Mining & ecology : information war
Elon Musk’s tweet about Bitcoin energy consumption of May 13 continues to make waves across the Internet, giving an opportunity for both crypto-skeptics and crypto-enthusiasts to speak up.
One of the most influential persons in the first camp is Alex de Vries – a data scientist at the Dutch Central Bank, whose main job is to track economic crime, and the side one to animate the famous website Digiconomist.com. This website and Mr de Vries himself are cited by almost every person attacking Bitcoin on ecological basis: from Elon Musk to Bill Gates to any other lazy journalist. Digiconomist contains many misconceptions and should be taken with great caution, keeping in mind that the Dutch Central Bank is a fierce opponent of Bitcoin and crypto in general (last week, after a long legal battle, it was even forced to admit that its ridiculously strict KYC requirements imposed on crypto exchanges were unlawful).
Bitcoin proponents don’t stay aside and counter the attacks:
“Bitcoin wastes energy”
The energy used to mine a block is used to protect all previous blocks (i.e. the history of bitcoin transactions from day 1) and reinforce the network security. This, in turn, gives every person on Earth a tool to take back control of their finances by replacing centralized authorities by an independent system. Did someone say waste?
“Bitcoin uses too much energy”
What is too much? Let’s contextualize. Two studies appeared recently, comparing Bitcoin energy use and carbon footprint to those of the banking/financial sector, i.e. the traditional alternative to Bitcoin. It has always been taken as granted, so the proper methodology is yet to be determined, but the main lines are clear. You can check the links for more details.
“Bitcoin contributes to climate change”
As precised by the Cambridge University, which is closely studying Bitcoin energy consumption and publishes its index (https://cbeci.org/), even if Bitcoin mining were powered exclusively by coal, its CO2 emissions would correspond roughly to 0.17% of the world’s total emissions. We know, however, that a considerable part of Bitcoin mining energy mix (39-74%) comes from renewables, and green mining is developing at amazing speed. So Bitcoin share in the world CO2 emissions would be somewhere between 0.05% and 0.11%, and decreasing.
“Bitcoin uses too much energy per transaction”
Often used by people with poor knowledge of Bitcoin mechanism, “energy cost per transaction” is a misconception. First, transaction throughput is independent from the network’s electricity consumption. Second, one Bitcoin transaction can hide many others, for example when settling transfers to a layer 2 network like Lightning Network or when programming numerous payments to different addresses.
These are just some of the most popular attack vectors and there are still many people in the Internet manipulating figures and creating scary infographics. What’s important is to keep a critical mind and question not only the raw data, but also the way it is turned: some calculations like “energy per transaction” or “CO2 per user” just don’t make any sense.
Bitcoin Mining Council
In the age of social networks inciting people to keep a critical mind is easier said than done, but there might be a way to strengthen Bitcoin proponents’ voice. This week Michael Saylor invited Elon Musk to a discussion with North-American miners about sustainable mining, which resulted in the creation of Bitcoin Mining Council – an organization aiming at “promoting energy usage transparency and accelerating sustainability initiatives worldwide”.
Coordinating anything with respect to Bitcoin is generally a bad idea (the community blocks any threats to decentralization), however the Council participants explicitly denied any intention of meddling with code. Their intent would be to “manage concerns, especially from uninformed parties”, about Bitcoin energy usage, publish energy usage data and to encourage further transition to green mining – a good initiative in our opinion, but to be executed very carefully, for the biggest quality of Bitcoin is its independence.
Markets
Bitcoin
Bitcoin price tested $40k resistance level following the announcement of a gigantic spending plan of $6 Tr proposed by Biden administration, however could not hold it and rolled back to below $35k.
On a bright side, on-chain data shows that for the first time wince April 22 net bitcoin inflows to exchanges turned negative, meaning that people are transferring crypto to their own wallets and thus are less likely to sell it. Also a big quantity of bitcoins were bought last week by whales (individual wallets with >1000 BTC) – a possible indicator that the price might have bottomed.
Ethereum
Ethereum price surged +40% by Wednesday before correcting to $2400 level. It holds tight its position of the second cryptocurrency and keeps its appeal to investors: this week an Asset Manager Wisdom Tree joined VanEck in filing for an Ethereum ETF (exchange-traded fund) in the USA.
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Quote of the week
“We need to make sure that people that are hostile to Bitcoin and hostile to the crypto industry aren’t defining these narratives and defining those models and defining those metrics,” Michael Saylor, CEO of Microstrategy and Bitcoin enthusiast, about misconceptions on Bitcoin ecological impact.