Energy Debate Around Bitcoin as Both Tragedy and Farce

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“Bit­coin Min­ing on Track to Con­sume All of the World’s Ener­gy by 2020,” said a 2017 news report by the pre­mier US-based mag­a­zine ‘Newsweek’. The mag­a­zine pub­lished the claim of Digi­con­o­mist, a cryp­tocur­ren­cy-focussed dig­i­tal platform.

Three years down the line, the world hasn’t gone dark yet; and both ener­gy and ener­gy-based Bit­coin are still there.

Bit­coin scep­tic Digi­con­o­mist has used dif­fer­ent meth­ods to por­tray the humon­gous con­sump­tion of ener­gy by Bit­coin. It rep­re­sents the ener­gy con­sumed by Bit­coin with respect to coun­tries. For exam­ple, Bit­coin con­sumes ener­gy equiv­a­lent to the con­sump­tion by UAE or Nor­way or Pak­istan.

There were var­i­ous such claims by dif­fer­ent organ­i­sa­tions about Bit­coin and its ener­gy con­sump­tion. But, it’s impor­tant to focus on the big pic­ture and see things in per­spec­tive before we build a con­crete opin­ion about the subject.

Numero uno: Energy consumption debate

The ener­gy con­sump­tion of the world today stands at about 176k ter­awatt-hours (TWh). Accord­ing to experts, though the glob­al ener­gy con­sump­tion con­tin­ues to grow, it seems to be slowing—averaging around 1% to 2% per year.

While we are talk­ing about ener­gy con­sump­tion, let’s focus on the ener­gy pro­duc­tion to con­sump­tion ratio. 

Lawrence Liv­er­more Nation­al Lab­o­ra­to­ry (LLNL), a fed­er­al research facil­i­ty fund­ed by the Depart­ment of Ener­gy and UC Berke­ley, has been con­duct­ing research on ener­gy pro­duc­tion and con­sump­tion ratio for sev­er­al years.

The research organisation—through Sankey dia­grams—has demon­strat­ed the fate of all ener­gy that gets gen­er­at­ed and con­sumed in the Unit­ed States in respec­tive years. 

In 2021, the total ener­gy con­sump­tion in the Unit­ed States was 97.3 Quads (equiv­a­lent to 28.5k Twh). Of the 97.3 Quads con­sump­tion, only 31.8 Quads (about 9,300 Twh) was put to use while the rest 65.5 Quads (19.2k Twh) was reject­ed. A whop­ping 19.2k Twh, 67.3% of the total ener­gy con­sumed was wast­ed energy. 

This Sankey dia­gram shows the U.S ener­gy consumption

Now, how much is Bitcoin’s ener­gy expen­di­ture to main­tain the POW con­sen­sus? Accord­ing to the Cam­bridge Bit­coin Elec­tric­i­ty Con­sump­tion Index, it’s expect­ed to be less than 100 TWh this year. It’s only 0.05% of the total ener­gy con­sump­tion by the world and only 0.5% with respect to the “reject­ed ener­gy” by the U.S.

 Bit­coin net­work pow­er demand by Cam­bridge Bit­coin Elec­tric­i­ty Con­sump­tion Index

Experts also claim that the ener­gy con­sump­tion by Bit­coin is neg­li­gi­ble com­pared to the ener­gy wast­ed by the world. 

BMC presents its case

In May 2022, Bit­coin Min­ing Coun­cil (BMC), an open forum of Bit­coin min­ers, in response to the let­ter of a U.S con­gress­man Jared Huf­man, wrote a let­ter to Michael S. Regan, Admin­is­tra­tor of the U.S. Envi­ron­men­tal Pro­tec­tion Agency. 

The let­ter attempt­ed to clar­i­fy the var­i­ous mis­con­cep­tions about Bitcoin’s ener­gy con­sump­tion the­o­ry. It said that data cen­tres which con­tain “min­ers” are no dif­fer­ent than data cen­tres owned and oper­at­ed by Ama­zon, Apple, Google, Meta, and Microsoft. A “min­er” is mere­ly indus­try ter­mi­nol­o­gy for a spe­cialised com­put­er serv­er oper­at­ing inside a data centre. 

“All data cen­ters uti­lize elec­tric­i­ty gen­er­at­ed exter­nal­ly. Emis­sions are cre­at­ed at the pow­er gen­er­a­tion source upstream from the data cen­ters. Dig­i­tal asset min­ers sim­ply pur­chase elec­tric­i­ty from the grid, the same as Microsoft and oth­er dat­a­cen­ter oper­a­tors. Besides, Bit­coin min­ing in the aggre­gate employs an esti­mat­ed 58.4% sus­tain­able ener­gy,” the let­ter said. 

Bitcoin: A dream that Ford saw in 1921

About 100 years ago, Amer­i­can indus­tri­al­ist Hen­ry Ford, founder of the Ford Motor com­pa­ny, pro­posed an idea of “Ener­gy Cur­ren­cy” that would replace gold. He envis­aged that ener­gy-backed cur­ren­cy would stop wars because every coun­try could issue cur­ren­cy backed by their “imper­ish­able nat­ur­al wealth” of ener­gy resources, such as the US Mus­cle Shoals Dam. The whole idea was to end wars—which he argued was cen­tred around the con­trol of mon­ey (gold).

“The essen­tial evil of gold in its rela­tion to war is the fact that it can be con­trolled. Break the con­trol and you stop war,” claimed Ford, as pub­lished in New-York Tri­bune, 1921.

New York Tri­bune front page sto­ry on Ford pub­lished in 1921

Ford also did the cal­cu­la­tion and came out with the val­ue. Accord­ing to him, under the ener­gy cur­ren­cy sys­tem, the stan­dard would be a cer­tain amount of ener­gy exert­ed for one hour that would be equal to $1. This idea of Ford sounds like Bitcoin—backed by ener­gy input.

Accord­ing to Charles Edwards—an expert on Bitcoin—for the last ten years, a 1‑to‑1 con­stant val­ue against ener­gy input has described 80% of Bitcoin’s price his­to­ry. Price, like all mar­kets, fluc­tu­ates around val­ue. How­ev­er, price and val­ue are intrin­si­cal­ly relat­ed and mean-revert. Bit­coin has a set val­ue over time based on the amount of min­ing ener­gy expend­ed and the 

rate of sup­ply expansion.

Growth of civilisation is built on energy

Talk­ing exclu­sive­ly to Ana­lyt­ics India Mag­a­zine, Joe Bur­nett, Head Ana­lyst, Block­ware said, “Ener­gy is a crit­i­cal input of all prod­ucts and ser­vices we use today. It’s how we have the high qual­i­ty of life and tech­nol­o­gy that we use today.”

He fur­ther added that Bit­coin is a tech­nol­o­gy that cre­ates a loca­tion inde­pen­dent ener­gy buy­er of last resort. As long as Bit­coin exists, there will always be buy­ers of any amount of ener­gy (although the bid price may be low). Bit­coin incen­tivis­es new effi­cient ener­gy pro­duc­tion and reduc­tion of ener­gy waste.

“If you have bit­coin ASICs, no ener­gy is worth­less. Ener­gy now always has a buy­er. More cheap ener­gy is equal to a more pros­per­ous soci­ety,” said Burnett.

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