by Greg Barker
Tuesday, 4
January 2022
Reaction
11:45

Bitcoin is not worth the energy

Why use renewables and wasted energy to power Ponzi schemes?
by Greg Barker
Bitcoin mining has made it out as far as the Arctic circle

If your primary goal as a publication is to uncover “the unintended consequences of digital trends,” then Digiconomist hit the jackpot when cryptocurrency entered the mainstream. Starting 2022 with a bang, the tech blog shared on Twitter last year’s results of its “widely cited” indices that have been tracking the mammoth energy wastage of Bitcoin:


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This will damage Bitcoin’s status in the public eye, especially given that it was once considered by enthusiasts as the “gold standard” of cryptocurrency. Now, it is now losing favour, with anyone failing to convert to “Bitcoin maximalism” adopting other tokens.

These tokens, of course, still have limited functionality. It’s difficult to buy or sell anything other than links to JPEG images, virtual land, game characters, and other cryptocurrencies — which also have zero real-world application, but at least these have more “utility” than Bitcoin. Meanwhile, crypto’s dying star can only handle seven transactions per second, twice as slow as rival Ethereum, and more than three times slower than Western Union transfers a decade ago. Thus arguing Bitcoin is the “future of finance” is a bit like trying to peddle Sony’s 1992 Minidisc Player as an iPod killer.

Still, despite the unfavourable coverage, Bitcoin maximalists are dedicated to the cause. When several years are devoted to building an identity around a cult-like object, you won’t leave without a fight. Since Bitcoin doesn’t work as a currency, store of value, or “inflation hedge”, maximalists have embarked on a last-ditch effort to conceive a pragmatic use case, this time: “wasted energy.”

The idea is that Bitcoin miners will consume unused power from sources other enterprises can’t utilise, including hydropower, flared natural gas, and even volcanoes. Capturing wasted energy sounds like it could legitimise Bitcoin mining. But that’s until the public finds out you’ve been consuming fuel to mine cryptocurrency, instead of allowing other entities to develop methods to capture these energy surpluses for productive uses.

It’s unclear why society would allow a defective technology to add further stress to climate objectives, especially when cheap and renewable energy sources could be in short supply.

That said, even if Bitcoin became a net positive for the environment, there’d still be little justification for its other destructive qualities, like how it possesses elements of both 1990s Albanian-style pyramid schemes and multi-level marketing scams. It’s hilarious to presume that governments will embrace crypto as a net plus for the environment when it’s backed by so-called “Ponzinomics”: a fraudulent scheme which, in this instance, pays out to its early adopters (Bitcoin miners) while generating zero cash flows or revenue for real asset holders (Bitcoin holders).

If Bitcoin’s publicity machine somehow markets wasted energy as an authentic use case successfully, we could see global power structures embrace a carbon-neutral Ponzi.

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Martin Bollis
Martin Bollis
11 months ago

As somebody with very limited knowledge of economics, and bitcoin, I should probably stay quiet but, hey, what is this comment section for if not to let us all have our two penn’orth.

So total layman’s view:

The energy consumption thing is nonsense on a par with cow’s farts. Slapping an energy argument on anything now (for or against) is just a way of getting an article printed.

World governments are pretty clearly messing very dangerously with fiat currencies, whose expansion now seems to be without limit or relation to any objective store of value.

Rarity of anything can become a store of value and crypto currencies have finite limits.

It seems Ethereum has technical advantages and is attracting the best people. Bitcoin has significant first mover advantage – possibly a Betamax VHS type outcome?

Conclusion, if you have money you can afford to lose, it might be worth taking a punt on an investment in each of these two leading crypto’s. If you have anything in cash get it into hard assets.

David Bell
David Bell
11 months ago
Reply to  Martin Bollis

Better to be old-fashioned and just buy gold. It’s been a store of value for thousands of years.

Craig Verdi
Craig Verdi
11 months ago
Reply to  David Bell

David. Gold has never been a place to retain value. It loses to inflation consistently. It is expensive to buy, store and then expensive to sell back. It has been peddled by hucksters for 1000’s of years. The anomaly in recent history was the Nixon government allowing us to own it. It went from $69 an ounce (it’s real value) to over $800 quickly. Since then it has doubled in 52 years, a little over 1% a year. Inflation would have turned it into a large real world loss.

David Bell
David Bell
10 months ago
Reply to  Craig Verdi

But what of the purchasing power of fiat currencies, specifically the $ over that time? Inflation has been far greater than 1% per annum over those years.

Jon Redman
Jon Redman
11 months ago

Good article about this bizarre tulipomania de nos jours, but the comparison to MiniDisc is very flattering to Bitcoin. MD gave you the ability to record two standard 40-minute CDs at a quality indistinguishable from CD onto a single 80-minute disc that was a mere 3″ or so square. If you wanted to move around, edit or erase a minidisc’s content you could do so very easily, and it was the first technology to allow you to title tracks and albums on the disc itself so you didn’t need to refer to the packaging. Later improvements allowed you to record at 4x compression, so you could get 320 minutes onto one disc at a sound quality that is still better than MP3. Some people do actually think these advantages over MP3 worth having, to the point where the players and recorders now sell for far more money now than they sold for when new 20 years ago. High-end CD players are going to go the same way, I think.
What killed MD was partly price but partly that Sony failed to market it as a way to record lossless copies of CDs, because Sony made those too. MP3 then came along as a way to copy even more effectively albeit at much poorer quality. With music systems, convenience always trumps sound quality, which is why cassette was able to see off reel to reel, CD to see off vinyl, and so on. As a result most people who migrated to MP3 did so from cassette without ever going via MD.
Whatever eventually supersedes MP3 will probably sound even worse but will be even more portable so nobody will care.
So MD was once actually both better than what came before it, and was originally useful. As this article makes clear, it’s impossible to say either about Bitcoin which is the most flagrant Ponzi scheme imaginable.

Jon Redman
Jon Redman
11 months ago
Reply to  Jon Redman

Yes, I have started to do that. You can get second hand CDs amazingly cheap at places like Discogs.
I have about four MD players including a deck, plus two CD players, one with a 24-bit DAC, and the other with a 1-bit DAC, either of which will play MP3s if you burn them to a CD-R. As each is digitally connected to a different input of my power amplifier, it is possible to make a direct comparison of the sound quality of a CD, a compressed and uncompressed minidisc copy of the same CD, and an MP3 rip of the same CD. They’re all coming through the same sound pathway, so the only difference really is the source medium.
Now and again I demonstrate the difference between these to sceptics by putting Clapton’s Layla on in all three media, then starting all three playing simultaneously. You can use the amp’s remote to switch instantly from source to source, and you’re at the same place in the same track. So you can listen for the join – the quality change between sources.
The difference is remarkable. You can’t really tell MD from 1-bit CD, or the same CD through a 1-bit versus a 24-bit DAC, if I’m honest. But the difference between CD (or MD) and MP3 is astounding, akin to the difference between FM stereo and AM mono on the radio. Even compressed to 4x, MD still sounds noticeably better than MP3. On a track like Jackson’s Beat It, there are finger clicks you can hear only on the CD or MD.
I think the reason people don’t notice how poor MP3 actually sounds is that it is listened to on headphones, while on the go. The poor source quality is perhaps masked by street noise and the poor fidelity of the headphones. There’s not much difference in the sound of a CD versus an MP3 through my car’s speakers, but I suspect this is because the car CD player is itself a piece of junk.

Jon Redman
Jon Redman
11 months ago
Reply to  Jon Redman

.WAV is actually CD format so there should be no quality loss there.

Ian Stewart
Ian Stewart
11 months ago
Reply to  Jon Redman

I met someone with your level of audio standards in the seventies. He spent thousands on kit and was never satisfied. And he didn’t connect with the spirit of the music in the slightest because he was so obsessed with quality. Whereas I used to get off on just hearing rock and roll on old radios. My favourite albums were live albums, infamous for poor audio quality but pumped full of soul.

Jon Redman
Jon Redman
11 months ago
Reply to  Ian Stewart

I don’t really have high standards Ian. I’ve got tinnitus so my hearing is actually worse than most. It’s the aural equivalent of having dirt on your glasses. I need background noise to listen through it.
About 20 years ago I spent £2,000 on an amp, speakers, and CD player, following the What Hi-Fi recommendation that you spend 10% of your budget on speaker cables and interconnects, and split the rest roughly equally among the components.
The first jaw-dropping discovery was the effect of upgrading the cables – it makes an astonishing difference. Compared to upgraded interconnects and speaker cables, what’s shipped as standard makes the set-up sound like it’s in another room, or has a blanket over it, or something. I’ve since added an MD player and discovered that my very future-proof CD player would play MP3s, so the test I described became possible. Literally anybody would notice this degree of difference.
There certainly are nutters who care about the sound quality more than the sound. There used to be nutters who thought CDs sounded better if you stored them in the freezer. What Hi-Fi magazine does not review Bang Olufsen kit “because it’s furniture, not audio”, but they do review….shelves. Yes, they seriously once did a review of shelves for stereos, to see which made the stereo sound best. These kind of people’s home audio system costs more than their car, but they don’t actually like music.

David Bell
David Bell
11 months ago
Reply to  Jon Redman

Thank you for the interesting technical analysis. I have a couple of MD players and several CD units so I’m pleased that I unwittingly made the right choice of avoiding mp3.

Jon Redman
Jon Redman
11 months ago
Reply to  David Bell

When they iron the bugs out of things like the Brennan B2 you will be able to store 2,500 CDs on there in CD’s native format, .WAV, or 5,000 in .FLAC, both of which are lossless.

Last edited 11 months ago by Jon Redman
jonathan carter-meggs
jonathan carter-meggs
11 months ago

If a new tech doesn’t increase efficiency in some way (and thereby sales or profits) it is doomed to fail in a capitalist world – no matter how many people wish it otherwise.

Hardee Hodges
Hardee Hodges
11 months ago

Bitcoin mining will continue until it reaches the last coin or until greater fools can’t be found. The energy use is not reflected in the coin’s value unlike other mining like gold. Bitcoin mining ends once the cost of a coin doesn’t compensate miners. Residuals from transaction fees can’t sustain miners.

Ed Cameron
Ed Cameron
11 months ago

Ransomware attackers accept bitcoin. That’s a real world use.

jdenicholls
jdenicholls
11 months ago

It’s been a while since I’ve followed Bitcoin closely, but its massive energy consumption and unsuitability as a payment method have been known for a good five years, if not longer. I’d agree it’s unlikely that it will endure, but that doesn’t mean cryptocurrency in general is doomed. Assuming somebody can develop a currency without the energy problems and with good transaction capabilities, the question will be whether it can store value effectively, especially when compared to currencies in the developing world.

david.byrnand
david.byrnand
11 months ago
Reply to  jdenicholls

Suggest you take a look at the company Ripple and the token that runs on their blockchain: XRP. Very small gas fees, at least 1500 transaction per second and IS bring used as store of value in many real world applications. When Bitcoin and Etherium collapse Investors will flood to XRP.

Jon Redman
Jon Redman
11 months ago
Reply to  david.byrnand

You’d not be talking your book by any chance?

david.byrnand
david.byrnand
11 months ago
Reply to  Jon Redman

Just a bit cheesed off that all crypto is tarred with the same brush as BC and Eth when there are some with real use cases.

Jon Hawksley
Jon Hawksley
11 months ago

The formula for calculating new bitcoins includes a parameter for the time it takes to calculate one. If too many are being calculated the calculation is made harder so that it still takes about 10 minutes to produce a new block, currently 6.25 bitcoins. High prices paid for bitcoins, cheaper electricity or more efficient chips all encourage more investment and therefore more energy usage but will not increase the supply. Even if the energy was captured in heating district schemes it would still not be beneficial – that would simply subsidise the electricty price and encourage more investment. The energy produces numbers that are tedious to calcuate with no intrinsic value. China sensibly banned it.

Last edited 11 months ago by Jon Hawksley
Justin Clark
Justin Clark
11 months ago

Please please please take time to actually understand (& perhaps embrace) Bitcoin – not consume news snippets to make quick/final judgements. Start here – https://youtu.be/wdJFeSY8UVk