Ether reached new highs, more people than ever are “long bitcoin” and a debate over bitcoin’s energy consumption is raging.
Out of the ether?
Ether (ETH), the native cryptocurrency of the Ethereum blockchain network, hit a fresh high of $1,439.33, up $19 from a previous record level of $1,420 in 2018. The currency is up well over 1000% since the initial public sale of ETH in 2015, according to Messari. CoinDesk’s Will Foxley reports ETH has a different value proposition from bitcoin, which has also been on a tear in recent months, due to its programmability, developer-friendly community and legacy of serving as the foundation of some of crypto’s biggest trends including ICOs and DeFi.
Bank of America found that “long bitcoin” is now the most crowded trade among fund managers, finally unseating “long tech.” Essentially this means investors are placing bullish bets on bitcoin – for what I assume is a variety of reasons including bitcoin’s deflationary attributes amid record money printing as well as herd mentality. The survey found that shorting the dollar is now the third most popular trade. Meanwhile, JPMorgan thinks bitcoin needs to cross $40,000 again to keep from bleeding investors while South Korean fintech firm Dunamu has revealed a “fear and greed” digital asset index.
Supply the chain
The U.K. National Health Service tapped distributed ledger Hedera Hashgraph and software firm Everyware to track the temperature of COVID-19 vaccines in cold storage. NHS facilities in the U.K.’s South Warwickshire, Stratford Upon Avon, and Warwick hospitals region will be using the technology initially, with a wider rollout planned as vaccine distribution progresses.
ANOTHER BTC ETP: Is launching on Switzerland’s SIX exchange, this time developed by CoinShares. (CoinDesk)
WHITELISTED: ENJ is the first gaming token to receive (self)-regulatory approval in Japan. (CoinDesk)
UNISWAP UNIVERSITY: Harvard Law Blockchain & FinTech Initiative, a student organization, is the latest “Uni” delegate. (Twitter)
LAST DAY: OCC’s Brooks steps down. (Twitter)
FORGOTTEN MILLIONS: Binance unlocked 16 million BNB meant to be released for staff in July 2020. (Decrypt)
666,666: A biblical message was encoded at a recent bitcoin block height corresponding with “the mark of the beast.” (Decrypt)
Consolidation and rotation
With all eyes on ether, which crossed a new all-time high, market analysts are still confident in their assertion that traders are allocating to altcoins. Bitcoin notched two straight days of gains, but is still trapped in the $34,000 and $40,000 range – hovering near $37,000 at press time. “This period of consolidation is building a solid base, giving those who wish to sell bitcoin plenty of time,” according to the cryptocurrency exchange firm Diginex.
With bitcoin at record levels, a number of critics have come out of the woodwork to present counter-narratives of the recent market rally or reasons why the cryptocurrency should be banned. Of all the age-old critiques of the cryptocurrency, the one that is most damaging, and perhaps most sympathetic to outsiders, is bitcoin’s intense energy consumption.
On Sunday, London-based software engineer Stephen Deihl composed a tweet thread discussing the environmental impact of bitcoin mining. Citing WolframAlpha data, Diehl claims that the “bitcoin network annually wastes 78 TWh (terrawatt hours),” said to be enough to power “several million U.S. households.”
This is a “giant smoldering Chernobyl sitting at the heart of Silicon Valley,” Diehl writes. He’s not alone. Apple engineer Fredrick Jacobs joined the fracas saying the financial incentives of bitcoin can lead to wasted, “often not green,” energy.
It’s indisputable that bitcoin is a consumptive good. Just as mining gold has a range of externalities, so does bitcoin. In 2018, the World Economic Forum (WEF) estimated that the global bitcoin network consumes as much energy as Ireland. I’ve also heard Austria and Venezuela as points of comparison. For those who see little value of a distributed, un-censorable currency, this is unconscionable. It’s enough to turn any sane observer into a crypto Kaczynski.
As ever, bitcoin’s supporters have come out to counter these claims. The Schelling point bitcoin champions have landed on this time around is the idea that “bitcoin is a battery.” Not only is bitcoin a store of value, but it could be seen as a useful store of energy.
As CoinShares Chief Strategy Officer Meltem Demirors writes, bitcoin “makes energy mutable, portable, storable and transferable by turning it into money.” In other words, bitcoin is a “battery” because it takes energy and turns it into a currency that can be used to pay for energy later.
There are a boatload of ideological and material assumptions baked into this battery idea. But is it wrong?
At the most basic level, this is precisely the business model of bitcoin miners. The owners and operators of bitcoin’s specialized mining equipment deploy their systems wherever there is cheap, readily available power. These machines solve complex mathematical problems that secure the ~$700 billion network and are rewarded with a bitcoin subsidy.
This payout is then often cashed out to pay the power bills. Complicating this idea slightly, Bitcoin advocate and author Knut Svanholm, an early promulgator of the “bitcoin battery” concept, said: “It is important to remember that it does not convert energy into value directly but rather electricity into digital scarcity. Digital scarcity which then can be programmed to express value.”
This doesn’t address the issue of bitcoin’s energy draw directly, but is a defense of bitcoin as a scarce, valuable asset worth powering. A similar line of defense is to compare bitcoin to other energy-intensive goods or services. What about Netflix? What about Twitter? Are not most internet-based platforms major draws on the power grid with arguably limited usability?
I was born at the tail end of the millennial generation, and as such am painfully aware of the environmental catastrophe humanity is staring down. I turn off the lights when I exit a room. I buy nuts and grains in bulk. In elementary school, I gave a report on recycling and have kept up the habit. I am committed to the idea of using less and preserving more.
It’s for this reason that I want to take bitcoin’s environmental footprint seriously.
The last line of defense (that I’ll cover) is the idea that bitcoin is green, to an extent. It’s frequently claimed that the majority of bitcoin mining is powered by renewable sources. CoinShares estimated, in 2019, that 73% of bitcoin’s “energy mix” is from renewables. Others say that a fair amount of bitcoin is mined using energy that would have been otherwise wasted – such as from natural gas flaring.
“Bitcoin thrives on the margins, where energy is lost or curtailed,” Nic Carter wrote in a CoinDesk op-ed titled “Last Word on Bitcoin’s Energy Consumption.”
Along these lines, WEF argued in 2018 that renewables providers, like wind or solar farms, should consider turning on crypto miners whenever there is a surplus of energy when the sun is shining and the skies a’blowing. “[I]f the grids are overloaded, clean energy is abundantly wasted,” they write. “For every block added to the chain by this method, there will be no accompanying carbon emissions.”
This isn’t a bad idea. But I think there is a blindspot that could also explain one of the weakest claims that bitcoin is green. In short, a block subsidy that’s won by an eco-friendly miner isn’t carbon free, there’s a whole network of miners competing for the same subsidy that may not be plugged into a hydroelectric port.
Bitcoin is wasteful by design. No matter what percentage of hash power is green is besides the point. Proof-of-work is wasteful, and there will always be people that are offended by that. And ideas of coordinating the bitcoin network to turn on and off depending on energy production will never work. Right now, coordinating a network of bitcoin miners is easy, because there is no coordination – people plug in their miners and let them rip.
Underlying the environmental discussion is a presumption of whether bitcoin has any value, and whether that value is worth the cost. Unchained Capital framed bitcoin’s energy-value in near-apocalyptic terms:
“Future economic stability is fundamentally why there can be no more important source of demand for the consumption of energy than the security of bitcoin’s monetary system, especially when the alternatives (fiat and gold) are structurally flawed.”
It doesn’t have to be so black and white. But when it comes to bitcoin’s future, it’s worth asking what powers bitcoin could disrupt.