Politicians and Mainstream Media Unfairly Demonize Bitcoin’s Energy Use
One of Bitcoin’s primary criticisms is, in fact, its greatest strengths. And that is its energy cost-efficiency. Unfortunately, mainstream media and politicians alike have been too quick to condemn Bitcoin’s energy usage by comparing its energy demand to other countries, as exemplified by Elizabeth Warren’s latest Bitcoin tweet:
At first glance, the chart below depicting Bitcoin’s energy consumption is staggering. It shows that Bitcoin’s TWh (terra watt hours) now exceeds that of entire countries, like Norway. This trend is only going to continue given Bitcoin’s growth rate. Alarming? In this context, yes, but this unfairly bends the truth.
(chart published in May of 2021 by Statista)
The Best Energy for Bitcoin is Green
In a groundbreaking paper published by Square and Ark Invest, Bitcoin’s impact on the environment is actually favorable. This is because solar and wind power, when coupled with Bitcoin, creates an energy efficient powerhouse that effectively uses excess energy supply to mine Bitcoin. Thus, Bitcoin incentivizes clean energy manufacturers to work with Bitcoin miners (or even mine Bitcoin themselves), as way to keep a constant supply to the grid.
Having spent the last decade researching crypto and solar, Max Weber is excited about the current state of solar:
“Increasingly… electricity is coming from solar. As I detailed in this post and as is eloquently chronicled by energy analyst Ramez Naam here, the cost of solar energy has fallen off a cliff over the last decade to the point where it’s already cheaper to build new solar than to operate existing coal/natural gas plants in many parts of the world.”
But if solar is more efficient, why hasn’t it been broadly adopted by grid supply companies?
Solar only produces power during the day (and only at the sun’s behest). U.S. petrol dollar backed carbon energy sources have the advantage of adaptability, since plants can burn gas, oil and coal as needed. Solar and wind cannot. Thus, wind and solar’s disadvantage is that they can only produce electricity when the wind blows or the sun shines.
This presents a problem to grid operators. The unpredictable nature of solar causes spikes in power to the gird during times when such energy may not be needed. Thus, incorporating solar into the grid presents a challenge. The grid power supply companies need a cost effective way to balance out these energy supply spikes.
Max Webster goes on to state how Bitcoin resolves this problem:
“The grid can pay Bitcoin miners to shut down whenever demand spikes… as long as the cost /kWh paid by the utility to Bitcoin miners is above their expected value for BTC/kWh mined, then it always makes sense to shut down BTC miners in real-time as they receive favorable price signals.”
When Bitcoin is incorporated, the miners win; the energy grid wins; and green energy wins. The importance of this cannot be understated. It’s ingenious. Solar power is the more efficient and cost effective energy solution and it can now be feasibly integrated into the power grid. Bitcoin solves the problem by offering grid operators an effective way to incorporate solar (and even wind) into the power grid in cost effective manner, thus enabling the shift from environmental unfriendly carbon sources of energy into clean, cost-efficient solutions. This is something Elizabeth Warren should love.
Bitcoin is Financial Energy Efficiency
The other component that mainstream media and politicians have not recognized is how much more energy efficient Bitcoin is when compared to the existing energy demands of our banking systems.
To supply the power to the traditional banking system’s network of ATMs, branches, and data centers, the estimated energy used is over 250 TWh, whereas Bitcoin’s is 143 (as of the May assessment indicated in the above chart). But this doesn’t tell the whole story. What about the energy cost to build the banking infrastructure, i.e., data warehouses, skyscrapers, etc? And how about the cost of labor needed to run that infrastructure (executives, services reps, tellers, accountants… this list could go on for quite a while)?
Bitcoin is a disruptive force for a reason. Peer-to-peer transactions remove the middleman… and in this case the middleman is the banking infrastructure in its entirety. In a broader sense… Bitcoin is a more secure and convenient mechanism for exchange outshining the productivity of our entire financial sector by leaps and bounds. And since the middleman is an antiquated system of transactions costing trillions, it’s impossible to calculate the Bitcoin’s comparative efficiencies (though it’s probably safe to say that Bitcoin is many orders of magnitude more efficient).
Which brings us to the common sense approach to Bitcoin and energy
We don’t judge US dollars, airplanes, cars, and precious metals based on how their particular industry’s energy usage compares to other countries. But with Bitcoin, media outlets and politicians have plunged us into such a narrative. So, for the sake of argument, let’s make the comparison. As reported in Bitcoin magazine in August of 2021, Bitcoin’s energy use is a fraction of what other industries consume in electricity. Here is the chart they posted comparing Bitcoin to transportation.
Let’s not digress. Bitcoin adds value to people lives, just like planes, trains and automobiles. Bitcoin enables peer-to-peer transportation of value at a super low cost to consumers, and since the protocol that runs Bitcoin can be downloaded by anyone, it’s also a democracy of money. Yet, unlike the U.S. petrol dollar, which is only green in color, Bitcoin is an environmentally friendlier shade of green for mother earth.