The Inconvenient Truth About Cryptocurrency Mining

Introduction

There are a lot of misconceptions and justifications among proof-of-work (PoW) proponents as to why the frankly obscene energy consumption of Bitcoin, Ethereum, Dogecoin, and other PoW chains is not an issue but rather a feature.

As a crypto enthusiast, I acknowledge the contribution of PoW and what it has done for the space, but there are battle-proven alternatives and time to move on to more sustainable solutions.

This article will answer to and debunk some of the more popular and prevalent myths concerning PoW.

Proof-of-stake (PoS) is centralized

No, some PoS systems are semi-centralized or centralized, but not Tezos and some other blockchains. They are just as decentralized and permissionless as the best PoW blockchains, if not more. For example, 65% of Bitcoin mining hashrate comes from China, subject to the regulation and whims of the authorities.

In Tezos, anyone can set up a validator (also known as a baker) and either stake using their own funds or take delegations from others.

There are currently around 400 bakers and 105,000 delegators, with each baker running a small PC. This is usually a virtual instance in a data center, an Intel NUC, or even a Raspberry Pi.

This makes the Tezos network incredibly energy efficient, by a factor of ~1-2 million compared to both Bitcoin and Ethereum, while still being decentralized and permissionless.

Why reduce CO2 emissions at all?

The world needs to aggressively reduce its overall energy usage in order to reach the Paris Climate Agreement goal of 1.5-2 degrees centigrade of global warming compared to pre-industrial levels.

For example, the EU has pledged to reduce its domestic greenhouse gas emissions by more than 40% by 2030 compared to 1990 levels.

Every one of us has to preserve energy and greenhouse gas emissions for where it’s needed. If we all do that we’ll reach the goal, but if we continue to use energy and resources just because we can and it’s profitable we won’t.

Ok fine, create a global CO2 tax at the source to level the playing field

Good idea, unfortunately, something we can only dream about. Time and time again our world leaders have shown an ineptitude to agree on global solutions.

Even when they have done so some actor(s) always screw things up by putting themselves first and either walk away from or just don’t follow the agreement.

The system of CO2 credits is completely broken, so if someone says that they have compensated their usage by buying emission rights they are only trying to clear their conscience.

It won’t do anything for the environment since the energy is already consumed and released as greenhouse emissions.

It’s almost as bad to pay for some kind of “offset”, often in the form of tree planting projects. You need to be sure that the trees will be productive for thousands of years since you’re compensating for a carbon source which was out of the equation. Not many projects can guarantee this.

Paying a tax or other form of payment to make due, does not mean the energy has not been consumed.

The only actual solution is to not consume the energy in the first place. PoS simply removes the need to consume the energy in the first place. The rest feels like ways to pay for a clean conscience.

Bitcoin mining uses surplus and green energy

No, it doesn’t. This is a myth coming from a number of articles, most prominently the Coinshares Mining Report and Nic Carter. The problem is that the data doesn’t agree, especially the work from Cambridge University’s Center for Alternative Finance.

Lead Coinshares author Christopher Bendiksen has also publicly admitted that their estimates weren’t true. The best estimate we have right now is that only about 40% is from renewable sources.

“Though 76% of proof-of-work miners say they use renewable energy as part of their fuel mix, renewables comprise just 39% of the total energy consumption of the world’s cryptocurrency miners, according to a survey by Cambridge University’s Centre for Alternative Finance, published late last month.” – Decrypt

While some mining operations have used surplus energy which otherwise would’ve gone to waste and other seasonally move towards hydro overcapacity in the rainy season, it’s nowhere near enough to make a significant dent.

Bitcoin mining hashrate follows the price of Bitcoin and the vast majority of miners are located where electricity is cheap enough to provide a profit. Simple as that.

Use nuclear power

While nuclear power is free from greenhouse emissions, it’s not free from waste and as we’ve seen repeatedly, it’s not without risk.

Nuclear reactor capacity is also not something that can easily be scaled. It has a severe “not in my backyard”-problem with the result that almost no new capacity is under construction in the EU or USA.

Conserve energy where we can so that we can use what we have when needed.

Fusion power is the holy grail of nuclear power, but it’s still so far off into the future that we can’t count on it to solve our current problems.

Renewable energy has no greenhouse emissions

Renewable energy doesn’t emit any greenhouse gas emissions during operation, but they do impact the environment. Both hydro and wind energy seriously affect ecosystems and destroy habitats.

Solar is too expensive and unreliable to become adopted in large scale.

All these options also come with societal and environmental costs when they are built. During the construction of the Three Gorges Dam project at least 1.3 million people in 1500 cities, towns and villages were displaced.

Both nature, history and cultural sites are destroyed in both large scale and smaller renewable energy projects.

It’s true that renewable is better than our alternative ways of creating electric energy, but it’s not a magic bullet.

There’s an abundance of energy in the world and it can’t be destroyed anyway

Theoretically this may be true (it’s the first law of thermodynamics), and in the future, we might have access to unlimited, clean energy. But we don’t have that today, not even within our grasp, so right now the answer is still no.

Anyway, on a local scale, this isn’t true, since we introduce more energy from deep storage when we use fossil fuels, just like we would do if someone activated the Satoshi bitcoins.

If we somehow got unlimited clean energy, PoW would fail since there wouldn’t be any cost associated with the work.

Bitcoin works like a battery – converting and storing electricity as value

What?!? A battery charges and discharges electrons. You can’t convert immaterial value into flowing electrons, that’s not how physics work. You can buy electricity using value, but that has to be produced or taken from some other storage, like a real battery.

If you want “evidence”, look at the blackouts in China’s Xinjiang province starting April 15th to April 18th in 2021. Over 45% of the Bitcoin hash rate went away and no Bitcoin battery was there to pick up the slack to the local energy grid.

This also shows the problem of the centralization of Bitcoin mining in China.

The legacy financial system uses magnitudes more energy than Bitcoin

A popular infographic from ARK Invest using data from Hass McCook shows the total amount of energy used by the legacy banking system compared to gold mining and Bitcoin mining.

This is a classic example of a deception since it doesn’t really compare the same things. The legacy banking energy expenditure is based on the total amount of employees in the global banking sector and their office use, as well as ATM’s.

The argument is that removing legacy banking will have a much bigger impact than the waste of Bitcoin mining.

1. The graphic compares a data settlement layer with all of the people working in the banking sector. Even after crypto normalization, there would be a need for crypto bankers instead of fiat bankers.
2. In order to realize the potential saving, 7 million people would have to be exterminated.

In addition, just because someone else is worse doesn’t mean justify what you do. Bitcoin mining still uses as much energy as countries such as Argentina, New Zealand and Sweden.

Unwinding this will have a significant positive impact on the environment, and we’re much better off replacing the legacy financial system with a blockchain that actually can do it (throughput and smart contracts), has privacy and is green. 

Data centers, Youtube, etc. all use way more energy than Bitcoin mining

Just because someone else uses resources doesn’t mean you can. Save the energy we have available and use it where needed. By doing so we can continue living our lives we’re used to.

If we’re moving cars to electric, why can’t we use electricity for mining?

Since we don’t have an infinite supply of clean, environmentally friendly energy we must use what we have in the best way possible.

Moving transport from fossil fuels to non-carbon based electricity is a good thing, but we must make sure that we have the capacity to do so by limiting our other use of electricity.

The blocks would have been created anyway

This is a common response, but it’s not a valid argument. First, a user (NFT minter or DeFi trader for example) must pay a fee to have their block included on the Bitcoin or Ethereum chain. This means that there is a direct relationship between the miner, the block and the user.

Second, without users there would be no blocks. With fewer users, the interest in mining would go down and we’d reduce or eliminate emissions.

Third, this goes under the “If I don’t then someone else will” category of arguments. In order to fix the world of the greenhouse problem we simply can’t think like that.

Even if you live your life thinking it’s ok to screw others for personal gain just because you have the opportunity, this is not the place where you take your stand. The entire planet is at risk.

A real world example: When Ethereum was less popular, its energy consumption was way lower since mining was less economically attractive.

Fees are skyhigh currently and a lot more people are mining Ethereum because of it. Using Ethereum by sending transactions directly pays miners and incentivizes them to produce the blocks.

Minting NFT’s does contribute directly to maintaining the amount of miners and energy consumption.

If I use a L2 (Layer 2) the blocks are environmentally friendly

The average CO2 per block for the entire PoW chain ecosystem might go down, but it doesn’t lower the energy usage on an absolute basis.

The main chain’s energy usage is dependent on the price, block rewards and fees, all of which are driven by usage. The more popular a chain is, the more it pollutes and destroys.

Proof-of-work is not waste and therefore a legitimate use of resources

If we didn’t have any better way of reaching consensus on the blockchain and assigning random block producers in a trustless scenario, this would be true. But we have. Proof-of-stake has been battle tested for years. 

Bitcoin with its proof-of-work consensus showed the way. But all technology evolves, and there are better solutions available now.

There are many reasons why we’ve moved on from coal-fired steam engines to battery driven electric motors, just as it’s time to move on from proof-of-work.

Fine, let’s just just cut all of our energy usage and go back to the stone age

We can’t. The world population is way too big and we must use way more efficient food, living and transportation systems than what were available back then.

Besides, we there’s no need to stay away from our modern luxuries as long as we moderate ourselves and use energy when needed and not only because we can.

Conclusion

Proof-of-work needs to be unwound and its assets transitioned to proof-of-stake blockchains. Ethereum is already transitioning, a change that’s been underway for multiple years already and is filled with controversy due to the impact to its miners.

There’s a significant chance of a chain split just like we saw with Ethereum and Ethereum Classic after the DAO hack. What’s positive for Ethereum compared to Bitcoin is that there’s a fairly centralized development team and a strong leader who the Ethereum community follows.

With Bitcoin it’s much harder to see this change coming. Even relatively small changes to increase its throughput have resulted in multiple forks, most notably Bitcoin to Bitcoin Cash and Bitcoin Satoshi Vision in 2017-2018 as a result of the SegWit and block size debates.

Tezos has all of the technology, infrastructure and community already in place to be a better Bitcoin than Bitcoin can ever be. The best thing for us would be for Bitcoin to move as a wrapped asset to Tezos and cease to exist as its own chain.

This way the magic and history of Bitcoin could be preserved while it could take advantage of the privacy, throughput and low energy consumption of Tezos. This way it would become peer-to-peer electronic cash for online payments it was designed to be.

Disclaimer

Nature of Content: All content published on https://xtz.news, whether written, auditory, or visual, is for informational purposes only. Opinions expressed therein are solely those of the individual authors and do not reflect the views of XTZNews or its management.

Not Financial Advice: No content on this website constitutes investment, financial, legal, or tax advice. Users should not construe any such information as a recommendation to buy, sell, or hold any investment or security or to pursue any particular investment strategy.

Accuracy and Completeness: While XTZNews makes every effort to ensure the accuracy and reliability of information, we do not warrant or guarantee the timeliness, completeness, or accuracy of the information presented. The website may contain errors, omissions, or inaccuracies. We disclaim all warranties, both express and implied, regarding the information, including but not limited to, any warranty of merchantability or fitness for a particular purpose.

Endorsements: References to specific entities, products, services, processes, or other information does not constitute or imply endorsement, sponsorship, or recommendation by XTZNews. Blockchain technology is in a developmental phase, and the engagement with the technology and its associated entities carries inherent risks.

User’s Responsibility: Users are encouraged to conduct their own research and due diligence and to seek the advice of qualified professionals before making any investment or decisions related to content on this site. Engaging with blockchain technology, cryptocurrencies, and associated applications should be undertaken with caution, understanding the inherent risks involved.

Limitation of Liability: Under no circumstances will XTZNews or its affiliates, partners, officers, directors, employees, shareholders, agents, or licensors be liable for any direct, indirect, incidental, special, consequential, or punitive damages, including without limitation, loss of profits, data, use, goodwill, or other intangible losses, resulting from (i) your access to or use of or inability to access or use the site; (ii) any content obtained from the site; or (iii) unauthorized access, use, or alteration of your transmissions or content, whether based on warranty, contract, tort (including negligence), or any other legal theory, whether or not we have been informed of the possibility of such damage, and even if a remedy set forth herein is found to have failed its essential purpose.

Seek Independent Advice: Before undertaking any financial investments, potential investors are advised to seek guidance from independent financial, legal, and tax professionals.