing bitcoin for its energy intensity and start criticizing states and nations for still providing new industries with dirty power supplies instead.
No. Bitcoin can save far more energy than it uses by making financial systems more efficient.
Those panicking about crypto make three fundamental errors.
- First, they do not understand how Bitcoin works,
- second, they do not understand what mass adoption would look like, and
- third, they do not understand the problem Bitcoin is intended to solve.
Regardless of your opinion on the danger of global warming, Bitcoin does not use nearly as much energy as claimed, will become far more efficient as it grows, and most importantly, solves one of the greatest causes of resource inefficiency, corruption, and human suffering.
Bitcoin mining is a market-based process that taps underutilized energy sources
When Bitcoin critics focus on the raw energy usage of Bitcoin mining, they miss the bigger picture: cryptocurrency production is a competitive market process.
Because the cost of Bitcoin mining comes mostly from electricity consumption, Bitcoin mining is concentrated in places with cheap or surplus energy. Industrial-scale mining facilities are located in far-flung locations with cheap hydro-electric, nuclear, geothermal power, or undeveloped industrial regions with excess production. Energy costs money, and miners will always look for the world’s best sources of cheap and efficient energy. Cryptocurrency mining is a means to tap underutilized energy resources for a valuable purpose—the maintenance of a monetary system. No other industry can rapidly move into an industrial ghost town and create value the way Bitcoin mining firms do.
Furthermore, the total energy usage of Bitcoin is limited by economics: crypto-miners will only keep mining when their profit is higher than the cost of electricity. The Bitcoin network automatically adjusts the difficulty of mining new blocks in response to the “hash rate” or the net mining capacity of the network. This means that Bitcoin has a built-in cap on energy use, and can dynamically adjust in response to energy prices and innovation in computational hardware. Currently, humanity consumes around 17.7 Terawatts per year. The Economist estimates that Bitcoin uses 2.55 gigawatts or .014% of that. Some estimate the total use of cryptocurrencies at 7.7 gigawatts, but it’s likely that a single cryptocurrency will dominate after the current shakeout period.
Mining is a small part of the blockchain economy
Claims that “by February 2020, [Bitcoin] will use as much electricity as the entire world does today” assume that growth energy consumption will be proportional with cryptocurrency adoption. But mining is a small part of the blockchain economy and blockchain adoption doesn’t equate to more people mining Bitcoin.
The purpose of mining cryptocurrency is to provide a market-based and fraud-resistant platform to establish ownership of Bitcoins. Once ownership is secured, a near-infinite number of transactions can be made with Bitcoins without any additional mining.
In late 2017, the Bitcoin network reached the limits of how fast it could process transactions and in response, the cryptocurrency community shifted its focus to technologies that would enable the network to scale (grow) to support the entire global economy. There is active debate and experimentation about the best solution to scaling Bitcoin, but they all share the goal of enabling more transactions to be processed by the network without dramatically increasing computational, hardware, and energy requirements.
Cryptocurrency mining is just the tip of the blockchain iceberg. Second-layer transaction networks like Lightning Network and other off-chain transactions do not involve mining and are far less energy intensive. While Bitcoin’s total energy usage will grow with adoption, it’s quite possible that mining will never grow beyond the .01% of the world’s energy consumption it uses today.
Consider gold—it takes a lot of energy to extract out of the ground. Once extracted and formed into coins, it takes a lot less additional energy to use gold. As a digital entity, Bitcoin transactions themselves need far less energy than gold or fiat (paper money) transactions, for reasons I will explain below.
Bitcoin will free far more resources than it uses
Here is the most important point Bitcoin critics miss: cryptocurrencies are not a zero-sum game, they were created to solve a real problem. By eliminating the need for intermediaries in financial transactions, Bitcoin and other blockchains can liberate billions of people around the world and free a large segment of the economy for more productive purposes.
We have to understand the problem that Satoshi Nakamoto intended to solve when he invented Bitcoin. His vision is a “purely peer-to-peer version of electronic cash [that] would allow online payments to be sent directly from one party to another without going through a financial institution.” What’s wrong with using financial institutions as intermediaries?
If you live in a western country with low inflation, access to a bank account, and credit cards, you might not see the need for Bitcoin. However, 1.7 billion people worldwide lack access to a bank account, and billions more cannot trust paper money due to high inflation. These people need access to a financial system that allows them to accumulate savings and participate in the global economy.
Likewise, 5.3 billion people don’t have a clear title to their property and “remain trapped by the “tragedy of the commons” where their unregistered assets can be stolen by powerful interests, hurting individuals and broader economic development,” according to economist Hernando de Soto. The United Nations Development Program is now trying blockchain-based property deeds in India that will allow people to build permanent structures, connect to utility networks and buy and sell their property for the first time. What is the climate impact of billions of people who burn firewood and coal for heat because they don’t have title to their own land and cannot accumulate savings for infrastructure improvements? What is the human impact on the citizens of Zimbabwe, Venezuela, the Republic of Congo, or the dozens of other countries who have had their savings evaporated because their governments failed to provide a sound monetary system?
Bitcoin was invented to solve the inefficiencies of legacy financial systems. By cutting out both governments and corporations as intermediaries, it can put idle resources to use and eliminate the economic waste and destruction caused by unreliable monetary systems.
The economic inefficiency from unreliable financial intermediaries is not limited to the developing world. The 2008 financial crisis was caused by both unclear property records and the Federal Reserve’s manipulation of interest rates—what was its energy cost? What about the energy consumption of the banking and financial sector, which expanded massively in response to new regulations passed after the financial crises, and is stealing the best and brightest minds from more productive and meaningful pursuits? What about the trillions of dollars spent by the US government waging wars due to its ability to issue virtually unlimited debt by creating new money? The twentieth-century phenomenon of total war could not have been possible without total economic mobilization as a result of controlling the money supply.
Cryptocurrency won’t fix all of the world’s problems, but our financial system is an antiquated and corrupt mess which generates tremendous inefficiencies and waste.
By eliminating intermediaries, cryptocurrencies eliminate the waste caused by the financial sector
The point is this: money is essential for modern society to exist, and Bitcoin is the culmination of thousands of years in the evolution of money. Linking the function of money to our political system has proven enormously wasteful and destructive during the 20th and 21st centuries. Yes, creating a monetary system costs money and energy: however, Bitcoin is far more efficient than the dominant alternatives.
Finally, while Bitcoin is the dominant cryptocurrency, some projects have attempted “proof of stake” approaches which don’t involve mining. They are competing with Bitcoin for market share, and if any one of them manages to create a decentralized, robust, and scalable alternative to Bitcoin, people will adopt.
Yes, Bitcoin mining uses energy and resources, but far less than legacy financial systems. By separating money from politics, Bitcoin enables many more efficiencies than the cost to produce it.
Sourced from my article Will Bitcoin burn the planet to ashes? Not so fast.
No one on Earth knows how to reverse one of the most popular computer algorithms. Yet it’s really easy to compute one-way. You could make billions of dollars if you solved this mathematics problem, which is computed quintillions of times per second in the race for mining Bitcoin. SHA256 has some amazing properties, is useful for digital signatures, cryptography, authentication, and is a central part of the Bitcoin protocol.
Bitcoin and other “crypto-currencies” rely on one-way hash functions like the SHA-256 algorithm to secure the blockchain where all the transactions are kept.
In this video, I explain some of the big-picture ideas behind this one function. Other cryptocurrencies use similar ideas.
Raoul Pal – Bitcoin May Have These Problems Later!
28 sat/vB ($2.25)
49 sat/vB ($3.94)
85 sat/vB ($6.83)
Buy a Cobo Tablet https://shop.cobo.com/products/cobo-t…
Detailed features summary and scores for various seed storage mechanisms: https://cryptoguide.tips/seed-storage…
In this video I have a quick look at the Cobo Tablet, a metal seed storage mechanism. (It is very similar to a cryptosteel, Billfodl, etc) For $39 USD it does really well and would really lend itself to using for geographically distributed seed storage. I was quite impressed with the product, it is made of stainless steel, compared to some cheap competitors which are made of aluminium… Thanks to Cobo for sending me a sample.