More than a decade after Satoshi Nakamoto combined proof of work and bitcoin mining, deceptive comparisons of “energy costs per transaction” continue to be spread by seemingly intelligent and well-researched individuals.
We can attribute much of the spread of this narrative to Alex de Vries – a data scientist who adheres to the term “digiconomist” and is quoted in almost every article on bitcoin energy and published in the mainstream media. There’s only one problem. Neither he nor most of the journalists who quote him regularly announce that his employer is De Nederlandsche Bank (DNB), the Dutch central bank which is an undeniable opponent of Bitcoin and open payment channels. It is irresponsible for journalists to quote de Vries or his work without disclosing his conflict of interest. He is effectively a DNB lobbyist.
De Vries’ work for the DNB focuses on financial white-collar crime. In 2020 the DNB called for controversial and overly aggressive KYC regulations for digital asset companies operating in the Netherlands. Among other things, the regulation stipulates that users must prove that they control their withdrawal address. The rule was lifted in court last week after Bitonic formally complained. The DNB is also a leader in the development and integration of CBDC in Europe.
De Vries, digiconomist’s website, dubbed the “Hobby Project”, appears to mislead readers by not disclosing his employment. The website uses inappropriate assumptions and misleading infographics about so-called “Single Bitcoin Transaction Footprints”.
This has led others to create similarly misleading transaction-based comparisons to falsely claim which altcoins are using the least amount of electricity as a function of utility.
In March, Bill Gates repeated this FUD, which was then confirmed by the media using de Vries’ own misleading data. More recently, Elon Musk was the last to spread misinformation when he tweeted that Tesla would no longer accept Bitcoin as a means of payment for vehicles.
“We are concerned about the rapidly increasing use of fossil fuels for bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel. We are also looking at other cryptocurrencies that consume <1 of the energy / transaction of bitcoin."
After the market collapse coinciding with suspicious trading activity, he followed:
“The energy consumption trend in the last few months is crazy https://cbeci.org”
While we can’t know what Musk was actually thinking, if Musk had bothered to read the Cambridge Bitcoin Electricity Consumption Index (CBECI) FAQs, he would have learned that “energy costs per transaction” is a misunderstanding.
The popular energy cost per transaction metric continues to be featured in the media and other academic studies despite several issues.
First, transaction throughput (i.e. the number of transactions the system can handle) is independent of the network’s power consumption. Adding more mining machines and thus increasing electricity consumption does not affect the number of transactions processed.
Second, a single Bitcoin transaction may contain hidden semantics that may not be immediately visible or understandable to observers. For example, a transaction can include hundreds of payments to individual addresses, process second-tier network payments (e.g. opening and closing channels in the Lightning Network), or potentially represent billions of timestamped data points using open protocols such as OpenTimestamps.
Source: CBECI | FAQ
The CBECI even goes a step further and dispels common climate narratives.
There is currently little evidence that Bitcoin is directly contributing to climate change. Even assuming that bitcoin mining is entirely coal-fired – a very unrealistic scenario, given that a nontrivial number of plants run entirely on renewable energies – total carbon dioxide emissions would not exceed 58 million tons of CO2, which is roughly zero . 17% would be equivalent to total global emissions.
This does not mean that environmental concerns about Bitcoin’s power consumption should be ignored. There are legitimate concerns that Bitcoin’s growing electricity consumption could pose a threat to future achievement of the United Nations Sustainable Development Goals.
The current numbers should be put into perspective, however: the data available shows that even in the worst case scenario (i.e., coal-powered mining), Bitcoin’s ecological footprint remains marginal at best.
Source: CBECI | FAQ
Adam Back, creator of Proof of Work, made an effort to correct the record:
“Doge hasn’t been serviced for years, a literal joke of an outdated version of Bitcoin with long-known vulnerabilities. In fact, #Bitcoin doesn’t use incremental energy per transaction. And has Layer2s like Lightning and @Liquid_BTC that extend the functionality.”
It makes no difference how many transactions take place in a proof-of-work blockchain. A single Bitcoin transaction could theoretically enable final settlement for a Layer 2 channel that contains millions of transactions.
In addition, the energy used to mine each block not only creates a transaction, but secures it every transaction that ever came before. This energy secures all transactions that have ever taken place in Bitcoin’s history – including Elon Musk’s personal transactions as well as the previous transactions that led to those transactions.
Michael Saylor also tried to clear up Musk’s misunderstandings:
“Estimated power consumption per http://cbeci.org YTD increased 40% over the same period that the network grew 100%, which means that energy efficiency has improved dramatically over that period. #Bitcoin will be less energy-intensive Libra. “
Musk responded by tweeting three URLs. The first link was for the Greenidge power plant in New York State, which went back online to mine Bitcoin with natural gas. Nic Carter later researched what Musk and mainstream journalists should have been doing:
– Old coal-fired power plants are brought back online to mine BTC
– Greenidge plant is natural gas, not coal powered (much lower carbon intensity)
– The plant is buying full carbon offsets
– Greenidge primarily feeds the electrical grid and powers thousands of households
This is a cornerstone of the new hostile coverage of Bitcoin, and you can see this paragraph about “decommissioned coal-fired power plants coming back online to mine BTC” hundreds of times. The only problem: it’s completely wrong.
This is basically a misrepresentation of the “Saddam has yellowcake” level that is outrageously wrong.
The second link was a one-page interview with de Vries, and the third link also contained de Vries. Again, none of these links revealed the fact that de Vries is being used by a central bank opposing Bitcoin.
Musk soon flipped his misinformed stance to announce that he is allegedly “working with Doge developers” to potentially adopt them as an environmentally friendly payment alternative – a dubious claim given that the project has been largely abandoned. His comments only served to uphold the “energy per transaction” myth.
It’s not just Musk and de Vries who uphold the “energy per transaction” deception, as Doge supporters denounce similar misleading research by TRG data centers that Litecoin consumes 18.5 KWh per transaction and Dogecoin consumes 0.12 KWh per transaction.
The energy consumption has nothing to do with how many transactions are broken down in a block. Energy consumption is related to coin issuance and miners’ profitability, not the number of transactions. Nic Carter stated:
“Today, Bitcoin miners earn around $ 50 million a day, which translates into annual sales of around $ 18.2 billion. 85% of this income comes not from fees per transaction, but from the issuance of new bitcoins. This issuing process is finite: in fact, it’s 88.7%. The rate of coin reissue halves every four years as it approaches that 21 million mark. (These are the “halves” you’ve probably heard of. Bitcoiners love they really.)
The emissions component of mining revenues thus structurally decreases * over time *. Unless you believe that the price of Bitcoin will double in real terms every four years by 2140, that spending (and therefore energy consumption) will go down. “
Source: Nic Carter | CoinDesk
The energy required to solve complex random guesses cannot be falsified. This makes Proof of Work an extremely fair, neutral and impenetrable physics-based approach to issuing new coins and secure networks.
When you understand that the cost of energy depends on the profitability of the miners rather than the number of transactions, you can understand that Dogen’s claim of low energy consumption per transaction is completely misleading.
Ari Paul explained in a Q&A:
Ari Paul: … Electricity is not used for transaction processing. It is used to secure the network. Doge is PoW, which means it is exposed to the same basic dynamics as Bitcoin. It now uses less electricity because it is less safe.
Q: Due to DOGE’s unlimited supply, the price has “some” caps. Because of this, there is also a cap on miners’ profitability above which miners will not add a higher hash rate to the network, keeping power consumption below a fixed maximum. Is that wrong
Ari Paul: I think that’s right – basically anything that depresses the token price of a prisoner of war will, at least in general, also affect his security and power consumption.
Q: For the sake of clarity, pressing the POW token price lowers security due to the inherent reduction in the miner’s bonus. That means: fewer miners -> less network scale (less power consumption) -> less security. Do you appreciate the insight?
Ari Paul: Basically yes. The difficulty of the network adapts with the hash power. Miners are rewarded with tokens and continue to invest in hash power (which leads to higher levels of difficulty) as long as it is profitable. A higher token value supports more investment in hash power.
So if profitability and a higher token value increase energy consumption in the chain, it can be clearly seen that Doge would suffer the same increased energy consumption if he were ever to become the success that Musk suggests.
Ironically, Doge doesn’t solve the problems Musk worries about. Digital Currency Miner / Investor De Flandres (@ Pacifica2525) explained the Doge mining misunderstandings in a series of tweets.
Auf Musk claimed he had set up “some little Doge mining equipment”:
There is no such thing as a “Dogecoin mining machine”. It is referred to as a Scrypt Miner, who mainly mines Litecoin, as Dogecoin is merged with Litecoin.
The TRG Datacenter study claims that Doge has a small “energy per transaction” footprint:
It’s all about numbers, isn’t it? On average, an Antminer (or equivalent) consumes 0.800 to 0.950 kWh of juice processing blocks. The above numbers are wrong. You also need to understand that “affirmations” continue indefinitely. Today, if every mine extracts 1 block of LTC and 1 block of Doge, both will use the same amount of electricity. If the same miners mine 25 LTC blocks and 10 Doge blocks, Doge will use less power. The problem is that a Doge block degrades every minute while an LTC block degrades every 2.5 minutes. In fact, miners have to mine 2.5 more Doge blocks than LTC, making Doge more dependent on miners. In other words, Doge is less efficient. As Doge’s interest / activity increases, fewer empty blocks will be processed by Scrypt miners. If this conversation were to take place a year ago, it could be argued that Doge uses less energy because there are more empty blocks. The number of blocks for Doge is always 1 per minute.
Dogecoin is PoW only because Litecoin / scrypt is PoW and, assuming L3 + or L3 ++, this mining machine is still using more than 0.800 kWh of juice regardless of whether it’s under heavy or light load, and LTC and Doge put together degrades. So the claim that Doge uses less is basically a lie.
A Dogecoin block is created every minute. 1 LTC block is created every 2.5 minutes. Both = encrypt coins. Both are dismantled on the same machines. The more popular Doge becomes, the higher the price, the higher the difficulty, the more intensive the mining, the more energy is consumed.
About Musk who claims to be working with Doge developers to improve their aging protocol:
“… Dogecoin is a merge-mined coin with Litecoin … the same Scrypt miners who own all the hardware. So who is he working with again? Change the protocol and it will no longer be Litecoin Miner You’d have to fork the coin hard. Have fun with it. “
“Litecoin” doesn’t “help” secure the Dogecoin blockchain, it basically “owns” the Dogecoin blockchain because until recently no miner would ever mine just Doge. It was a loss. Now it may be more profitable, but it is still a by-product of Litecoin mining. “
“Piss off the Litecoin / Scrypt Miner and Doge does a permanent dive.”
“Good luck trying to mine on your own. You must have the miners that haven’t been made for almost 2 years. The ones that are available are used on eBay and are expensive, with a breakeven point of around 2 years. “
In addition, Galaxy Digital released research highlighting the poor quality of the Doge network. So why should Musk get behind an unmaintained altcoin?
Q: Why not just create a crypto from scratch that technically does whatever you want, has a lot of development support and, at least initially, doesn’t have a high concentration of owners?
Elon Musk: Only if Doge can’t. Big pain in the neck to create another.
It’s likely that Musk is referring to the challenges Facebook faced when trying to launch Libra. Mark Zuckerburg was famously pulled in front of Congress and blocked by regulations.
It would be less of a headache to use Bitcoin or any other modern project. Converting Doge to a high-speed centralized cash coin would trigger a hard fork of Litecoin that would leave Doge alone with few Scrypt miners. Musk could then create its own Scrypt miners and build them into all of its products, but that would just turn it into a centralized private payments network. One can only assume that he would rather start his own coin than deal with regulators and bureaucracy. Of course, like everyone else, he could also implement Bitcoin payments and Layer 2 technologies.
It remains to be seen whether Musk deliberately disseminates misinformation or suffers from the Mahn-Krüger effect. Recent tweets from Musk suggest the latter as he seems to lack a basic understanding of how decentralized systems work or why they are necessary. Regardless, it’s difficult to say what Musk’s real motives are.
If the false “energy per transaction” narratives put forth by central bank economists de Vries, Musk and Doge supporters can be easily debunked by reading the CBECI’s own FAQ, it’s not hard to see that there is a hubbub is.
Smart investment teams can look beyond these false narratives. AllianceBernstein’s sustainable thematic stocks team published an informative post on Bitcoin from an ESG perspective:
… We believe that the high energy intensity concerns of Bitcoin mining are overstated and the technology can play a less recognized but important role in promoting financial inclusion. Source: AllianceBernstein | Is Bitcoin ESG suitable for stock investors?
ARK Invest also reiterated its firm support for Bitcoin:
In our view, the concerns about Bitcoin’s energy consumption are wrong. Contrary to consensus belief, we believe that the effects of Bitcoin mining could have a positive impact on the environment. Using real world data, we show how mining can affect the amount of renewable energy fed into the grid by converting intermittent electricity resources into base load generation through energy storage. We show that without Bitcoin mining, renewable energies could only meet 40% of the grid’s needs, but 99% with the commercial “subsidies” associated with Bitcoin mining.
Source: ARK Invest
The energy spent on Bitcoin is the invulnerable physical budget for securing the entire financial network. Other proof-of-work projects that call for lower energy budgets only advertise a lower level of security and a much lower level of usage while trying to reach inexperienced investors quickly.
Musk and Altcoin followers seem unaware that it would be virtually impossible to reproduce Bitcoin’s neutral and fair launch, as well as its amazing network effects around the world and the sure track record of the past decade. If it were even possible to reproduce Bitcoin’s launch, anyone trying altcoin would be a decade behind to find vulnerabilities, a decade behind network effects, a decade behind its proven track record, and a decade behind to prove its immutability as solid money . There would be a lack of credibility to become a safe and global reserve asset.
Evidence of use and other newly developed protocols are as yet unproven experiments that require years of tests and examinations, which usually lack distribution and fair start. These experiments are not the kind of protocol the whole world wants for securing the next global reserve asset. No one in their right mind chooses to protect their savings or a company’s treasury with a low, trust-based security budget. Institutions and individuals want that maximum Safety budget with near zero probability of default for your valuable and hard-earned life savings.
Bitcoin offers security that no other asset can offer by connecting the physical and virtual world with a proof of work. It is the safest energy budget on the planet, backed by physics, and worth every joule that goes into it.
This is a guest post by Level39. The opinions expressed are solely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.