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Monday, May 10, 2021

Bitcoin and ecology: What activists forgot

Ecological activists are trying to persuade us that Bitcoin is the catalyst of Global warming or another environmental disaster. Is it true?

Will operating of Bitcoin network be unsustainable with an increasing number of users? Will Bitcoin mining be equal to oil extraction? Is Bitcoin old-fashioned? Will some less energy-consuming currency replace Bitcoin?

Global adoption of Bitcoin won’t cause an ecological disaster

Energy consumption during Bitcoin mining isn’t dependent on the number of transactions nor their digital weight. That means that energy consumption doesn’t have to change just because the number of users increased. It doesn’t matter if I send 0.001 BTC or 100 BTC, energy consumption remains the same. Energy consumption is based only on the number of miners in the network.

The number of bitcoin user is growing exponentially, but the number of miners is growing much slower and this trend will probably not change due to economic reasons. Bitcoin mining is fully professionalized – there is no way to mine bitcoin with the personal computer, you have to use specialized hardware.

Miners are mining bitcoin for profit, which forces them to reduce cost and maximize efficiency. This behavior directly leads to the most ecological state of things.

Oil production and Bitcoin production do not include an equal sign

Most of the time, ecological activists completely ignore the source of energy during calculating the ecological impact of Bitcoin mining. It’s disadvantageous for factories and retail shops to reside far away from civilization for cheaper energy costs. They should be closer to people – and more expensive energy because transportation costs and non-attractiveness of their location would cause much more harm to them than expensive energy. But! Hardware for Bitcoin mining doesn’t require a lot of people to operate it, nor need people to visit it every day, so it can be placed somewhere with cheap ecological sources of energy, such as sun, geothermal, or water energy sources.

Water power stations, for example, are producing a surplus of energy at night, so the price for this energy is very low, sometimes the energy is even free. Bitcoin mining center (or any other data center) can be built in-country with a cold climate – which lessens the energy requirement for cooling down the hardware. Another rational location for the Bitcoin mining center is near the natural gas extraction site. During natural gas extraction, a lot of waste energy is produced. By placing a Bitcoin mining center near this site, miners can actually use this energy for powering up their hardware. And it’s not only a theoretical option, company Upstream Data is focusing on using waste energy and are building data centers near natural gas extraction sites around the world. It would be inconceivable to build the retail shop, offices, or residential area near these sites – data centers that require low manpower are ideal candidates for the usage of this energy.

In the Czech Republic, Bitcoin mining is connected with agronomy, specifically with biomass.

So – are Miner’s ecologists? Are their focus to act ecologically? The answer is NO! They want profit, but due to the nature of their business, pursuing economic interests is completely in line with ecology

What about China?

In China, most miners use coal energy, which is not ecological. But, this form of energy is the cheapest, because the Chinese government subsidizes this form of energy – but this is about to change after increasing the number of Bitcoin mining centers. The Chinese government has no intention to subsidize Bitcoin mining. For profiting power stations are providing cheap/free energy during some times because it’s economically beneficial for them, but subsidizing coal energy is not economically beneficial for the Chinese government, so this problem (deformation) is temporary and is caused by government interventions.

But even in China, there are a lot of water power stations. In Sichuan province, for example, there are at least 30 water power stations, and much more are being built. The majority of Chinese miners reside in this area.

We don’t need less energy-consuming cryptocurrency

Energy used in Bitcoin mining in one year is almost equal to the yearly energy consumption of Slovakia. Due to this tremendous amount of energy consumed, it would be very expensive to attack the Bitcoin network with a 51% attack. In fact, there is no single entity capable of performing 51% of attacks.

If Bitcoin had only a fraction of computing power, it would be cheap and possible for a single entity to perform a 51% attack. When Bitcoin was created on 1/3/2009, mining was done by one machine – the personal computer of Satoshi Nakamoto. And it would be perfectly possible to mine with that single machine nowadays, but the network itself would be too vulnerable. Enormous computing power which is supporting the Bitcoin network is what makes Bitcoin interesting for users – more computing power equals more security.

Comparison with actual financial infrastructure

Actual financial infrastructure (bank systems etc.) cannot be compared with Bitcoin infrastructure (network) in any way, even though there are studies that compare them (for example in our topic – energy consumption).

Bitcoin network does “everything” without huge infrastructure and bureaucracy. Bitcoin wallet allows us to own first truly private money – nobody can confiscate them, nobody can devaluate with expansive monetary policy (for example excessive emission of money, as seen in Venezuela, Cyprus, or Zimbabwe). We don’t have to request a bank officer for the transaction to be made, we don’t have to wait two days for our request to go through. We don’t have to explain why we received or sent a higher amount of money (the amount depends on AML policy in every country).

Every service of the actual financial system is specialized in one branch – Central banks, commercial banks, credit card providers (Visa), payment providers (PayPal, Western Union). The Bitcoin network does everything.

Bitcoin’s attributes are based primarily on decentralization, which is always more expensive than centralized services (in-network cost). But, services in centralized finance are more time-consuming, full of excessive bureaucracy, require a tremendous amount of manpower and marketing. Furthermore, they require high-end software and often have excessive assets (luxury buildings, cars, high-end furniture, etc.). And who pays for it? Customer.

It isn’t plausible to compare the energy consumption of Bitcoin networks and PayPal, but the energy consumption of Bitcoin networks and the whole financial system (central banks, commercial banks, PayPal, Visa, Western Union, etc.). In this aspect, Bitcoin is much more efficient than the actual financial system.

A lot of papers and studies predicted that Bitcoin mining will cause a global environmental disaster. Shocking predictions of temperature rise and scenarios resembling sci-fi films are caused only by ignorance of how Bitcoin works.

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