The New York Times published another report exploring Bitcoin's energy usage last week, and it went about how you'd expect based on previous criticism of the cryptocurrency's environmental impact, with the added twist of saying that Bitcoin was actually designed to waste energy in a bid to protect its network from attack.
Let's start with the figures themselves. The NYT said Bitcoin's energy consumption has "increased about tenfold in just the past five years" to approximately 91 terawatt hours (TWh) worth of electricity each year, which is said to be nearly 0.5 percent of "all the electricity consumed in the world," and more than many countries.
This isn't new information. Bitcoin's environmental impact has been criticized for years, with its detractors saying that devoting so much energy to a digital currency is wasteful, especially since much of that power isn't drawn from clean sources. (Which has started to change, especially as Chinese mining operations start to move.)
But the NYT put a fine point on the issue by saying that Bitcoin's intentionally wasteful. After explaining Bitcoin mining's reliance on what the paper characterized as "warehouses packed with powerful computers, racing at top speed to guess big numbers and using tremendous quantities of energy in the process," it said:
"In [Bitcoin creator Satoshi] Nakamoto’s system, it would make more economic sense for a hacker to spend the resources on mining Bitcoin and collecting the rewards, rather than on attacking the system itself. [...] This is how Bitcoin mining turns electricity into security. It’s also why the system wastes energy by design."
There are other environmental factors to consider, too, such as the rate at which Bitcoin miners wear out the hardware used in their rigs. But the NYT contended that even reducing the amount of e-waste generated by miners and switching to renewable energy wouldn't be enough to justify the cryptocurrency's power usage.
"Globally, estimates of Bitcoin’s use of renewables range from about 40 percent to almost 75 percent," the NYT said. "But in general, experts say, using renewable energy to power Bitcoin mining means it won’t be available to power a home, a factory or an electric car."
This contention shows how difficult it will be for this debate to be settled. It seems environmentalists are content to shift the goal post every time Bitcoin mining shifts to use more clean energy, and until cryptocurrencies are more widely accepted, devoting power to them can be characterized as wasting electricity on fake money.
It's an endless loop. As long as Bitcoin and other cryptocurrencies hold value, people are going to continue to devote power to mining them, whether it's a large operation using renewable energy or a small group of criminals stealing electricity. And as long as people are mining cryptocurrency, they're going to be criticized for doing so.
"This is how Bitcoin mining turns electricity into security. "
Now that I've stopped laughing...
Economists sometimes say that fiat currency (i.e. currency not backed by any commodity) is superior to a gold standard because it has reduced resource costs. A gold standard requires mining gold, and some of the gold must be used for money instead of for other purposes, such as jewelry and electrical contacts. Using fiat currency allows all that gold to be used for other purposes, and the cost of money is reduced to the cost of paper and ink.
The problem is that fiat currency is inflationary. Not only that, but as Lawrence White has shown, more gold is being hoarded today as a hedge against inflation than was ever stored in bank vaults during the gold standard. This is demonstrated by the fact that the real (inflation-adjusted) price of gold today is higher than it was under the gold standard. In other words, the resource cost of fiat currency - measured in gold - is actually higher today than it was under a gold standard.
I would say that the electricity costs of cryptocurrencies should be added to the ledger as another cost of fiat currency. The fear of inflation has not only driven people into hoarding gold - which subtracts from the gold available for other consumptive and industrial purposes - but it has also driven people into consuming massive quantities of electricity.
Any useless waste of electricity should be ultimately blamed on governments which abused their monopoly on money to engage in inflationary finance.
If we are concerned about the electricity costs of cryptocurrency, then the solution is to privatize currency so that governments can no longer inflate. Milton Friedman proposed one feasible means of doing this: first, freeze the monetary base by prohibiting the government (and their subordinates, the central banks with government charters) from ever issuing any more currency, ever again. Second, permit private banks and financial institutions to issue their own private currency that may or may not be backed by the fixed-supply public currency. The private currency will have no legal tender law; any individual will be free to accept or reject any private currency which is offered them. Only the public currency will be a legal tender, but its supply will be frozen and fixed. Changes in the supply of money will be accommodated by changes in the supply of competitive private currencies.
Indeed, we have a historical precedent for Friedman's proposal: for most of US history, the only legal money was gold and silver coins. But for daily transactions, most people used private banknotes, not gold and silver coins. The banknotes - which were issued by private banks and had no legal tender - were essentially warehouse receipts for gold and silver that the bank stored in its vaults. And competition among banks ensured that only trustworthy banks survived, so most private banknotes traded at par, i.e. without any discount below its face value. For most Americans, a private banknote saying "1 dollar" was as good as a 1 dollar gold coin.
While I agree that fiat currency and it's manipulation is a problem, I don't believe fiat manipulation is the primary driver for Crypto (it's a driver but not the primary driver). If you removed criminal activity and get rich speculation, BitCoin would probably be closer to 6000 US than 45000 US. It's become yet another asset bubble that is going to hurt a lot of people one day (along with all of the other asset bubbles out there, housing, stocks, etc.).
I am often in stunned wonder at the way some people can almost sound reasonable while essentially just trying to push their own interests and ideologies that would not only ultimately solve none of the root causes of the problems their alleged solution would allegedly solve, but let those root causes fester even more, worsening the problems.
I can't help but clap and bow at their thought processes pretzel contorting skills. Respect.
I would laugh too if the whole thing wasn't so egregiously wasteful and self-destructive.
If you want to compare, how about other uses of electricity? Eg. gaming and entertainment? How much electricity we use on entertaining and amusing ourselves?
Then there is smoking... How much electricity was used to power the machines used to create the cigarettes? Not to mention the amount of raw materials.... all the paper etc.... So, this is not a waste?
Don't get me started on street lightning in the middle of the night when there are hardly any cars on the street, no people as well.....