I Spoke to the Experts. Bitcoin Isn’t Going to Change.
I Spoke to the Experts. Bitcoin Isn’t Going to Change.
The people behind Bitcoin, the No. 1 cryptocurrency by market value (and renown), are under heavy pressure to reduce its carbon footprint — the planet-warming emissions from burning fossil fuels for electricity to run the network’s computations, known as mining. I spoke with people on both sides of the argument and came away thinking that Bitcoin is highly unlikely to change its fundamental way of operating.
Bitcoin feels wasteful to a lot of people because its security depends on buying lots of specialized computing hardware that’s useless for any other purpose and then running it hard, which consumes joules and joules of electricity. The Cambridge Center for Alternative Finance calculates that Bitcoin mining, on the whole, consumes slightly more energy than gold mining, which is a fair comparison, since both Bitcoin tokens and gold are pitched as alternatives to fiat currencies such as the US dollar. Bitcoin mining consumes more electricity than Norway but slightly less than Egypt, the center says, and accounts for 0.62 percent of the world’s total electricity consumption.
Here is a mind-blowing stat about Bitcoin: Every second, the Bitcoin network performs about 200 quintillion hashes, which are essentially guesses about a certain very long string of digits. There’s a race among Bitcoin network participants, known as miners, to make guesses faster and faster so they can be first and win rewards in the form of Bitcoin. It’s cheaper for them than buying Bitcoin on the open market: The token’s price is up more than thirtyfold over the past five years.
As the miners get faster, the network automatically makes the problem they need to solve harder, essentially spinning the treadmill faster. The Bitcoin network was designed this way to limit the pace at which new blocks of verified data are formed to one every 10 minutes. Unlike with most other cryptocurrencies, there is a built-in ceiling on production of tokens. More than 90 percent of the 21 million Bitcoin that will ever exist have already been mined, making each one more valuable.
Pressure on Bitcoin to switch to a less energy-intensive approach is coming from several directions. Ethereum, the No. 2 cryptocurrency, is switching from proof of work, which Bitcoin uses, to proof of stake, which requires much less computing power and therefore does less damage to the environment. Briefly, you prove your work by doing those quintillions of calculations. You prove your stake by pledging cryptocoins that you own. As in a company’s shareholder vote, the people with the most coins have the biggest say.
The difference in energy consumed per transaction between the two systems is like the difference in height between the world’s tallest building and a single screw, according to one creative comparison. Once Ethereum makes the switch, Bitcoin will be the only one of the most highly valued cryptocurrencies using proof of work.
The European Parliament is moving toward insisting that all cryptocurrencies meet environmental sustainability standards, although in March a draft document stopped short of banning the proof-of-work system that Bitcoin uses. Also in March, Greenpeace USA, the Environmental Working Group, and other environmental advocacy groups began the Change the Code campaign, which involves advertising as well as putting pressure on cryptocurrency fanboys like Elon Musk of Tesla and Jack Dorsey of Block (formerly Square), as well as Abigail Johnson of Fidelity Investments, which manages mutual funds that invest in Bitcoin miners. The campaign got a $5 million boost from Chris Larsen, the executive chairman, a former chief executive and a co-founder of Ripple, a blockchain company for global enterprises.
There is no Bitcoin headquarters that you can call for an official response on this matter. Jameson Lopp, one of the currency’s defenders I spoke with, said, “There is no official anything when it comes to Bitcoin. There is no leader. There is only the protocol.”
Lopp, a co-founder and the chief technology officer of the Bitcoin storage company Casa, who describes himself as a professional cypherpunk, said it wasn’t up to people like him to defend Bitcoin. “I believe it defends itself. The game theory and the incentives are what keep this working. People can scream about environmental concerns all day long, but until you come up with a better system, it’s going to keep going.”
He and others also argue that Bitcoin isn’t as much of an energy hog as it first appears. Because Bitcoin miners can rapidly turn on or off, they are stabilizing the electrical grid in places such as Texas by throttling back when other demand is high and cranking up consumption when other demand is weak, advocates argue. Some of the electricity that Bitcoin uses is from energy resources that nobody else can easily access, such as overbuilt hydroelectric power plants, they say. (There’s some truth to this, but Bitcoin mining still contributes to global warming.)
Another Bitcoiner argument is that its proof of work method is more secure than proof of stake or other protocols. “The open question is not whether proof of stake is secure but whether it’s secure enough for a global form of digital gold. Bitcoin is,” said Ryan Selkis, a co-founder and the chief executive of Messari, which builds data and research tools for crypto. (Backers of proof-of-stake cryptos respond that their systems are just as secure as Bitcoin’s. “They’re literally being attacked by every hacker on earth, constantly. And they’re holding up,” said Larsen.)
There’s also some bad blood between the Bitcoin community and Larsen, whose company, Ripple, uses a security system that isn’t proof of work or proof of stake. In March, Selkis called Larsen a “Judas” on Twitter. The Securities and Exchange Commission sued Ripple, Larsen, and another Ripple executive in 2020, charging that its sale of $1.3 billion in crypto tokens constituted an “unregistered, ongoing digital asset securities offering.” In an interview, Larsen said he thinks the S.E.C. is wrong because Ripple is a virtual currency and is thus exempt from securities regulation.
Make of those arguments what you will; the important fact is that there’s no evidence that the key players in Bitcoin are interested in making the big switch to energy-saving proof of stake. It wouldn’t benefit the miners, who have invested heavily in specialized computing technology that would go to waste. And there’s no groundswell for it in the other key interest group, the operators of nodes — computers that keep up-to-date digital records of crypto transactions. The node operators collectively decide whether each new block of transactions should or should not be legitimized and appended to the blockchain. Some fear that moving to proof of stake would diminish Bitcoin’s decentralization, which they value.
It’s possible that some Bitcoiners will decide to switch to proof of stake. That would be what the community calls a hard fork, as in a fork in the road, where people have to choose which direction to go. But “even if there is a fork, that fork will eventually fail, and it will have zero or close to zero economic value,” said Daniel Frumkin, the director of research at Braiins, a Bitcoin-mining software company that operates a network of miners called Slush Pool.
For Bitcoin to change direction would require “almost like a constitutional convention of sorts,” said Selkis. “Inertia usually wins.”
OK, but what if the European Parliament does ban proof of work someday and the United States and other nations follow suit? That’s the nightmare scenario for the Bitcoin community, which has a strong libertarian streak. “Bitcoin would not be a trillion-dollar asset if the European Union and the United States were doing their jobs” of maintaining sound money, Selkis said. “That’s the real reason they don’t like it. It exposes their underperformance.”
“At least as of today, there is no one world, global government,” said Lopp. “There will always be somewhere that these miners will be able to go.” He laughed and added, “Worst-case scenario, they could all go to El Salvador, which loves Bitcoin.” (El Salvador adopted Bitcoin as an official currency in September, though the experiment has had some hiccups.)
I see lots of reasons for Bitcoin to stick with its current game plan. Quintillions of reasons, actually.
The New York Times