Nick Carter, co-founder of Coin Metrics, has made a lasting refutation of some major claims that energy-intensive mining of bitcoin is causing an environmental disaster.
In a detailed article entitled Noahbjectivity on Bitcoin Mining, written on March 30, Castle Island Ventures’ partner responded to Bloomberg columnist Noah Smith’s claims in a March 24 article entitled “Bitcoin Miners Toward Self-Destruction.”
The first claim Carter coveted was that Bitcoin is unique among assets in that a higher price leads to more energy consumption. Carter said that gold has the same quality as higher prices lead to increased production and energy consumption.
Second, Smith said that bitcoin mining consumes domestic energy resources, depriving ordinary consumers of electricity. According to Carter, however, mining is concentrated in areas where there is already a surplus of unused energy.
In China, most of the mining is carried out in four provinces: Xinjiang, Sichuan, Inner Mongolia and Yunnan. Overall, it captured 63% of the global bitcoin hash rate from the fourth quarter of 2019 to the second quarter of 2020. These areas use a mix of coal, solar, wind and hydropower, all of which have relatively low population densities and energy surpluses.
Carter calls this spare capacity, which will never hit the grid, “non-viral”, and dives deeper into the numbers to show that in previous years China cut or isolated an average of 100 terawatt hours of hydropower, solar and wind combined. Devaluation is a process that refers to removing excess power from the grid or general consumption, often to maintain price levels.
According to Digiconomist and the University of Cambridge, Bitcoin mining uses between 89 and 138 terawatt hours per year.
“Suffice it to say that there is enough non-viral energy to run Bitcoin multiple times. It’s just spreading hashish in the right places, that’s what miners are doing – aggressively.”
If bitcoin mining, which is relatively portable, is concentrated in areas where electricity is not used (and thus cheap), this complicates the arguments that simply summarize energy consumption.
For example, Alex de Vries, founder of Digiconomist, wrote in a recent article:
“The record rise in Bitcoin prices in early 2021 could result in the network using as much energy as all data centers around the world, with a corresponding carbon footprint proportional to the size of the London region.”
The Cambridge Bitcoin Electricity Consumption Index (CBECI) estimates that annual Bitcoin power consumption is currently somewhere between Sweden and Malaysia.
In Smith’s original article, he argued that bitcoin developers need to embrace the Proof of Work option, citing Proof of Stake as a viable candidate. Ethereum becomes Proof of Stake than Eth2, which is estimated to consume 99.98% less power.
However, Carter does not believe that evidence of effort can compete in terms of security and decentralization:
“This is the cornerstone of the argument against bitcoin energy: the idea that you can get something for free with Proof of Stake. There is no energy consumption, but the decentralized consensus still works. If this logic reminds you of perpetual motion machines, it is because that’s exactly what it is. “It is presented here: A completely free lunch where you get exactly the same guarantees as Bitcoin, free of charge.