If you are a government that wants to stop bitcoin, what can you do? Can you make people think it is killing the planet?
Authoritarian governments try. The Chinese Communist Party—ever the tree-huggers—clamped down on cryptocurrency last year in part because of environmental concerns. Russia is entertaining major controls on cryptocurrency because of the supposed threats to financial stability and Mother Earth. Both countries have been major mining centers, so energy usage is a convenient scapegoat to justify doing away with something that is good for the people but bad for the ruling party.
The United States leads the world in bitcoin mining. America absorbed many of the miners who fled the Chinese crackdown. We should expect Russian miners to tag along if their government follows through on these threats.
Is Uncle Sam far behind? Last week, a subcommittee of the House Committee on Energy and Commerce held a troubling hearing called "Cleaning Up Cryptocurrency: the Energy Impacts of Blockchains." As the title indicates, the ruling party sees bitcoin's energy use as a problem to be solved rather than an input to a liberating technology.
The politicians at the hearing might not have known much about bitcoin mining, but most of them know they don't like it. For example, Rep. Frank Pallone intoned that "we cannot bring retired fossil fuel plants back online or delay the retirement of some of our oldest and least efficient plants in support of energy-intensive crypto mining."
This is a bizarre statement to make about bitcoin mining considering that roughly two-thirds of its energy inputs come from sustainable power sources. (The United States as a whole boasts half as much).
Anyway, bitcoin mining constitutes some 188 terawatt-hours of the world's 154,620 terawatt-hours, a measly 0.12 percent. Is this really our most pressing energy concern, or might there be ulterior motives?
Bitcoin allows peer-to-peer exchange by replacing a third party like a bank with a decentralized network of validators, called miners. Miners contribute computing power to run the network using a technique called "proof of work" (POW). They are incentivized to contribute as much energy as possible so they have the highest chance of receiving new currency units. The lower the energy cost, the higher the profit for individual miners. More total energy, or a higher "hashrate," means fewer backlogs and a stronger network.
Is bitcoin mining economically efficient or wasteful? That depends on a concept called opportunity cost, or the value of the most highly valued alternative forgone. What are miners giving up to give energy to bitcoin? The great thing about mining is the prices are clear and the market is competitive. Miners have made an economic calculation that this is the most valuable thing on which they can expend energy—if it wasn't, they would be losing money by not putting their energy elsewhere. Even better for us, that "thing" is good for society, too.
"Using energy" is value neutral. If we use energy to save lives or improve standards of living, that is a good thing. If we use energy to destroy wealth or immiserate others, that is a bad thing. Bitcoin improves lives by giving people access to a financial system without inflation, confiscation, or control. It is good that we expend energy to give people this freedom.
As with most debates over bitcoin, the topic of mining and the environment had been hashed out and settled over a decade ago. As Satoshi himself put it in 2010: "The utility of the exchanges made possible by Bitcoin will far exceed the cost of electricity used. Therefore, not having Bitcoin would be the net waste."
But many bitcoin critics don't think financial freedom is good. Any amount of energy we use on bitcoin is therefore bad. But it does not sound great to say you don't think people should be able to save their wealth or freely transact. So they will disingenuously point to bitcoin's energy expenditures as a problem in itself.
It is not surprising to see government agents take this approach. But it is very disappointing to see members of the cryptocurrency community promote bad energy rhetoric to tilt the policy field in their favor.
This is the unfortunate tack chosen by some advocates for a consensus mechanism called "proof of stake." POS systems do not operate as a blind energy lottery like bitcoin does. Rather, the network is maintained by the people who own the most coins on the system. The theory is that stakeholders do not have an incentive to undermine their own network and therefore their own net worth.
POS advocates, like one of the witnesses at the hearing, maintain that POS systems are better for the environment and therefore superior to bitcoin. The implication, sometimes openly stated, is that POW systems like bitcoin should be suppressed or manipulated into adopting a POS model.
But everything has a cost. POS systems are more susceptible to capture by insiders. They may have an incentive to not completely tank the network, but they could make changes to benefit themselves in subtle ways. In that regard, POS systems do not sound so different from the dominant monetary mechanics we live with today. With a POW system, energy usage is protective against such insider subversion.
Perhaps POS systems can overcome these vulnerabilities. But if they do become dominant, it shouldn't be because POS advocates convinced the government to clamp down on POW competitors. All those who care about cryptocurrency and freedom should condemn such attacks as they arise.
If we don't, we could one day see a bitcoin mining "ban," with American characteristics. The U.S. may not outright prohibit the use or validation of cryptocurrency networks. Rather, it could promote POS systems and engage in public campaigns against POW systems like bitcoin. It could lean on regulated entities and investors to favor POS systems over POW. It could pass environmental, social, and, governance rules that are de facto anti-bitcoin. No one is "banning" cryptocurrency! We are just "nudging" society to make the "green" choice.
This cannot be allowed to happen. Bitcoin would be fine, and miners would move to more hospitable countries. Some of them would stay in the U.S. too, as have the underground miners back in China. But the U.S. would miss out on an incredible opportunity to build a fast growth industry that is good for America and all people who want to use this technology for freedom.
Bitcoin critics don't have much of a leg to stand on when it comes to mining and energy. Bitcoin mining is efficient, allows energy companies to limit waste, and is far more sustainable than other uses of energy.
But we shouldn't allow ourselves to get lost in arguing over these weeds. Bitcoin is a good thing, and it's good that we spend energy on it. We don't have to apologize for freedom.