Criticising Bitcoin's energy consumption is easy, because it's obvious. It's the easy way out of a complicated topic that has much wider implications than initially obvious. This blog post is a long-form reply to a recent Twitter thread.
Bitcoin mining can happen anywhere in the world, the geographical location doesn't matter per se. For this reason, Bitcoin mining tends to be located where electricity is inexpensive.
Where is energy inexpensive?
The places and times where inexpensive energy is produced, is often where the production doesn't match the demand and almost never when it's mostly needed.
Power plants are not built for the demand there is today, but the demand there will be in the coming 10 years for example. This is especially true for green energy sources that have a large initial investment. The idea is that the demand will grow into that investment over time.
What if a local municipality would build a wind power plant that always produce 50 MW of energy where there's currently only 10 MW of demand? You turn that wind power on and let it produce unused energy until the demand grows? It may take 10 years until demand in this municipality grows into that supply.
Store of value
The "benefit" with non-renewable energy sources like coal, oil and gas is that they are a good store of energy value. You can cheaply and efficiently store that energy until it's needed. This is often not the case with renewable energy source like wind or solar power. Storing electricity from such sources in batteries are very inefficient and expensive (it's getting better, but it's still bad).
What if there was a way to...
- ...store the value of the otherwise unused green energy?
- ...pay-off green power plants faster?
- ...off-set costs during times of low energy supply and high demand?
- ...do something for the greater good of society at the same time?
This is where Bitcoin mining is very interesting. Let's take the aforementioned example of the 50 MW wind power plant. During the first couple of years there might only be 10 MW of demand. The local municipality could mine Bitcoin for the remaining 40 MW to off-set the investment of this wind power plant.
When mining Bitcoin with otherwise unused green energy you essentially store the value of that energy in Bitcoin, instead of wasting that energy. The value of that Bitcoin can be used to subsidise costs during times of low supply and high demand.
What's the energy being used for?
While Bitcoin mining might consume lots of energy, it's important to understand why the system is designed this way, and what value that is being provided in exchange.
Proof-of-work mining (the kind of mining Bitcoin does) provides society with a global censorship-resistant currency that's arguably the most secure computer system on the planet. It's even safe against multiple colluding nations if they wanted to tamper with the Bitcoin supply. In my opinion, that's worth a lot.
Criticising Bitcoin mining is easy because it's obvious
It's easy to criticise something that's obvious on the surface when you don't want to understand the larger implications of things.
Let's compare Bitcoin to the global banking system for a moment. It's not so obvious how much energy is consumed by the aggregate of the global banking infrastructure:
- numerous production facilities for billions of plastic credit cards
- numerous 10,000 m2 data centres used for fraud detection, clearing etc.
- sky scrapers with 24/7 light-up floors
- bank vaults
- diesel powered armoured cars and security vans
- employees commuting to the bank offices
You might say that comparing Bitcoin to the global banking system isn't fair, because Bitcoin doesn't provide as much utility. And you might be right at this very point in history. But my point still stands, criticising Bitcoin mining is easy, because it's obvious. The downsides with the global banking system (in all aspects) are less obvious to most people.
Disclaimer
Lastly, I want to point out that I wrote this blog post mostly because the topic of Bitcoin energy consumption is very misunderstood. I'm split in my own opinion on whether or not I think proof-of-work mining (like Bitcoin) is good or bad. It's just not that easy, or black and white. I've written about this topic in the past, and I'm convinced that we can create blockchains with lower social costs.
Regardless, Bitcoin provides an amazing and very real opportunity to serve as a subsidy for green energy. And ultimately, the potential benefits that Bitcoin provide to our society is worth a lot of energy.