Bitcoin,  Media,  Politics

Opinion: Bitcoin’s environmental woes may not be so bad after all

Bitcoin gets a lot of heat over a lot of heat

People who are usually up in arms about stuff are up in arms over bitcoin. Specifically, over the huge amount of energy used to process transactions and keep the blockchain going.

In early December, environmental news site The Grist published a story by Eric Holthaus. “Bitcoin could cost us our clean-energy future,” warns the headline which also infers there’s some kind of a clean-energy future to begin with. Paragraph after paragraph paints a grim image of the years to come, where bitcoin miners will guzzle more energy than evil capitalist America by next year and then suck the entire planet’s energy the year after like space aliens or something. The skies will be poisoned with filthy smog and techie smugness. It will be horrible.

This being the 21st century, derivative reporting bolted into action.

Newsweek jumped on story. Wired wired in. CNN sent chills down globally warming spines with “Bitcoin boom may be a disaster for the environment”. Forbes, which has sold out its brand equity and lets anyone publish anything they want as if it were LiveJournal with a premium name, published “Here’s Fiat Money’s Advantage Over Bitcoin That Many Seem To Forget,” capped with a headline meant to troll free market libertarians like, say, Steve Forbes. Public Radio International said they read the Grist story and checked the math. The Verge published a question in their headline, “Can renewable power offset bitcoin’s massive energy demands?” And if that weren’t enough, it also had another question in its subheadline: “Some miners are going green, but will that be enough?” (Rule of thumb: the answer to any question in a headline is generally “no” but we’ll get to that).

Then there were the bloggers. Thinkers thought thoughts on the topic. So many news outlets and people rewrote the same story over and over again and it usually centered on how terrible humanity is and bitcoin is bad because people are bad. You know, the usual.

Except, well, the assumptions that led to The Grist article may have been big assumptions to begin with.

It all stems from the work of a 28-year-old PwC consultant named Alex de Vries. As a hobby, he published Digiconomist, a blog focusing on the economics of cryptocurrencies. While that’s an awful idea for a website, it’s a fun blog and always worth a read. De Vries has something called the Bitcoin Energy Consumption Index that, as of this posting, shows bitcoin’s annual energy consumption is 0.16 percent of global electricity at roughly 36.8 Terawatt-hours. That’s the equivalent of the energy used by Bulgaria, a Balkan country with 7 million people.

However, an excellent piece by Tom DiChristopher, CNBC’s energy reporter, raises questions about how the index is calculated. This part was particularly interesting:

[Jonathan] Koomey, the Stanford University lecturer, says there are a lot of assumptions baked into the Digiconomist model. But he also claims it is fundamentally flawed because it backs into bitcoin’s power consumption by estimating miners’ revenues and expenses.

Any time you do that, you introduce multiple layers of error and uncertainty,” he told CNBC. “It’s a completely unreliable way to do the analysis, and no credible energy analyst would ever do that.”

De Vries stands by his figures. Given what we know about bitcoin mining, he says it is fairly easy to determine the lower bounds of its energy usage. If all bitcoin mining were done on the fastest machines in optimal conditions, he says, it would still consume 13 to 14 terawatt hours. But since not all mining is done under these conditions, he said, his estimate is “plausible.”

“I’m obviously confident in this number. I wouldn’t be publishing it if I wasn’t confident,” he told CNBC.

So is bitcoin the environmental catastrophe of Mike Pence proportions? Maybe or maybe not. We won’t know until we get some harder data and that’s not likely any time soon. The U.S. Energy Information Administration isn’t modeling a doubling of global consumption by 2020; they see just a 28 percent increase by 2040. Yes, that’s even from an oil-friendly Department of Energy under Rick Perry.

But there’s perhaps a happy compromise between those who want to see cryptocurrencies mined and those who fear environmental Armageddon financed one satoshi at a time.

As de Vries notes in one of his pieces, one bitcoin mining machine, the Antminer S9, “uses about 1,400 watts per hour. Practically all of this energy converts to heat, which means each of these machines generates a waste heat output of around 5,000 BTU per hour. This makes every single machine comparable to a portable electric heater, and there’s 3,000 of them in every building of the Inner Mongolia mine.”

The EIA estimates that 38 million American homes use electric space heaters. What a dumb waste of electricity!

What if instead each of those households would buy some cryptocurrency mining equipment and generate heat for warmth and profit?

Flooding the market with miners would lower the profit potential of each individual machine and perhaps scare away those who are in it just for the money. After all, 38 million American households have already shown their willingness to use up energy for the sole purpose of getting heat yet receiving no potential bitcoins to profit from it. How sad!

What’s more, turning all those homes into miners wouldn’t move the needle on the environment all that much if all those dreadful forecasts are correct.

In fact, some people are already heating their homes in places like Siberia and exotic locales like Durham, North Carolina.

Better still, perhaps some of those machines could be used to mine projects like Curecoin, Stanford University’s cyrptocurrency that uses protein folding for its proof-of-work in an effort to find a cure for cancers.

See? Every cloud of toxic smog has a silver lining!

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Lawrence Lewitinn, CFA was the founding editor in chief of Modern Consensus. Disclosure: Lewitinn owns no cryptocurrencies in his portfolio.