The environmental disaster that is bitcoin: get some efficiency or GTFO

I’m a big fan of blockchain technology and crypto-currency as a concept. The general strategy that BitCoin employed was a genius ecosystem: Allow people to gain wealth, but force them to show evidence of work, and then use that work to drive the transactions and blockchain math that makes the network go. Great.

Except… they used electricity as the work evidence. You have to take power and destroy it to mine BitCoins. And, because they were worried about Moore’s law and fancy silicon letting someone run away with it all, the amount of energy needed goes up. A lot. And this is unsustainable. The BitCoin network is purposely inefficient, using as much power as it can, by design. And the more transactions people do, the more power it uses, until eventually it gets choked by either transaction fees (you need to pay for that power, currently estimated as 234kWh/transaction. Put another way, every transaction costs (~$0.10 – $0.20) * 234 == $25-$50 just in power. Or, I could ‘fill’ my wife’s car 4 times with power and drive 1600km for every transaction. You want me to buy you a coffee with BitCoin?

And this is going to get worse, it will go up and up until most of the worlds power is consumed by BitCoin. The US Federal reserve estimated in a 2016 study there were 103B transactions on debit + credit in the US in 2015. Assuming all of those were on BitCoin, this would be 24T kWh, roughly 6 times the US annual energy usage of 3.9T kWh (yes I know, i should combine the T and k together, but energy is priced in kWh). So we would need to increase power generation 6x just to pay for our big macs.

If we look at the estimates of BitCoins current power production (recently referred to in units of Denmarks!), and realise we have just started futures trading on BitCoin (which must drive transactions upwards), we should be worried. But what about the damage caused already? It appears from the graph below that we are already using about as much power to drive BitCoin than all the solar production online in the US [4.5GWh/month == 54TWh/yr]. (and worse, much of the BitCoin is mined using dirty coal power in China).

Now, back to the technology. Unless there is some obstruction, technology tends to drive towards efficiency, not away. Blockchain is good, crypto-currency is good. But BitCoin is hampered by an anti-design goal, that of being inefficient. A crypto-currency that drives blockchain using a different evidence of work (solving the human genome? curing cancer? driving towards least power used per hash?) is likely to come on the scene, and we’ll look back at BitCoin as the pioneer of the space, the idea, but not the technology that won (yes I’m aware of BitCoin cash, Ether, etc…). It may be like the CFL (a more efficient light, with a brief lifespan before LED took it over). But I don’t plan on ‘investing’ in BitCoin at this time. In 1 year you can come back and say “I told you so” based on this statement, cuz i’m sure with all the froth the market will go up for a while, but I don’t believe it will continue.

tl;dr: I’m a blockchain bull and a BitCoin bear.






4 Responses to “The environmental disaster that is bitcoin: get some efficiency or GTFO”

  1. Tony Westermann

    Great article Don.

    Another excellent link/article that backs your bitcoin bearish thesis:

    ps – I just cashed out my bitcoincash holdings today. Once CME starts trading futures (very soon) on bitcoin, commercial paper shorts are going to hammer all of crypto-currency.

    pss – governments are getting screwed out of capital gains taxes too!

    1. db

      canada and the us have taken the position bitcoin is property, so you do have to pay taxes on it (similar to if you painted a painting and sold it).
      its not treated as an investment (gain/loss capital).

  2. Antoine

    Have you done any reading on lightning network and does it affect your thesis that modt transactions will go offchain?

    1. db

      I am looking @ Ripple / XRP. This is a ‘lightly central’ blockchain that is pre-mined, designed for inter-bank transfer. This doesn’t have the power issue that bitcoin has.

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