This week we want to address the issue that Bitcoin is a waste of energy. In this day and age where green initiatives are seen as an ever-present political concern, the growing problem of the massive energy footprint of Bitcoin is starting to be the focus in the public eye of both digital currency advocates and critics.
The BBC recently published an article detailing the alarming growth of the energy waste of Bitcoin, thanks directly to the speculative nature of its price on the markets.
But the rising price offers even more incentive to Bitcoin miners to run more and more machines. And as the price increases, so does the energy consumption, according to Michel Rauchs, researcher at The Cambridge Centre for Alternative Finance, who co-created the online tool that generates these estimates. “It is really by design that Bitcoin consumes that much electricity,” Mr. Rauchs told BBC’s Tech Tent podcast. “This is not something that will change in the future unless the Bitcoin price is going to significantly go down.”
The problem is that as BTC continues to be the object of speculation, which most BTC supporters are more than willing to admit is the main strategy for mass adoption. More energy is consumed as miners are incentivized directly to invest more into mining machines and burn more electricity in an attempt to increase their share of the network profits. This seems to be a vicious (or virtuous, depending on how you look at it) cycle, which will never end so long as the price of the asset continues to rise vs USD. This has caused alarm bells to sound as the total energy consumed by the BTC network is now comparable to entire nation states in scale.
This of course begs the question: are the benefits that Bitcoin brings to society a worthwhile tradeoff in an age where we are trying to reduce our dependence on fossil fuels and wasteful energy practices that are possibly contributing to global climate change? The answer is likely, no, but what is the alternative? If you listen to BTC apologists, they will be quick to quote that the global banking systems of the world use a lot more energy if you were to count all of the offices, servers, ATMs, and infrastructure required to process payments and facilitate banking around the globe. Which is true. But does bitcoin provide all the services that a bank does? Does it allow for credit, savings and loans, mortgages? Perhaps sometime in the future, but certainly not now. And certainly not without a solution to the scaling issue that prevents BTC from processing more than 7 txn/sec.
Furthermore, Bitcoin was not meant to burn up more and more energy as the system grew to global scale. In fact, by design Bitcoin is supposed to only use the exact amount of energy needed to keep the system secure and not a kW more. Why is it then, that BTC energy consumption seems to have gone off the rails and is rising exponentially beyond the levels needed to maintain basic system security? The reason, in short, is because there are strong indications that the BTC markets are manipulated, and that is throwing a spanner in the otherwise well balanced self-regulating system. In a fair functioning market, where Bitcoin price is a balance of its intrinsic value (utility value)1, supply and demand, without the rampant speculation and HODL culture that we find in BTC, then the price would result in a stable hashrate for the network, and there wouldn’t be a constant race to earn more hashpower by actors.
Take an example of a network which is dominated by three major miners, each having 33% of the network. Given price stability, this equilibrium is reached where there is no incentive for any of the players to purchase more equipment in order to try to earn more than their 33% of the network fees, as they know that their expenditure to increase their share will be met with equal expenditures of their competitors, tit-for-tat, which would result in the network reaching an equilibrium again at 33% each, with the difference that there is more capital locked up in mining assets for all three parties, and a net increase in energy expended to mine exactly the same amount of coins by all.
This in game theory is called a Nash equilibrium, a point in a game where it does not benefit any player to try to compete further with their opponents, because it would only result in matching actions which would cancel out any gains. This equilibrium state constantly fails to be reached within the BTC ecosystem, because the BTC price is not fair, or based on utility value, but based mostly on ponzi FOMO2 value, hidden behind a narrative facade of ‘self-sovereignty’ anti-government money. Due to this powerful greed/ideological motive, and backed by a potential endless money printing machine which is USDT (Tether) to support the price, BTC price continues to increase, reinforcing the belief that it will continue to do so indefinitely, and therefore increasing the monetary incentive for the ecosystem of miners to disrupt the equilibrium and increase their capital investment in mining farms/servers, because the profit margin is constantly increasing.
In contrast, in a system where the price is based on utility, and where transaction fees (as opposed to block subsides) are the primary component of network fees, this equilibrium is reached, and the energy footprint of the entire system is stable and anchored to the utility of the network. Even better, in the long run3, when transaction fees are the only way miners are rewarded, it would even make sense to turn mining machines off in times when the transactional processing demand on the network isn’t sufficient to compensate the miners for the power use. This creates an auto-tuning system where the power use is directly proportional to the transactional volume on the network, and there would be no need to constantly run power hungry hashing machines when there is not enough use of the system to warrant it. There is no idle power cost to an efficient auto-tuned Bitcoin system.
If you haven’t guessed already, this is exactly the model of BSV, which not only encourages its use as a technical utility, but also maximizing the transactional volume on chain. Only with unlimited block sizes is this economic strategy possible, as it matters not how many transactions queue up unconfirmed, once the profit threshold was met in the aggregate amount of unconfirmed transactions, the miners would then power up their hashing units to mine the block, no matter how large the block may be. This ensures that the energy use of the BSV network is ultimately, optimal, and the performance of miners in this optimization game does not affect the usability of the network from a user perspective if used in conjunction with proper SPV or lite-clients, which we will discuss in a future article.
Imagine, a global payment and computational platform, ledger, data attesting and settlement system that is not only energy efficient, but optimally so, using only as much energy is needed at any given time to produce the confirmations that the world demands, expressed in the form of aggregate transaction fees. This could stand to be the most energy efficient form of Bitcoin yet, and possibly even the most energy efficient distributed system ever designed. It is a shame that most people focus only on the BTC version, which abandoned its energy efficient design years ago when it chose to keep the temporary limit on its block size thereby changing radically the economic incentives of the mining ecosystem supporting it. This, coupled with the marketing narrative of “HODL,” which drives the price volatility higher than the most speculative of risky assets, is what unfortunately creates the undesirable side effect of the network consuming more power than Argentina, just so that people can buy and hold (and not even transact with!) their bitcoins. It seems that they really are taking the whole gold analogy a step too far, in attempting to rival the amount of energy it takes to mine gold just to put it into vaults. That makes it one of the most inefficient systems ever devised. Imagine what good causes could all that excess energy be otherwise put to use for? Only the future will tell which system ends up being more successful, measured in how many things it can do, divided by the cost of energy it consumes in order to do it. In that race, BSV is well ahead of the competition.
 As mentioned in a previous article, BSV as a Store of Value
 Fear of missing out
 After mining subsidies are finished, circa 2140
Watch: CoinGeek Zurich panel, BSV is Green Bitcoin: Energy Consumption & Environmental Sustainability
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