HODLing breaks Bitcoin part 2

Getting your Trinity Audio player ready...

In last week’s editorial, I discussed how the “HODL” mentality undermines Bitcoin’s privacy model. Today, I want to take that argument further by addressing another consequence of HODLing that’s rarely discussed by BTC maximalists: its negative impact on the environment.

Bitcoin, often criticized for its high energy consumption, is consuming incredible amounts of electricity—but not in the way its proponents would like you to believe. BTC’s limited block size and the widespread HODLing culture mean that a massive amount of energy is being used to secure an incredibly small number of transactions. Simply put, BTC’s blockchain runs a global, energy-intensive network to update a ledger in tiny increments because most users are holding onto their coins, not circulating them.

Let’s put this into perspective. BTC miners are burning through vast quantities of energy to secure a network that processes just seven transactions per second, while the majority of BTC holders leave their coins untouched in custodial wallets or cold storage. The environmental toll of BTC isn’t from powering a global economy but from maintaining a ledger for an asset that barely moves and is held by a tiny group of technocrats and their allies. What’s worse, the idea that Bitcoin’s energy use is justified by its scarcity and value as “digital gold” sidesteps the question of whether that energy is being used effectively and repackages it into “Shhhh! Don’t ruin the party while we try to get rich!”

Bitcoin should be a green technology

The true promise of Bitcoin is not as a speculative asset that consumes energy without producing significant economic activity. Bitcoin becomes environmentally sustainable when every joule of energy used to secure the network fuels high-velocity, economically significant commerce. That’s the vision being pursued (and hopefully realized) in the BSV ecosystem, where Bitcoin is used as originally intended: as a peer-to-peer electronic cash system.

My longtime readers will recall this analogy, so forgive me for belaboring it:

Imagine Bitcoin is a train. No one complains about the energy expenditure of a train because it serves a vital function—it’s moving large numbers of people efficiently and on schedule. But in the case of BTC, it’s as if that train is running empty or with just a handful of passengers while using the same amount of energy as it would with a full load. Meanwhile, BSV is like a train packed with passengers, maximizing its energy to carry as much economic value as possible. Every block on BSV can hold millions (soon to be billions) of transactions, from micropayments in simple commerce to complex smart contracts, 1Sat Ordinals, and lots of other things, efficiently using the same energy that BTC wastes on serving a handful of HODLers.

The difference is simply that in the BSV economy, every transaction adds value while consuming far less energy per transaction than BTC. This makes BSV a green technology—its ability to scale, drive commerce, and create real economic utility while maintaining the same proof-of-work (PoW) security model that BTC uses, but with much higher efficiency.

The untapped potential of energy in Bitcoin mining

It’s especially unfortunate when we consider that Bitcoin mining has the potential to be a game-changer for efficiency and disruption in the energy industry. One of the often-overlooked benefits of mining is its ability to liberate energy that would otherwise go to waste. For example, in oil drilling, natural gas pockets cannot be economically captured and are often flared (a type of venting) into the atmosphere, releasing harmful emissions. Bitcoin miners can harness this otherwise wasted energy by powering their operations, effectively turning an environmental liability into a productive energy source.

Source: “mining operations that capture vented methane to produce electricity can yield positive results for the climate” pic.twitter.com/PTOl8sy6e5

— Dennis Porter (@Dennis_Porter_) September 8, 2022

Moreover, BTC hashers are increasingly entering into curtailment agreements with energy companies, where they purchase excess electricity that would otherwise overwhelm the grid. By acting as flexible energy consumers, hashing operations can help stabilize the grid, particularly in regions with abundant renewable energy that isn’t always aligned with demand. When done efficiently and at scale, Bitcoin mining can incentivize investment in renewable energy infrastructure, creating a virtuous cycle of useful energy production and productive consumption!

But here’s the catch: these benefits are only realized when Bitcoin is being used for economically significant purposes—when there’s real velocity in the system. BTC’s small block size and HODL mentality ensure that all this energy is used to secure a network where the coins hardly move and, therefore, are only purposed to update an inert ledger.

Small blocks and energy waste

The environmental cost of BTC’s small blocks isn’t just a matter of inefficiency. I mean it as an indictment of the entire system. Bitcoin’s small blocks were a deliberate (and I have argued malicious) choice to limit the capacity of the network under the guise of keeping it decentralized. However, in doing so, BTC proponents have created a system where energy consumption is entirely divorced from utility. Small blocks make it impossible for BTC to handle the volume of transactions required for global commerce, turning it into an energy-draining “store of value” instead of a thriving economic-driving engine.

BSV, on the other hand, has embraced the challenge of scalability with large blocks and unbounded capacity. It can currently process thousands of transactions per second, making every joule of energy count by empowering a global economy, not just a static ledger. The more transactions processed, the lower the environmental impact per transaction—a fact that turns Bitcoin’s energy use from a liability into an asset.

And soon, that number will grow by orders of magnitude with the rollout of Teranode.

The true incentives: Velocity over HODL

As originally designed, Bitcoin incentivizes saving, but not in the way Bitcoin maximalists interpret it. Bitcoin should be saving in the sense of prudently managing resources and wealth through a robust and efficient cash system. The very idea that one should “HODL” and never spend misses the point entirely. A currency that doesn’t move, that doesn’t circulate, becomes useless. As I said previously, a body of water that doesn’t flow becomes stagnant.

If Bitcoin is to be the revolutionary tool it was designed to be, it must have velocity. It must flow through the economy, passing from hand to hand, wallet to wallet, as a medium of exchange. This is not just about keeping the network alive; it is about privacy, as we discussed last week, and efficiency with resources, which is discussed today.

The cost of complacency

Some might argue that Bitcoin is a long-term store of value like gold and doesn’t need to be a cash system. Money should be saved, yes. However, the HODL Maximalist argument ignores the foundational principles laid out in Bitcoin’s own white paper. When Bitcoin is reduced to just a store of value, it loses its potential to disrupt the current financial system. Worse, it becomes a tool for those who wish to impose their own controls—those who want the advantages of Bitcoin’s scarcity without the accountability and privacy that comes with its proper use as cash.

If we are content with a Bitcoin that remains a niche, speculative asset for the few who got in early, then by all means, continue down the BTC path of small blocks, high fees, and centralized custody. But we should be honest about what that means: a Bitcoin that isn’t truly decentralized, isn’t private, isn’t useful, and certainly isn’t the peer-to-peer electronic cash system that Satoshi envisioned. And now you know that it also isn’t “green.”

Closing Thoughts

Just as in last week’s piece on privacy, the environmental impact of Bitcoin is being distorted by BTC’s artificial and arbitrary limitations. The small block philosophy is crippling Bitcoin’s potential, forcing it into an inefficient model that wastes energy on a network that hardly moves. Meanwhile, BSV’s ability to scale and facilitate real economic activity is not only restoring Bitcoin’s original purpose but turning it into a truly green technology.

HODLing might sound appealing in theory, but it’s slowly suffocating the environmental and economic promise of Bitcoin. Bitcoin’s true sustainability will come from high-velocity commerce, and that’s only possible with scalable, efficient networks like BSV.

This is just the second part of a larger discussion about how BTC has veered away from its intended design. Stay tuned—there’s more to come in this series.

What are some other problems caused by HODLing that you would like me to cover?

Watch: Breaking down solutions to blockchain regulation hurdles