By Nanok Bie, October 6, 2015
This post was written in 2015. Does it hold up today?
The argument that mining (verifying transactions and timestamping information) in the Bitcoin network is a “waste of energy” has been repeated over and over by people looking to copy Bitcoin, by uninformed VC’s, by journalists and the financial industry’s lobbyists, among others. But is it “true”?
Energy = Security*
Bitcoin’s mining, its proof-of-work, is not a waste at all because it provides security in an open network where everybody on the planet themselves can perform the same mechanisms the current banking system offers today (among many other functions). Bitcoin actually turns energy into security. Banks also provide security. But banks are much less effective.
If you really get down to it you can not compare the wholly new invention that is Bitcoin and its commodity-based assets with the debt-based fiat currencies that whirl around for weeks in the banking system before being finalized, but let’s answer the stupid questions with a stupid argument.
So let’s compare the “energy waste” in the current Bitcoin network to the “energy waste” in the current banking industry (as Bitcoin and its add-ons can replace most of that industry).
The Bitcoin network consumes approx. (0.55 w/GHs x 449 PH/s =) 246 MW assuming the average Bitcoin miner is using equipment with an energy-efficiency around 0.55 w/GHs. And 0.55 w/GHs is actually a high estimation. The next-generation chips from KnC, 21 Inc., Bitfury and others all target the 0.06-0.16 w/GHs range and the end of Moore’s Law is nowhere to be seen, so energy-efficiency in the Bitcoin network is only going to increase the coming years (PH/s figure from bitcoinwisdom.com).
For these 246 MW the whole world has access to an information network where everybody can timestamp information in such a way that everybody involved can trust the info without the need for intermediaries like banks and lawyers. This is tremendously valuable and the bitcoin currency is just the first application on this network. Next up are smart contracts, ID:s, title registrations, legal contracts, transparent governance, multi-signatory insurance agreements, wills, automatic profit-sharing, trustworthy auditing, self-governing AI:s (so we can trust what they say has happened to them) etc, etc. The possibilities are almost endless. The blockchain will change almost everything we know about how the world handles information.
But let’s just return to the simple comparisons of energy (electricity) consumption of only the banking industry’s offices and omit the costs of their data centers and printing and transporting all those bills that needs to be replaced every 5 years.
I’m using only one building owned by Bank of America; the “Bank of America Tower” in NY as an example. This tower is actually touted as one of the greenest towers in the modern legacy financial industry, still it uses more energy per square foot than the more than 80 year-old Empire State Building (banking is an energy-intensive industry).
This tower actually even has its own power plant to save on losses other banks have to pay for when transporting their electricity. The power plant is generating approx 4.6-5.0 MW, which provides 65% of the tower’s electricity needs (the full tower consumes approx. 8 MW).
Time magazine made some calculations on the “energy waste” of each worker’s desk in this tower, the greenest of all banking towers;
“Assuming no one turns these computers off, in a year one of these desks uses roughly the energy it takes a 25-mile-per-gallon car engine to travel more than 4,500 miles.” – URL
Bank Of America’s Offices Alone Consumes 363+ MW
This tower houses about 3,500 employees. Bank Of America employs around 159,000 individuals altogether. If we extrapolate this number and assume this company affords all its employees this level of energy-efficiency (they don’t) we can deduce that Bank Of America consumes at least ( (8MW / 3,500 employees) x 159,000 =) 363 MW.
This boils down to approx. 0.00228571428571 MW per employee.
Now, Bank Of America’s market share isn’t really overwhelming. Wells Fargo employs 227,000. JP Morgan 188,000 and Citibank 176,000. Just to name a few banks in this world.
Assuming all of these worker’s offices are as green as The Bank Of America Tower (they aren’t) then only these 4 banks require an energy consumption of 1714 MW (750,000 employees – 2,28 MW per thousand employees).
And now we are only talking about 4 American banks’ offices.
If we add the following 16 on the top 20 list of the biggest US banks alone we have to add another 400,000 employees, adding another 914 MW.
So the top 20 US banks’ offices alone consumes 2628 MW.One may argue on what value, if any, these organizations provide to the citizens of the world for this energy consumption (and carbon footprint), especially considering the bailouts. And they are only open for a few hours per day, on “bank days”.
And there are many, many more banks in this world altogether. Just think about Western Union for a while.
And we are still only talking about the electricity cost for these guy’s offices, not counting their “energy waste” in other areas (like transportation, data centers, suppliers, air travel etc).
And then we haven’t event looked at the cost of running Visa‘s and Mastercard’s datacenters, networks and offices, or the stock exchanges, or the private investment banks or…(you fill in the blanks).
With the Bitcoin network anyone can pay anybody in the world 24/7 using just a mobile phone, while also transferring ownership of digital assets consuming almost no extra energy from its battery.
The Bitcoin network is also going to allow billions of unbanked to start taking part in our globalized common economy, while disrupting and saving energy in a large number of other industries a part from the banking industry. If you add all the potential energy savings the Bitcoin network offers the world it is almost unfathomable.
Now, tell me again that the mechanism the Bitcoin network provides is “energy waste”.
* * *
Energy / Time (Power) = Security (Truth)
* Bitcoin derives its value independently and from within
Bitcoin uses the concept of “proof-of-work” where computers “work” trying to find a cryptographic solution to confirm a “block” of transactions. The results prove they’ve “worked” (spent energy) in the process. The solution triggers the predetermined block reward inflation (currently 25 bitcoins per block, approx. every 10 minutes). In this way the network extracts security from incentivizing participators to continually increase the security of the world’s most powerful processing network, while creating intrinsic value from within through its native token’s properties (bitcoins). The sheer number of computers participating in the network – its increasing (competitive but collective) “hashrate” – ensures the system’s integrity.
This all happens simultaneously using the same mechanism (the proof-of-work mining). Energy must be spent to “mint” each bitcoin. Minting through proof-of-work-mining proves a certain amount of energy was spent at the particular time the bitcoin in question was “minted” (mined). It’s the open, decentralized nature of Bitcoin that creates this level of security; open to anyone the constant race positions the network well ahead of any attacker. As a side-effect this vast number of processors (connected to the Bitcoin network via beefy nodes) results in a speedy and always-on network. The only “waste” is heat, and several Bitcoin miners are now looking into harnessing that heat for remote heating of homes and grow houses.
IF, like the founders of some altcoins argue, we could extract another useful mechanism at the same time from this proof-of-work mining then that added “value” (let’s say protein-folding) would just further fuel the race between the competitors of the network. You might as well pay for that “added value” on the side with other specialized chips hashing that protein-folding. If you follow this line of reasoning you understand that trying to make the algorithm more “useful” is like trying to create magic, or alchemy. Human greed comes into play.
And this is only today. With bigger blocks and future add-ons like The Lightning Network/Stroem/Othercoin/Sidechains the Bitcoin network will process transactions much much cheaper than today.