On Bitcoin’s energy use

The bitcoin network annually consumes more energy than some small countries. That’s a lot of energy! Now, if you think bitcoin is useless, then you will complain that all of that energy consumption is a waste and that the dirty sources used to create that energy is bad for the environment.

Have you ever complained about how much energy is used to power Christmas decorations and lights every year? Because Christmas lights use more energy than some small countries. Do you complain about the negative environmental impacts of running a clothes dryer to dry your clothes when you could just hang them up outside to dry in the sun? Of course you don’t, because if you dry your clothes with a clothes dryer it’s because you find that use of energy valuable to you. The problem with complaining about Bitcoin using so much energy is that you fundamentally don’t understand the value of Bitcoin.

So, let’s think about it. Is it easy to consume as much energy as a small country? How much money do you think it costs to pay for that much energy? Hundreds of millions of dollars.

Wait. So, that means that there are companies (Bitcoin miners) around the world from America to Uzbekistan and many places in between that are willing to pay for energy to mine bitcoin and secure the bitcoin network. These are not nonprofit companies! Why would people pay millions of dollars worth of electric bills for some strange, digital “coin” that you can barely use to buy anything? There must be some value to it to be worth it to spend all that money on the energy required to keep the network going.

The other cool thing is that the NYT reports that Bitcoin’s energy usage is 40-75% renewable! That’s amazing. America’s renewable energy percent is closer to 12-20% renewable. So, Bitcoin is doing better than the US in that regard. How so?

Bitcoin is decentralized which means there is no CEO. There’s no President or board of directors. Why such a high renewable energy percent with no leader mandating it? Well, it’s pure free market competition. The Bitcoin miners (who are consuming all this energy) are incentivized to get energy for as cheaply as possible. That way they can increase their profits of course. And they can mine almost anywhere in the world (except China which banned Bitcoin miners this year). What’s the cheapest energy? Well, wasted flared natural gas actually. It’s free! Natural gas producers have to flare (burn up) excess gas. Some miners are capturing this wasted energy and turning into pure digital money.

How about hydro power? Waterfalls and rivers are constantly running, but the energy demand for a nearby town isn’t constant. Bitcoin miners hook up to hydroelectric stations and use that wasted, renewable energy to mine Bitcoin and protect the network. When the local town needs more energy, you can temporarily shut off the Bitcoin mining rigs. One Bitcoin mining company spent $23 million to buy a hydropower farm in Washington state. It’s fascinating stuff.

The Bitcoin network will speed up the adoption of renewable energy. And all that energy is proof-of-work that will secure the next global digital monetary system.