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Dec 27, 2017
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In our world today, where politicians seem to unanimously agree that man-made climate change is the biggest threat to humanity, energy consumption is somehow under permanent general suspicion. All the more so, if the purpose the energy is consumed for is not particularly liked.
This is the case with Bitcoin’s energy consumption. It is constantly being attacked for being a wasteful and inefficient endeavor that is having an unfavorable ecological footprint. Because Bitcoin’s energy consumption through the Bitcoin Mining network is patently obvious it’s the center of attention for a lot of criticism leveled against Bitcoin. Self-evidently, the current payment system with electronic cards is also reliant upon energy. Every time you swipe your visa or master card, energy is being consumed behind the scenes – it might just not seem as obvious as with Bitcoin.
The reason why Bitcoin’s energy consumption is being highlighted so much is the fact that Bitcoin Mining is often portrayed as being a nonsensical task of solving a sheer infinitely complex mathematical problem for the sake of solving a mathematical problem. It’s lamented that Bitcoin miners only perform and search for a solution to this sheer infinitely complex mathematical problem to provide evidence for having done a certain amount of work as requested by the Bitcoin protocol.
Bitcoin Mining is essential
This process popularly described as “solving a complex math problem,” is actually somewhat misleading. It is rather an extremely simple and brutally stupid task, one only computers can tolerate. As a matter of fact, miners (their computers) must simply run a hash function millions and billions of times until a qualifying answer happens to finally be found. The chances of a given miner finding such a hash solution on any given try are minuscule, but somewhere in the network, one is found at a target average of about every ten minutes.
So this hash solution found by miners through the task of processing computing power and hence consuming energy is vital to Bitcoin. This is because miners provide a vital function to make sure Bitcoin remains functional. In simple words, they are doing the book-keeping for the Bitcoin Network. Miners ensure that Bitcoin transactions get executed and the balance sheet for all the Bitcoin holders is being updated constantly.
But obviously, miners don’t do this for free. For providing this work, they are being incentivized with gaining Bitcoin that are being released every ten minutes. Not every miner though automatically wins Bitcoin, when applying their own work. Miners rather enter into competition with other miners over winning the rewarded Bitcoin. As with every competition, only the winning party reaps the profit.
So how is the winning party determined? This is where the above-mentioned hash solution steps back in again. Whatever miner is winning in the extremely simple and brutally stupid task and is able to provide the correct hash solution first, will be rewarded the Bitcoin. Since finding the hash solution is a very work and energy consuming task but verifying it to be the correct one is done very easily and within seconds, determining the winning party is also no hassle at all.
The virtue of eliminating the central authority
Because with Bitcoin there is no central authority to validate transactions and doing the book-keeping, this has to be done by multiple actors from within the Bitcoin network. And in order for these multiple non-trusting actors to trust each other, the Bitcoin network is constantly held in consensus – a consensus that is upheld through many parties (nodes), of which the miners and their above-described performance is an essential part.
Although introducing a central authority handling the book-keeping and validating transactions would make the Bitcoin system way more energy efficient by eliminating the whole mining procedure, this would run counter to Bitcoin’s fundamental motivation. Getting rid of any counterparty, any centralized entity that is fundamentally able to control what is being executed on the network, is Bitcoin’s main value proposition. Bitcoin has been set up as a way of transferring value from A to B, globally without anybody needing to authorize this value transfer to happen. This is why Bitcoin allows for permissionless transactions, so people can truly own their own money. Ultimately Bitcoin is a way to digitally transfer value outside the confines of state-issued money, which makes it priceless in the eyes of many people. Amongst these obviously are people living in states like Zimbabwe, Venezuela or India where government officials either wreak havoc with the national currency and thereby ruin the economy or demonetize certain state-issued notes and thereby confiscating wealth on a grand scale. Being able to own one’s own money that has a deflationary rather than inflationary monetary policy behind it, which means wealth cannot be taxed away, can be a matter of life or death for this kind of people.
Think the unthinkable
But Bitcoin should also be of interest to people living in what is today usually called liberal democracies located predominantly in the western world. Myriads of westerners today feel to be living in the best of all possible worlds. And rightly so, since they are truly living in a time with an amount of individual freedom and material wealth that has never been seen before. But these circumstances should not lead us into believing that the world can only ever get better. Investigating our current level of material well-being leaves us with a bad taste in our mouth. Our high levels of material wealth are built on an enormous tower of debt, which globally amounts to over 217 trillion dollars if stated in numbers. Given the current state of our financial system, this debt is bound to increase evermore because credit expansion through debt is the only way to keep out financial system going. This is why central bankers around the world will keep on trying to stabilize the system, only to destabilize it on a continuous basis. As more interventions beget more interventions, the financial system will either face another imminent crisis or little eruptions in different parts of the world will pop up along the way, leading up to a process of slow but lasting impoverishment of the western world.
It must also be obvious that once material well-being deteriorates because our financial debt tower of Babel breaks in part by part or even collapses all at once, the current magnitude of individual liberty granted to us by our western government might crumble as well. Because extraordinary times often call for extraordinary measures, we could see a vast amount of a personal liberty vanish quickly. This could very well entail a restriction to access your state-issued money that we hold in our banks. Although a scenario like this might seem far-fetched to us living through the good times, history offers enough evidence that people – who believed to be most secure – have been caught off guard time and again, because they didn’t dare think the unthinkable.
Making an alternative possible
To any realistic and sober-minded person, it must be clear that Bitcoin is not the ultimate remedy that will protect from financial turmoil either. Nevertheless, it must be seen as an attempt to provide an alternative (value transfer) that could possibly offer some protection for a time when things might not be as rosy as they seem today.
Having this in mind, it might become more understandable why the vast amount of energy that goes into maintaining the Bitcoin network and with it a way of permissionless value transfer, must not necessarily be considered a waste. In the eyes of a Hindu or Buddhist, powering tons of Christmas lights all over the world at the end of every year might also make no sense at all. But its because of celebrating the most important event for many western people that so much energy – even more that is consumed by Bitcoin Mining – is deployed to power Christmas lights. Ultimately value is subjective. By the end of this short essay, it has hopefully become clear, what value Bitcoin offers.
In part two of this essay, we will examine the green aspects to Bitcoin Mining and why there are good reasons for an eco-minded person to support Bitcoin.
Image: flickr.com
