In March 2016, Motherboard projected this:
Bitcoin’s electricity consumption will grow to rival that of the nation of Denmark by 2020.
Whatever the accuracy of Motherboard’s math, there’s no disputing the fact that Bitcoin uses a great deal of energy.
On an industrial level, Bitcoin may be considered a system which converts electricity directly into money.
There are two major camps which object to Bitcoin mining due to its electrical cost:
1) The Eco-conscious
The eco-conscious seek to generally diminish global power consumption.
Given that electricity is, at present, primarily generated through unsustainable methods, eco-activists hold that all energy expenditures must be critically weighed against their (debatable) contribution to climate change.
2) Skeptical Economists
Secondly, there are those dubious economists who doubt Bitcoin’s viability.
This group is best exemplified by Paul Krugman, who argues that Bitcoin (and to a lesser extent, gold) has no real value to society and so represents a waste of resources and labour.
Defending Bitcoin’s Power Usage
While disproving the “economic experts” is as simple as referring them to Bitcoin’s current market price and continued existence, explaining why Bitcoin is worth its electrical cost to the eco-conscious requires a more thoughtful approach.
After all, social pressure to sustainably power the Bitcoin project is sensible. We need to maintain a healthy balance between nature and technology.
That said, until advances in green energy diminish or negate Bitcoin’s draw on ecologically-costly energy sources, Bitcoiners must endeavor to defend the expenditure by conveying the importance of this revolutionary peer-to-peer currency!
Here are 9 good reasons which, taken together and in our opinion, completely justify the world’s admittedly high expenditure of electricity on the Bitcoin project:
1) Bitcoin is Backed by Electricity (and Ingenuity)
You mean there isn’t an ounce of gold in the bank for every paper Dollar?
Over the millennia, history has repeatedly shown that prosperity depends on sound money. Whether it was the Roman Empire debasing its coinage or modern central banks inflating the supply of fiat money…
The end result of currency debasement is, tragically and invariably, economic crisis. Mr. Mike Maloney’s superb series, “The Hidden Secrets of Money,” thoroughly explores this timeless historical lesson in Episode 5.
Simply put, currency with no backing but faith in its controllers tends to be short-lived and ruinous in its hyper-inflationary death throes.
Bitcoin was designed with one monetary goal foremost in mind: avoiding the dismal fate of previous monetary forms by preventing the evils of debasement.
Rather than trust in some distant, unaccountable human authority’s wisdom and restraint, Bitcoin’s supply limit is enshrined in its code; its “digital DNA,” as a matter of unanimous consensus.
Unlike fiat currency, Bitcoin’s value is also backed by tangible, measurable resources: code running on computing hardware powered by electricity.
Given money’s (over-)importance to our modern world, maintaining a technologically-superior alternative to flawed fiat currencies is certainly worthwhile.
2) Mining is a Profitable and Promising Industry in a Slow Global Economy
Bitcoiners are some of the lucky few not regularly revising their economic expectations downwards.
The major determinants of profitability in the fiercely competitive world of Bitcoin mining are low electricity costs, access to cutting-edge ASIC mining hardware and deep knowledge of Bitcoin and business.
Keen businessmen only need apply for this “license to print money.”
Mining tends to be concentrated in China due to several regional advantages; China produces most of the world’s ASIC hardware and has several provinces which over-invested in power generation.
Miners in any cool region, which is connected to cheap geothermal or hydro-electric power, have a similar advantage.
it’s estimated that at least 50% of miners are Chinese. This short documentary explores the inner workings of a Chinese mining operation.
Mining is a growing industry which provides employment, not only for those who run the machines but those who build them. Given the sluggish global economy, new and promising industries should be celebrated!
3) Protection from Inflation and Avoidance of Capital Controls
Of course it’s your money. I just tell you what it’s worth and what you can do with it.
As alluded to in Reason 1, many rulers are diluting the value of “their” national currencies, either as an economic stimulus (mostly to the net-worth of elites) or as a means to cheapen their tremendous debt.
Such debasement punishes savers in particular, as the value of their stored wealth is eroded. Savers naturally seek to protect their fiat savings by translating them to a more durable form, such as foreign currency or investments.
Rulers often block their citizens’ flight to monetary safety by imposing capital controls. China is known for its particularly strict limitations.
Bitcoin mining represents an excellent, legal way to circumvent such restrictions.
Investing in a mining operation brings a steady stream of bitcoins; a form of money largely beyond the control of the ruling class.
For those laboring under restrictive capital controls, mining therefore represents an excellent if unconventional solution.
Given the relative costs and risks of other wealth-preservation measures, it may even be worthwhile to mine Bitcoin at a loss!
Consider one of the popular alternatives, real estate:
Bloomberg estimates that $1 trillion left China in 2015, 7 times more than was offshored in 2014! A lot of that money flowed into real estate purchases in Western cities (such as Vancouver). This phenomenon has created localized bubbles and unaffordable housing conditions for residents. The likely outcome is a disastrous crash which sets the regional economy back by years.
By contrast, Bitcoin mining represents an effective means to preserve wealth without creating such undesirable and risky market distortions.
4) Bitcoin Ultimately Requires Fewer Resources than the Fiat System
“We require more Vespene gas.” -Zerg Overseer
If we take Motherboard’s linear extrapolation that Bitcoin will consume as much power as Denmark by 2020, then add the assumption that Bitcoin will have scaled sufficiently by then to cater to every user of the fiat system… it becomes possible to compare the two systems, in an admittedly rough-and-ready fashion.
Allowing that Bitcoin will replace banks, ATMs, brokers, exchanges and payment services (like VISA, MasterCard and PayPal) around the world, we can offset the electricity required by all those services. Considering the combined electric costs for these operations (covering lighting, air-conditioning, data-centers, website hosting, office equipment and more) the total probably approaches or even exceeds Denmark’s current power usage.
Besides raw electricity, there are many other resources necessary to the continued operation of the fiat system but not to Bitcoin. For example:
- printer paper and other office supplies,
- the armored cars used to transport cash,
- the paper, textiles, ink and power needed to create that cash,
- the gasoline used by all employees driving to and from work every day,
- the resource cost of building offices,
- and so on, ad infinitum.
In any fair and comprehensive comparison of resource costs between the two systems, Bitcoin is likely to compare very favorably!
5) Mining Generates Subsidised Heat
Excess heat from Bitcoin mining – problem or solution?
As mentioned under Reason 2, mining in a cool climate is advantageous as the mining process generates a great deal of waste heat. However, enterprising Bitcoin miners can capture and use this heat productively!
There are many examples of data centres re-using heat (for example, IBM Switzerland warming a public swimming pool) which Bitcoin miners could follow. Waste heat can even be useful to aquaculture and it’s also possible to harness hot exhaust air for drying processes.
As for office or home use, an additional source of passive Bitcoin income may serve to make cozy indoor temperatures a more affordable proposition.
Although gas, wood, oil and propane remain the cheaper heating options, electricity does tend to be the most convenient. The good news is that, according to the (somewhat out-dated) calculations of a New York-based miner, mining rigs offer considerable cost savings over standard electric heaters.
As an additional benefit, mining rigs may be precisely controlled via common computing hardware, such that a customized heating schedule or adaptive climate control system may be programmed with relative ease.
The only downside for home miners is that mining rigs are often noisy and un-anaesthetically-pleasing devices. As a result, they tend to be sequestered in the basement or garage for the sake of domestic harmony. A little ingenuity may be called for to pipe their heat to where it’s more needed in the house.
Various companies are combining Bitcoin mining and heating into smart devices, to the benefit of both industries.
6) Bitcoin Mining can support the IoT (Internet of Things)
Rise of the Digital Autonomous Corporations and other buzzwords!
Continuing the theme of Bitcoin integration with household and industrial devices, this is the precise business model of potentially-disruptive Bitcoin company, 21.co.
21 raised $120 million in venture capital, a record for a Bitcoin company. As their initial product offering, 21.co released a Raspberry Pi-like device with built-in Bitcoin features; mining included.
While such low-powered mining devices earn very little income, even a few hundred Satoshis opens the door to automated micro-payments…
It’s long been known that Bitcoin offers real potential for machine-to-machine payments. This potential is likely to be realised soon™ with the deployment of the first Lightning Network. The results are bound to be interesting; perhaps even the beginning of a profound technological shift in how we conduct our lives and business!
Smart, interconnected devices offer great promise in terms of self-reporting of problems and supply shortages, even the self-calibration and the self-diagnosis of problems. Bitcoin and additional layers are the most likely payment avenues to cater for these new, developing industries. After all, machines don’t have bank accounts or credit cards. How else will machines pay for their own inputs and how better could they charge for their outputs?
Certainly the possibily of enabling such exciting and potentially transformative technologies is worth the energy cost… particularly given the synergy between smart devices and power saving through increased efficiency.
7) Denmark and Germany Occasionally Struggle with Excess Power
“On Sunday, May 8  Germany produced so much electric power that prices were actually negative. As in, customers got paid to use the electrical system.” – Fortune.com
It was recently reported that Germany’s solar and wind generation nearly overloaded its electric grid over a particularly sunny and windy day. Power companies paid their customers to use more power so that the energy could be safely dispersed.
Somewhat ironically, considering Motherboard’s comparison, similar excess power situations are known to occur in nearby Denmark.
This means that if you set up in a location which experiences electricity oversupply from variable green sources, it’s possible to get paid for mining Bitcoin as a public service!
8) Mining Powers Bitcoin’s Tokenized Assets, Secondary Layers and Merge-Mined Coins
Mining Bitcoin isn’t just mining Bitcoin!
If the mining process is the powerful engine driving Bitcoin, then it’s certainly a unique engine in that it loses no efficiency for driving additional processes. Namecoin, the very first altcoin, uses the same SHA-256 Proof of Work algorithm as Bitcoin, which means miners any find solutions to both Bitcoin and Namecoin blocks concurrently. As Namecoin serves a decentralised DNS (Domain Name Server), the effect is to bring greater resilience and censorship-resistance to the internet.
Somewhat similar to Namecoin in concept, but more closely tied to Bitcoin, are side-chains. These are essentially separate blockchains which are pegged to Bitcoin’s blockchain. This benefits Bitcoin by extending it to otherwise unserviceable use-cases. It also benefits the side-chain by backing and securing it cryptographically with the huge power of the Bitcoin mining industry.
Tokenized coins are another technology layer with far-reaching implications, which are similarly backed and secured by Bitcoin mining.
By associating particular units of bitcoin with digital, financial or physical assets, ownership of such assets may be exchanged. This works with everything from stocks to in-game items to land deeds and so on. Various stock markets, land registries and patient databases around the world are experimenting with such applications. Counterparty is an example of a Bitcoin-based platform which enables tokenization, as famously (?) seen in the Rare Pepe Directory.
9) Mining Efficiency is Constantly Increasing
Finally, it must be noted that efficiency of Bitcoin mining is constantly improving, so less power is used to provide more cryptographic security.
Since Bitcoin’s release in 2009, mining hardware has evolved from computer CPUs to graphic card GPUs to FPGAs (Field-Programmable Gate Array) and now to ASICs (Application-specific Integrated Circuit). ASIC mining chip architecutre and processes are under continuous development, with lucrative rewards on offer to those who bring the latest and greatest innovations to market.