Bitcoin Energy Use Problem

The Guardian released a short video yesterday where Alex Hern discusses his wrong views about the matter.

He notes correctly that the Bitcoin network uses a lot of electricity. He also notes correctly that the percentage of renewable in the mix is large compared to other industries.

He then somehow proceeds to tell people they are not allowed to use that electricity for the purpose they seem fit, even if they pay for the electricity like any other customer.

Since when is the Guardian in the business of deciding of who gets to use what electricity for what purpose? And who makes those decisions?

I am so old, I remember when this kind of decision was left to something called “the market”.

But I would also like to appeal that decision.

Hern is correct to call attention to the issue. He joins a guy called Hal Finney, who raised exactly that point in his third tweet about Bitcoin in January 2009, which reads “Thinking about how to reduce CO2 emissions from a widespread Bitcoin implementation”.

Clearly the point Hern raises deserves attention.

The simple solution would be to stop Bitcoin adoption. Use a credit card instead to pay for your coffee.

The problem with that solution is that Bitcoin is not about low value transactions to pay someone else a small amount. There are lots of other ways to do that already before Bitcoin. It is about paying yourself, ten years later, while preserving the purchasing power. I am not aware of anything else that can achieve that as well as Bitcoin.

Bitcoin is a saving technology, not a payment network.

And one thing crucial to saving is security of the funds.

The electricity use of the Bitcoin network is the cost of that security. It is impossible for anyone to change any entry in the database after a couple of confirmations. That is because there would be so much energy cost involved that you would be better off not paying for the attack than whatever you could gain from changing the record.

Still, the question remains. How can the CO2 cost of Bitcoin be reduced?

Maybe one of the numerous altcoin proposals will come up with a better solution to the problem of keeping an immutable database than proof of work, the only thing that has been proven to work in an uninterrupted 12 year record. I would not count on it.

Or maybe, and that is where my interest lies, it is possible to use that immutable database for the purpose of solving the climate crisis. Make Bitcoin part of the solution, as opposed to part of the problem.

That is already happening. Bitcoin helps deploy new renewable capacity. That is because you don’t need a power line before deploying. Bitcoin gives you a massive amount of demand anywhere on the planet. We can finally build large scale desert renewable projects before building the power line capacity.

Hern actually discusses that point. He thinks this gives a bad incentive to not build the power lines.

I disagree. Eventually, those power lines will be built. It will just take some time. Like the Suez canal, you build those power lines once and then use them for centuries. But being able to build the capacity first and the power lines second is a big deal.

The shift is not only in place, it is also in time. Electricity demand fluctuates a lot over time. So there are time slots where you can’t sell electricity in some local market. In contrast, the demand of the Bitcoin network is constant any minute of the day and any day of the year. That helps to smooth out the system and helps people finance renewable installations.

But that is only the smaller side of things.

The real fun starts when the fossil fuel industry starts using the immutable blockchain ledger to allocate production rights.

That would massively decrease CO2 emissions, by the simple method of keeping the fuel in the ground.

I don’t have the solution to that particular problem. It may be impossible to do. But having an absolute cap on fossil fuel production just like there is an absolute cap on bitcoin production baked firmly into the protocol: that would be very valuable to have.

And it might be the answer to the question raised by Finney in 2009 and by Hern right now.

Published by kflenz

Professor at Aoyama Gakuin University, Tokyo. Author of Lenz Blog (since 2003,

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