If you are familiar with Bitcoin (BTC), you have probably seen criticism about energy consumption in the mainstream media. It Proof of Work consensus mechanism needs an enormous amount of energy to protect the network. The discussion about Bitcoin’s energy consumption is a tricky one that is a lot less black and white than you might think at first glance. There are many factors that come into play and most politicians or journalists who speak out about it remain on the surface.
In order to assess whether Bitcoin’s energy consumption is valuable, it is necessary to see the added value of Bitcoin. Bitcoin is a digital form of money that has absolute scarcity and is completely resistant to the inflation (money printing) that we see with government money. It is a way for society to protect itself against loss of purchasing power and to save responsibly. In the West we are blessed with relatively stable government money, but unfortunately a large part of humanity cannot say that. Try telling an Argentine or Turk that a form of money that has absolute scarcity is not valuable. Even in the Netherlands, inflation is getting out of hand and bitcoin seems to have added value against the euro.
Enough introduction, let’s dig a little deeper. Keep in mind that this article is nowhere near enough to give the subject the attention it deserves. These are just a few quick points to get you thinking.
1. The polluting nature of fiat money
Starting with a consideration of our fiat money system. You may be aware that fiat money is unsecured money. Central banks and commercial banks can create new units at the touch of a button. If you take out a mortgage on a house, the bank creates that money with the issuance of your mortgage. Over the years, a huge mountain of debt has built up that is now four times greater than global income.
We have to pay interest on that mountain of debt and ultimately also repay the debts. Although at the moment we seem far past the point that this is possible. If we assume an average interest rate of 3 percent on all debts. Then this means that our economy has to grow by 12 percent annually in order not to shrink and to meet our debt obligations neatly (4 (= debt/income ratio) x 3% = 12%). The economy must therefore grow at 12 percent per year in order not to shrink. Now that’s practically impossible, but the most important thing to remember is that we have a system that can only survive with infinite growth. We have to produce more and more and faster in order to maintain the mountain of debt. Ladies and gentlemen: that is bad for the climate.
2. Bitcoin and renewable energy
Now switch to Bitcoin. As you may know, the unpredictable nature is the major problem for sustainable energy products. The wind is not always blowing and the sun sometimes has trouble shining. The other way around is also true, if it is too windy or too sunny, they produce too much energy that cannot always be sold to the grid. This unpredictability makes it difficult for renewable energy products to compete with more polluting energy producers. Bitcoin offers a solution because it can buy all the energy that sustainable producers cannot lose to the grid. Bitcoin has the potential and is already making renewable energy producers more profitable. In this way, Bitcoin can support the rise of renewable energy.
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3. Bitcoin and gas flaring
In addition to renewable energy producers, Bitcoin also reduces emissions for oil and gas producers. Many oil and gas companies often have excess gas that they cannot get rid of and therefore simply burn. This releases a lot of pollutants into the atmosphere and Bitcoin can be a solution for that. Instead of burning the excess gas, more and more companies are choosing to mine Bitcoin. A process in which emissions can be reduced by up to 65 percent. A good example of this is the billion-dollar company Exxon, which is using this on an increasingly large scale.