The people behind Bitcoin, the No. 1 cryptocurrency by market capitalization (and fame), are under intense pressure to reduce carbon emissions — the greenhouse gas emissions from burning fossil fuels for electricity to power network accounts, known as mining. I’ve talked to people on both sides of the argument and come away with the belief that Bitcoin is unlikely to change the basic way it works.
Bitcoin feels wasted to a lot of people because its security depends on buying a lot of specialized computing hardware that is useless for any other purpose and then powering it up, consuming joules and joules of electricity. The Cambridge Center for Alternative Finance calculates that bitcoin mining, on the whole, consumes slightly more energy than gold mining, which is a fair comparison, given that both bitcoin and gold are used as alternatives to fiat currencies like the US dollar. Bitcoin mining consumes more electricity than Norway but slightly less than Egypt, the center says, and accounts for 0.62 percent of the world’s total electricity consumption.
Here are some amazing stats about Bitcoin: Every second, the Bitcoin network performs about 200 quintillion hashes, which are basically guesses about a particular very long string of numbers. There is a race among the participants in the Bitcoin network, known as miners, to make guesses faster and faster in order to be the first to earn rewards in the form of Bitcoin. It is cheaper for them than buying Bitcoin on the open market: the price of the token has increased more than thirty times over the past five years.
As miners get faster, the network automatically makes the problem they need to solve harder, essentially spinning the treadmill faster. The Bitcoin network is designed in this way to limit the frequency of formation of new blocks of verified data to one every 10 minutes. Unlike most other cryptocurrencies, there is an internal cap on the production of tokens. More than 90 percent of the 21 million bitcoins that will ever exist have already been mined, making each one more valuable.
The pressure on Bitcoin to switch to a less energy-intensive approach comes from several directions. Ethereum, the No. 2 cryptocurrency, is switching from Proof of Work, which is used by Bitcoin, to Proof of Stake, which requires much less computing power and therefore causes less damage to the environment. In short, you prove your business by making those millions of calculations. You prove your stake by pledging the cryptocurrency you own. As in a company’s shareholder vote, the people with the most coins have the biggest say.
The difference in energy consumed per transaction between the two systems is similar to the difference in height between the world’s tallest building and a single screw, according to one creative comparison. Once Ethereum makes the conversion, Bitcoin will be the only one among the most valuable cryptocurrencies with proof of work.
The European Parliament is moving towards insisting that all cryptocurrencies meet environmental sustainability standards, even though a draft document in March stopped short of banning the proof-of-work system used by bitcoin. Also in March, Greenpeace USA, the Environmental Working Group and other environmental advocacy groups began a code-change campaign, which includes advertising as well as lobbying crypto enthusiasts such as Tesla’s Elon Musk and Jack Dorsey of Block (formerly Square), as well as Abigail Johnson From Fidelity Investments, which operates mutual funds that invest in bitcoin miners. The campaign received $5 million in support from Chris Larsen, CEO, former CEO and co-founder of Ripple, a global enterprise blockchain company.
There is no Bitcoin headquarters you can contact to get an official response to this matter. Jameson Loeb, a crypto advocate I spoke with said, “There is nothing official when it comes to Bitcoin. There is no leader. There is only protocol.”
Lopp, co-founder and CTO of storage company Bitcoin Casa, who describes himself as a professional cypherpunk, said that defending Bitcoin is not up to people like him. “I think it’s defending itself. Game theory and incentives are what make this work. People can yell about environmental concerns all day long, but until you come up with a better system, it’s going to go on.”
He and others also argue that Bitcoin is not an energy resource as it first appears. Because bitcoin miners can be quickly turned on or off, they install the electrical grid in places like Texas by throttling again when other demand is high and ramping up consumption when other demand is weak, advocates say. Some of the electricity that Bitcoin uses comes from energy resources that no one else can easily access, such as over-built hydroelectric plants, they say. (There is some truth to this, but bitcoin mining still contributes to global warming.)
Another Bitcoiner’s argument is that Proof of Stake is more secure than Proof of Stake or other protocols. “The open question is not whether Proof of Stake is secure but whether it is secure enough for a global form of digital gold. Bitcoin is what it is,” said Ryan Selkis, co-founder and CEO of Messari, which builds data and research tools for cryptocurrencies. (Reply Supporters of proprietary cryptography that their systems are just as secure as Bitcoin. “They are literally under attack by every hacker on earth,” Larsen said.
There is also some bad blood between the Bitcoin community and Larsen, whose company, Ripple, uses a security system that is neither proof of work nor proof of stake. In March, Silkis called Larsen a “Judas” on Twitter. The Securities and Exchange Commission sued Ripple, Larsen and another Ripple CEO in 2020, accusing its sale of $1.3 billion worth of tokens as an “unregistered and ongoing offering of digital assets.” In an interview, Larsen said he believes the SEC is wrong because Ripple is a virtual currency and is therefore exempt from securities regulation.
Make these arguments what you will; The important fact is that there is no evidence that the major players in Bitcoin are interested in a major switch to energy-efficient Proof of Stake. It will not benefit miners, who have invested so heavily in niche computing technology that would otherwise go to waste. Nor is there much reason for that in the other main interest group, the node operators – the computers that keep up-to-date digital records of crypto transactions. Node operators collectively decide whether or not each new transaction block should be legalized and appended to the blockchain. Some fear that moving to proof of stake will reduce the decentralization of bitcoin, which they value.
It is possible that some bitcoins will decide to switch to Proof of Stake. This will be what society calls a hard fork, as in the crossroads, where people have to choose which direction to go. said Daniel Frumkin, director of research at Braiins, a bitcoin mining software company that runs a network of miners called Slush Pool.
Selkis said that changing the direction of bitcoin would require “almost like a constitutional agreement of some sort.” “Inertia usually wins.”
OK, but what if the European Parliament would one day ban proof of work and the United States and other countries would follow suit? This is the nightmare scenario for the Bitcoin community, which has a strong libertarian streak. “Bitcoin would not be a trillion dollar asset if the European Union and the United States were doing their jobs” of keeping good money, Selkis said. “This is the real reason they don’t like it. It exposes their poor performance.”
“Until today at least, there is not a single world, a world government,” Loeb said. “There will always be a place where miners can go.” He laughed and added, “Worst case scenario, they could all go to El Salvador, which loves bitcoin.” (El Salvador adopted bitcoin as its official currency in September, although the experiment had some hiccups.)
I see a lot of reasons why Bitcoin should stick to its current game plan. Lots of reasons, actually.
New York times