[lwptoc]
Tesla CEO Elon Musk announced three weeks ago that the electric car company would no longer accept bitcoin as a payment method, citing concerns about the cryptocurrency’s link to increased fossil fuel consumption.
Bitcoin BTCUSD, 3.01 percent has lost nearly a third of its value since May 12, pulled down in part by criticism over its carbon footprint.
However, the problem is not so straightforward.
Alexander Benfield, a cryptocurrency analyst at Weiss Ratings, joins me today. We’ll focus on bitcoin and the challenges surrounding its energy consumption throughout the mining process rather than the general market dynamics.
The Bitcoin network is powered by computers that solve puzzles using electricity. According to the University of Cambridge, bitcoin mining consumes roughly 130 terawatt-hours of electricity every year. To put it in context, the United States consumes almost 4,000 terawatt-hours of electricity each year.
MarketWatch: The idea that bitcoin is a power hog has been floating about for a time. What evidence do you have that such a claim is true?
Benfield: I’m Benfield. That’s a question with a lot of different answers. Although bitcoin consumes a lot of energy, this does not always equate to carbon emissions. Bitcoin mining consumes a lot of renewable energy, which ranges from 39 percent to 73 percent depending on the source, which is significantly more than the percentage of renewable energy in the US power system. So, even if the projections are conservative, bitcoin is significantly more energy-conscious than the ordinary industry. Furthermore, bitcoin mining consumes a significant quantity of energy that would otherwise be squandered in places where it cannot be exported to neighboring municipal infrastructure. Bitcoin miners in rural China, for example, employ hydroelectric energy that would otherwise go to waste due to low local energy demand and the impossibility to move excess energy to an urban power grid.
MarketWatch: Bitcoin, according to several researchers, is actually “greener” than many people believe. What exactly do they mean when they say that?
Nic Carter has done some incredible study on this subject and is continuously trying to establish his argument on television. Benfield: (Carter is a general partner at Castle Island Ventures, a venture capital firm based in Cambridge, Massachusetts.) Many detractors, on the other hand, refuse to listen. Cathie Wood recently spoke with Bloomberg on how bitcoin mining may be integrated into the power networks of renewable energy suppliers to take advantage of the intermittent periods when their excess energy is currently lost. (Wood is the CEO of ARK Invest, an aggressive ETF manager.) So it’s possible that bitcoin can assist take advantage of a lot more wasted energy than previously imagined.
MarketWatch: So far, we’ve established that bitcoin consumes a significant amount of energy. What is the point of all this energy consumption?
Benfield: Bitcoin’s high energy consumption makes it more secure. Attacking bitcoin becomes more expensive as processing power and energy consumed by those mining or safeguarding the network increase.
MarketWatch: We’ve been hearing a lot about the emergence of cryptocurrency that uses less energy than bitcoin. What do you know about them?
Benfield: Many “green” cryptos promote their blockchain as energy-efficient since it’s better than admitting that their networks are immature and that no one is utilizing, validating, or mining on them. Proof-of-stake cryptocurrencies, on the other hand, are often far more energy-efficient, and new projects will likely move their focus to proof-of-stake due to the energy benefits.
MarketWatch: Will bitcoin evolve and grow in such a way that it can satisfy its energy needs? What does the future hold for the world’s most widely used cryptocurrency?
Benfield: To date, the majority of bitcoin’s energy use has been for mining new coins rather than transaction processing. After all of the coins have been mined, energy consumption is likely to decrease, as transaction validation consumes significantly less energy than coin mining. There’s also the chance that long-awaited scaling solutions and upgrades could assist reduce energy consumption by outsourcing some transaction processing to layer 2s or sidechains. Individual transactions would be handled off the main chain and the summaries of those transactions would be stored on the main bitcoin blockchain during certain checkpoints, similar to the lightning method.
MarketWatch: Is this energy crisis serious enough to put bitcoin and other cryptocurrencies in jeopardy as a store of value?
Benfield: No, the question of bitcoin’s energy usage boils down to whether the use is worthwhile. To justify bitcoin’s energy footprint, its supporters will eventually have to demonstrate the currency’s societal value to the rest of the globe.
Big-picture thinking
That is all there is to it. After speaking with Alex and examining Nic Carter’s research (which I highly recommend you read) and other publications on the subject, it appears that many of the concerns about bitcoin’s carbon footprint have been exaggerated or misinterpreted.
Determining bitcoin’s environmental impact necessitates a lot of big-picture thinking. It’s simple to lose sight of the forest for the trees, and even simpler to depend on the information that has since been refuted merely because it aligns with one’s cognitive bias.
Cryptocurrencies, in my opinion, aren’t going away, and bitcoin, from the looks of it, isn’t either. The current market behavior appears to be nothing out of the norm – just a more volatile crypto movement like we’ve seen before. This is most likely just a lull.
Source: MarketWatch