I present to you, my friends, A Monday Morning Long post after getting all coffeed up...
A Camera Obscura Through Which to View the Energy Use of the Bitcoin Network
“Mama always told me not to look into the eyes of the sun... But mama, that's where the fun is” - Bruce Springsteen (20th century philosopher)
Blinded by the Light Remember in grade school making a little box with a pinhole to use to safely observe an eclipse? Since I am too lazy to do the research, I can only imagine how the invention of the camera obscura came to be. And I imagine it had to do with a lot of poor bastards going blind after staring into an eclipse. Today fortunately, mothers all over the world instinctively pass down the wisdom of not looking directly at the sun in spite of that being “where the fun is”. Yet, those early folks who went blind had no way to know that seeing this incredible sight would lead to such an unfortunate loss of perspective for them. And that’s just it: Perspective. To safely look at the sun, we need to observe it in a particular way.
I am reminded of this by the recent knee jerk reactions we are seeing with people and organizations looking directly into “the amount of power the bitcoin network uses” for the first time. Recently Tesla has made headlines by dropping Bitcoin payments due to “climate change concerns” and Greenpeace USA has stopped accepting Bitcoin donations over “the carbon footprint of the cryptocurrency”.
I would propose the members of these two organizations have gone blind from looking directly, and without proper perspective, into the energy use of the Bitcoin Network. We can only hope that this blindness is temporary. But if not, then we should be grateful to them as we are to those poor blind bastards from history. Their loss will pave the way for better understanding. I hope to illuminate the reasons why here.
Can’t Get Something for Nothing There is no argument that Bitcoin does not use energy. And the amount of energy it uses is growing. The issue here is like so many others when trying to understand Bitcoin. We are looking at something new. And this is another aspect in which Bitcoin does something rarely done before. In this case it removes nearly all the layers of obfuscation between energy expenditure and the creation and security of value.
There is no asset for which energy is not expended for its creation, delivery, and safekeeping. Gold must be mined, at GREAT expense. Then it is refined which uses tremendous heat. And then it is cast into coins or bars. At this point energy is expended in its transportation and even when it has come to rest in some vault great amounts of energy must be expended in protecting it. In fact the more gold there is, the more energy must be expended to safeguard it.
Ever Notice Mt. Gox Sounds Like Ft. Knox? In Kentucky, USA there is a famous fortified vault called the United States Bullion Depository. This vault holds more than half the United States’ gold as well as other valuable items. It is more popularly known as “Fort Knox” which is actually the name of the military base next to this vault. Of course, that is not an accident. It requires the US military to guard the estimated 147 million ounces of gold held there. At the time of this writing, that gold is worth more than a quarter of a TRILLION US dollars. So how much energy has been expended in the mining, production, assaying, transportation, and constant security for this treasure? Well, it is hard to say clearly. The energy used in all this is abstracted from the asset itself. There are layers upon layers of costs along the way. Consider, for example, that some of this gold was acquired through war. It is hard to see, when looking at a beautiful shiny coin the amount of energy it represents. This energy use is abstracted away from us like the image of the sun through a camera obscura.
My PreciousI keep some valuable things of my own in a safe deposit box at my bank. This box is guarded by several layers of security devices and methods as well as being somewhat resistant to fire, and disasters both natural and manmade. Like a miniature “Fort Knox” an enormous amount of energy has gone into the creation of this tiny little “box”. Concrete, rebar, and steel, all inside a larger vault made of even more of the same things, inside a reenforced building. It would be very difficult to quantify the amount of energy that has gone into building all this, as well as maintaining it.
As I have said, the way the Bitcoin network is secured, like so many other ideas that enable this network of value is difficult to understand because it is novel. Bitcoin does not directly require any concrete, or rebar. It does not require armies or governments. It does not require digging up the Earth. It’s transportation arguably requires the least amount of energy of any asset because it is entirely virtual.
And because Bitcoin is virtual, we can use energy DIRECTLY to create and secure it. There is very little need to abstract this energy use into the physical world. Instead of bulldozers and forges, concrete and rebar, or tanks, and nuclear missiles it needs silicon devices, electricity and a network connection. It is such a PURE idea that we can use energy DIRECTLY to create and secure the value on this network.
Imagine, if you can, what the energy being used on Fort Knox would look like if you could just stare directly into that pure energy. Better get some sunglasses at least. Take away all the abstractions which are like a sleight of hand that diffuse and conceal the energy used to create and maintain that famous vault. Of course, this can only be done in the arena of ideas. But I propose it would be a blindingly large amount of energy.
Friction Is Loss Energy is lost when we try to store or transmit it. Also it is lost when we use it to move or create physical things. Bitcoin reduces friction in the most literal sense. It can use the energy DIRECTLY thereby minimizing the loss that we see with ALL physical uses of energy.
It is obvious to me this idea is lost on those who are criticizing Bitcoin's energy use. They have not yet realized that the shock they feel at the energy use of the network is created mostly by the way the network uses the energy directly. Like staring directly into the Sun, they are being blinded by the purity of what they are seeing.
Money is energy. #Bitcoin is the first crypto monetary energy network, capable of collecting all the world’s liquid energy, storing it over time without power loss, and channeling it across space with negligible impedance. - @michael_saylor on Twitter Nov 21, 2020
The fact that the Bitcoin network wastes almost no energy in abstractions, or in concealed uses, makes the energy it does use much more obvious. Instead of reacting to this with shock and horror, we should be grateful for the technological leap that this network is allowing us. I would guess we are potentially increasing the efficiency of energy use for a network of value by orders of magnitude with Bitcoin.
Bitcoin Fixes This This reduction of friction alone makes the Bitcoin network extremely valuable, and we have not even begun to talk about how the near absence of friction in the design of this network will also revolutionize the global energy system. I will just touch on this breifly.
Bitcoin will make building new renewable power possible in places it has not been feasible before. The costs (energy, actually) in building a dam for example, are not worth it in many areas due to small demand. And populations around those places suffer because building a renewable power source for them would be more costly than the benefits. Now investors can build renewable energy production and provide a new life for a region without as much risk. They can offset their costs with bitcoin mining.
Another problem with renewables is they must exist with both inconsistent genesis (ie. no wind, cloudy days, a dry season) as well as fluctuations in demand. Bitcoin mining can eliminate the second issue and make developing these resources worth it at lower margins.
Yet another issue bitcoin can solve for energy production is the problem of stranded energy, as well as wasted energy for example the byproduct of natural gas production at an oil well. Energy used for storage and transmission of this gas would be greater than the energy it represents, so we simply flare (burn) it to reduce its harm on the environment. Currently it is just wasted. Bitcoin can create portable demand for energy that would have no use otherwise. What is better? Burning excess natural gas to reduce it’s greenhouse impact? Or burning excess natural gas to reduce it’s greenhouse impact AND mining Bitcoin.
Wrapping Up (like a deuce, another runner in the night?) Bitcoin’s energy use is blindingly pure. And the people who are reacting to this fact currently have not seen the whole picture yet. Some of us have begun to see how Bitcoin uses energy in the most pure and efficient way possible to create a value network. We must work to communicate this clearly to those who cannot yet see it. Of course, Bitcoin is inevitable, and honey badger don’t care. But it will benefit us all to help the blind to see, so to speak. The sooner we do, the sooner we can get on with making the world a better place.
Today, the sun is rising on a new value network which uses energy in the most efficient way possible so far. This network reduces considerably, the amount of energy required for anything OTHER than the creation and security of its value. And this network no longer requires very much in the physical realm at all, nor does it incentivize the horrors and machinery of war to produce or guard that value.
I would simply ask this:
How much energy is
that worth?
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