Lyn Alden's " Bitcoin’s Energy Usage Isn’t a Problem. Here’s Why." (2024)

“[...] it would be big enough that it’s likely replacing energy used by parts of the global banking system. There are tens of millions of people working in banks and fintech companies around the world, with office buildings, office equipment, payment servers, and more. The application of software to money at the root layer, just like other industries, brings efficiencies and reduces the need for employment and equipment and real estate in certain parts of legacy infrastructure, freeing up those human resources and corresponding energy usage for other productive purposes.”

“If Bitcoin becomes wildly successful with trillions of dollars of utility for users, we could potentially see it consume an amount of energy per year that is comparable to aluminum production. In other words, despite reaching a massive scale and serving numerous purposes, it would still be comparable to various other random industries.”

“Bitcoin is not a company, but it is an efficient network. By design, its expenses scale more slowly than its utility, due to its declining block subsidy that eventually results in a security and usage model based only on transaction fees. We can’t know for sure how much energy Bitcoin will ultimately use, since we don’t know how many people will use it, how they will use it, or what the fee market will look like a decade or more in the future. If it’s successful it will consume more energy than if it’s not successful, but due to its declining block subsidy, its utility will greatly outpace its energy usage in either scenario.”

Recommended by LinkedIn

“The vast majority of energy consumers can’t go to where the energy is; the energy has to be brought to them. Humans organize themselves based on geography, mainly around shipping channels. We live in coastal or riverside cities, and in the suburbs of those areas, and around rural areas of fertile land. Not around energy. [...] Bitcoin miners are unusual energy consumers in the sense that they can go to wherever the energy source is, as long as they can get some sort of basic internet connection, including a satellite connection if needed. That means they use energy in quite efficient and unusual ways.”

“Since bitcoin miners can go to where the energy source is, they used to flock to Sichuan during the wet season to make use of that otherwise wasted energy. Not because they are altruistic environmentalists, but simply because it is cheap and nobody else is making use of it. Electricity that would otherwise be wasted and generate no revenue for the operator, can be sold for extremely cheap levels to someone who can find a use for it.”

“Bitcoin mining is a highly commoditized industry. The only way for a bitcoin miner to remain solvent over the long run is to use the cheapest sources of electricity, and the cheapest sources are the ones that are otherwise stranded or wasted. During a temporary bitcoin bull run, bitcoin miners can get away with using just about any source of electricity and remain profitable, but over multiple bull/bear cycles, the trend is clear: only the cheapest sources of electricity are viable for bitcoin miners that wish to remain solvent cycle after cycle. They’ll need to make agreements with grids to help balance the load, and/or be co-located with the electricity producer to monetize surplus electricity, and/or they’ll need to make use of various geographically stranded energy resources, such as associated natural gas or landfill emissions.”

“Proof-of-work is simple, because there is no need to punish bad miners that try to validate the wrong chain or make invalid blocks that don’t fit the rules of the node network. Their punishment is simply that they spent electricity on blocks that weren’t valid or weren’t included in the longest eventual chain, and therefore they lost money. They self-inflict their own wound, and thus it rarely happens on purpose. There is a tangible connection between the blockchain and real-world resources. [...] Proof-of-work networks, on the other hand, have unforgeable costliness built into the history of the ledger. Even if the whole network goes offline, individual nodes can re-organize themselves and determine the historical state of the ledger from the heaviest proof-of-work blockchain, since there is no way to fake it."

"Basically, if you remove the energy input from a blockchain, then instead you have to inject more governance in its place. The whole purpose of the Bitcoin network and its proof-of-work consensus mechanism is to minimize the need for governance and to maximize its ability to run automatically, and for people to coordinate around it globally without trusting any central source of truth.”

“In a proof-of-work system like the Bitcoin network, power is more distributed between miners, developers, and individual nodes. Your ability to be a miner is based on your ability to put forth capital and find low-cost electricity. Rather than the entrenched miners having an advantage and increasing their advantage over time, newer miners actually have the advantage over existing miners because they buy the newer machines with more processing power per watt, thanks to Moore’s law. Mining businesses, old and new, are all constantly refreshing themselves, making use of new cheap or stranded energy resources, and spending nearly all of their revenue on expenses.”