Bitcoin and the electricity market

In their desperation to find the reason why Bitcoin is terrible, bad, destructive, and morally reprehensible, the obsessive authors of the Alphaville Financial Times blog-Jemima Kelly, Jamie Powell, Isabella Kaminska-are quickly crossing the boundaries of sanity.

Bitcoin is just another energy consumer

Their latest “environmental FUD” is a classic in our world of environment-obsessed elites, where anything remotely climate-related provides moral superiority. Imputing guilt to this aspect is their main goal.

So, the environmental impact of the energy used by the nodes and miners of the Bitcoin network.

What is strange about this is that, firstly, its influence on a global scale is small, and secondly-who cares? Someone, somewhere, is using energy in ways that you disapprove of (shocking!), to which the only reasonable answer should be ” Yes, and?»

Few free (mad) societies monitor energy consumption, allowing the obsessive establishment journalists to decide what is allowed, what is harmful, and what is necessary. People drive cars, sometimes just because they want to, and sometimes just to compete to see who’s faster. People go on vacation, mostly because they want to, buy things, build things, enjoy things, almost all of which use energy, and almost never ask permission from their morally superior overlords. At least not yet.

Adding Bitcoin to the mix somehow changes everything. What is it about the BTC energy needs that really makes these people wonder? If you think that Bitcoin is a terrible payment mechanism, a low-quality currency, a destabilizing monetary base, or a grand financial fad, then this is understandable. But what does energy have to do with it?

On first observation, this is the perfect argument: if you think Bitcoin’s added value is zero or negative (Kelly happily calls it a “disruptive asset class”), any amount of energy would be a waste, a climate nightmare, and an environmental disaster. After all, we often hear that this money scam consumes electricity on a par with small or medium-sized countries. When the New York Times uses words like” huge farms “and” endless racks of computers, ” we realize that this must be really bad.

As usual, when journalists talk about big, terrible things, we have to dig a little deeper and explore a little more: ask these pesky questions – how much? Is that a lot? Compared to what?

Estimates of the electricity use of the entire Bitcoin network are such, in part because no one really knows how many miners there are, and what kind of equipment they use (and for environmental reasons, what source of electricity powers their facilities). Low estimates range around 40 TWh per year, while high estimates report about 100 TWh per year. Let’s take the worst case scenario, and round the number to 100 TWh.

That’s 2.5% of the 4,000 TWh of electricity used in America’s record-breaking 2018, or less than 0.4% of global electricity production in 2019. In addition, if global electricity consumption fell by 1% last year due to the pandemic measures ,the “Savings” could ensure the current use of the entire Bitcoin network until 2024 (or 2028 by the lower estimate).

If Bitcoin didn’t exist, it’s safe to say that these electrical supervisors from Alphaville would have found another small-scale electricity consumer to complain about. Perhaps Christmas lighting (7 TWh), ski resorts (2-5 TWh), or online games (75 TWh). Perhaps the ATM networks of the global banking system (somewhere around 25 TWh)?

Remember: we still only use electricity, and the dexterity involved in the Alphaville magic trick is to equate its use to “really harmful to the environment.” By the same metric, does the energy used to power the computers of these writers and heat their apartments qualify as a threat to the environment? And the electricity that lights up their dark homes, and works with their household appliances. While the waste is minuscule compared to the thousands and thousands of miners supporting a decentralized network, Alphaville’s added value is clearly less than zero and is certainly a terrible waste of electricity.

Mining and interchangeable energy

Since most of the mining is in China, where “two-thirds of all electricity is generated by coal,” Bitcoin mining really has to be dirty.

Bitcoin mining is a cutthroat business, driven almost entirely by local electricity prices (although the cost of financing and legal risks are also of great importance). Thus, bitcoin miners have excellent opportunities to find energy sources. Energy that can’t find its way to a market that has no opportunity costs: natural gas that would otherwise be burned, hydro plants that would have to be flushed, wind turbines that would otherwise shut down or disconnect from the grid.

When ARK Invest and Square recently released a report on the prospects of using renewable energy for Bitcoin miners, they proposed mining facilities along with idle energy as an adjunct to solve the interruption problem.

Kelly mocked the authors of ARK Invest and Square for not understanding that Bitcoin consumes electricity without returning it later: it is not the storage mechanism that solves the unsolvable problem of renewable energy.

To solve these problems in electric networks with a lot of solar and wind power, we need to have expensive backup energy sources, mostly gas or coal-fired power plants, ready to start generating electricity when wind or solar is not enough. This is the reason that the cost of electricity increases, rather than decreases, when more renewable energy is added to the grid.

When solar and wind power are about to knock out their grids due to overproduction, one of two things usually happens: small countries like Denmark can export electricity to larger neighbors like Germany and Sweden shifting the problem to someone else, or renewables just shut down. Last year, wholesale electricity prices even fell below zero to desperately encourage industrial consumers to take excess electricity from producers.

Our power lines are filled to capacity: in the short term, we are returning to shutting down intermittent sources, and in the long term, we are crossing our countryside with more aluminum lines to ensure transcontinental distribution of excess electricity.

Institutional Bitcoin proponents like ARK Invest’s Kathy Wood or Jack Dorsey, against whom Alphavillers is targeting its current environmental FUD, had no idea of these problems. Producers of stalled energy, such as oversized hydroelectric plants in four Chinese provinces where most of the mining is likely to take place, cannot bring their goods to market, but they can offset some of their fixed costs by selling them to reliable Bitcoin miners.

Did Wood, Dorsey, and Brett Winton (Director of research at ARK) prove that PTS can help solar power power the entire grid? Yes. So are they wrong when they say that transferring excess electricity to willing miners helps finance the production of electricity from renewable (or non-renewable) sources? Not at all.

If some of this excess electricity can be used to mine cryptocurrencies and finance the operations of an electricity supplier, isn’t that an increase in efficiency? A global team of bitcoin miners harnesses the unused, stuck, and wasted energy of the world, providing extra money for a marginal electricity generator, whether renewable or not. That sounds good.

We really should be skeptical about financial fads. And we have to argue about many of the monetary attributes of the BTC, mainly because we emphasize how other finance works. But environmental accusations about mining operations are like absurd claims that it is possible to live on Neptune. It’s just that someone needs to keep the noise up.

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Bitcoin 101: latest crypto scams

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