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Started Hosted Blog

Started Hosted Blog

Recently my blog that I hosted myself at k-lenz.name/LB for close to 20 years went down with a database error.

I considered investing some time to find and fix the error. Then I decided I would rather use that time to start over with this new hosted blog.

Leave the technical side to people who know what they are doing and pay a small amount of money.

I will probably figure out how to point the old address to this new one. I will also need to figure out how to deal with all the old content.

Book Review: Privacy and Identity Issues in Financial Transactions, by Carolin Kaiser

I am reading this excellent 2018 dissertation on a well deserved recommendation by Simon Lelieveldt. It is an extensive discussion of money laundering and data protection human rights standards. The main thesis of the book is that anti money laundering law is not compatible with basic human rights standards. I approve. For the very least, there is an urgent need to draw some red lines to limit the system to something reasonable.

Also there is a need to stop it from growing uncontrolled. I will not discuss recent Commission proposals on reforming the system with a view to Bitcoin here. But if it is true that the present system is already overreaching, one would of course need to oppose any extension of the mass surveillance.

The book discusses some of the history of the system, which started with the 1970 Bank Secrecy Act in the United States. I could not find a discussion of the 1974 Supreme Court case California Bankers Assn. v Shultz in the relevant section (chapter 2 d. i.). I think it is important in this context for its dissenting opinions. The reasons stated there seem still valid, and much more so in the present context. I did learn that the administrative law provisions were in force much earlier than any criminal law, which came only in 1986.

I also think mentioning the 1998 United States v. Bajakajian case might have been of interest, since the Supreme Court ruled that the government may not confiscate undeclared cash a traveler carries in his luggage for failure to report it. This is in direct contrast to what happened in the 2017 CJEU El Dakkak case, where failure to fill out a form resulted in the French government seizing $1,607650 held by a traveler only in transit with no intention to actually enter the EU.

The whole system is a relatively new idea, having only about 50 years of history. Even patent law and antitrust have a longer history than that.

I also could not find any pointers to the fabulous successes in crime solution and prevention in those 50 years of history in this book. To be fair, the author discusses this and could not find any either. She writes in the introduction (and later in chapter 2 on page 112) that “the continually increasing extent of anti-money laundering measures, both in scope and severity, is so far not rewarded by any measurable success”. If someone writes a 667 page book about money laundering and can’t find any “measurable success”, I for one am inclined to think that is because there is nothing to find there. The whole thing is based on thin air.

Chapter 2 contains an interesting analysis of the data protection rules of the EU AML directive. Again, those rules don’t exist. The only provision is in Article 41 (4), which says that contrary to usual standards of data protection law, data subjects have no right to know what is known about them.

The reason given for that is that if they knew, the fight against money laundering would get less effective. That reason is not convincing. For one, the rules are not effective in the first place, as noted above. And of course all criminals know exactly that the banks store all their transactions. Telling them about individual data sets does not change anything.

Chapter three discusses Bitcoin and starts badly with calling it “underground banking”, “shadow banking” and saying that “virtual currencies easily elude attempts at regulation”. What is the point of discussing Bitcoin regulation if it is impossible to begin with? And how is Bitcoin “banking”, shadow or underground, if by design there is no bank involved?

The author then states (at footnote 441) that Bitcoin is not a currency at all since it is not issued by a central bank and no jurisdiction guarantees it value. That changed recently, with El Salvador the first in line. Any old definitions of currency that rely on the status of legal tender became dubious at that point.

The author then asserts (page 138) that Satoshi Nakamoto disappeared “several months” after releasing Bitcoin. In fact that happened after April 26th, 2011, which is “several months” after January 2009 if you count the number 16 as several.

On page 147, the author quotes the price of one bitcoin as $15,048 on January 3, 2018. That was only three years ago now.

As the author explains correctly, Bitcoin is not anonymous, but pseudonymous. It requires some thought and expertise to make sure that transactions are not traced to any individual. That makes the use of Bitcoin much less attractive for criminals than cash. All Bitcoin transactions come with records stored forever in the public blockchain. No transactions in cash come with any records.

When discussing proposals for the 5th AML Directive (which was not yet enacted at the time of the writing) the author states that the idea of a voluntary register of self-identified users is “likely to fail”. I am not sure why. Citizens are asked to declare income for tax purposes every year. Not all of those declarations are incomplete or false. In the same way, one could imagine imposing self-reporting requirements for Bitcoin balances. It may be open to some more discussion if that is a good idea and if that would actually work.

The following chapter 5 gives a good overview of present European data protection law. One thing that stood out to me: The technical possibilities to defeat privacy are increasing all the time. You can take a picture of someone in public and search the Internet to reach their social media presence, making it possible to learn their name from their face.

Again, this chapter finds that there are no meaningful measures against mass surveillance in EU data protection law. So we have mass surveillance set up with no measurable success and no limits in data protection law.

The discussion of anonymity in Bitcoin in Chapter 6 suffers from talking about “wallets” when speaking about addresses. A wallet is a piece of software designed to interact with private and public keys (addresses) on the blockchain. An address is the result of a transaction, also called UTXO (unspent transaction output). The blockchain only contains addresses, not wallets.

The discussion of virtual currencies in Chapter 7 is especially valuable. As the author notes, it is quite possible to identify holders of Bitcoin addresses by several methods, one of them being looking at the IP address a transaction originated from. Others may be having the other party of the transaction cooperate, or having law enforcement infiltrate a criminal organization. Once the link between a name and an address is established, the transaction can be traced completely.

One thing I want to add: When using a bank, a criminal would know exactly that his transactions are watched. When using Bitcoin, they might assume to be not watched, while they actually are. That may be a decisive advantage for law enforcement in some situation. And said advantage is impossible with banks.

Chapter 8 brings a useful overview on relevant European case law as a basis for asserting that the money laundering Directive is in violation of the principle of proportionality in the following chapter.

That chapter has a discussion of the shaky legal basis for the EU legislating on what is clearly law of criminal procedure by pretending to be regulating the internal market. Of course any measures obliging financial institutions to collect and share data about their costumers has some influence on the competition between these institutions. But that is not the point of the system. The point of the system is to catch more criminals, and therefore the reliance on the internal market general clause is misguided. That was even more true when the Directive was first enacted in 1991, at which point in time the power of the EU to make criminal law was even less clear.

The author then elaborates some more on the lack of effectiveness. Citing the reports of the German FIU (the agency in charge of receiving the information from banks), she finds that there are very few convictions resulting from these reports and that there is no measurable impact on the predicate offenses (the crime the whole thing is supposed to decrease). The picture is even clearer with anti-terrorist financing, where there was no conviction resulting and the FIU was reduced to celebrating it as a success that one suspect was prevented from receiving insurance for a car.

Again, if there is no measurable success in preventing crime, the answer if that interest trumps the public interest in not having every one watched all the time is self-evident.

That becomes even more evident if one remembers that the Directive is supposed to be enacted for internal market purposes, avoiding differences in costs for banks. Taking that at its face value instead of the excuse for a otherwise not existing power to regulate would mean that the question is if that objective is achieved.

One would probably need to concede that an uniform standard for all banks actually will achieve the aim of achieving uniform compliance cost for the sector. But obviously the analysis in the next step (is it worth all of the effort if you disregard crime prevention) becomes a very different one.

That next step is central to the book. The author notes 17 different reasons why the result is not worth the effort.

That seems a bit one-sided. I share the idea that AML law is running amok (alliteration intended) and that there needs to be some kind of limit. But does the other side really lose 17 to zero? Is there nothing one could reasonably state for their position?

Theoretically speaking, it seems to make sense that investigation authorities can solve more crime if they have access to more data. If every citizen had a chip implanted in their skull recording their movements and everything they saw and heard, police work would get easier. So if the state could see every movement of funds (cash included), one would expect this to be useful for police work.

To deal with that idea, it is important that the whole AML thing is a new invention. Humans have used cash for thousands of years. All crime before 1970 was solved without recourse to AML instruments, and most of it is still solved without such recourse.

While it is certainly true that there may be some theoretical usefulness in addressing crime deriving from AML regulation, that is not enough. One would need to show a drastic difference in crime levels compared to the absence of AML measures to justify all that effort. As mentioned before, this has not been shown.

While there clearly is a need for limits of AML, the reverse is true as well. I for one would not like to see a financial system where people are free to run dark web assassination markets and it is completely impossible for anyone to do anything about that. Fortunately with Bitcoin, that is not true. While cash is not traceable, Bitcoin payments are stored forever in a public blockchain.

Anyway, if you think as I do and the author does, that current AML law has gone too far, it would be necessary to point out what exactly the legislator may be allowed to do without violating basic human rights. It appears the message of this book is only negative.

The first concern the author has with the current legislation is that it is a form of mass surveillance. Bruce Schneier called that “wholesale surveillance”, made possible by the declining cost of data storage. That is also what motivates me personally the most to disagree with telecommunication data storage and the AML legislation.

There are no exceptions. The state wants all the data, all the time.

Another concern raised by the author that impressed me was number four. The fact that the central concept of “suspicious transactions” is lacking a definition and is left to the authors of the software automatically issuing reports. That software is not open to the public but rather treated as a business secret. Such lack of transparency makes the transaction reports itself suspicious under human rights standards.

The following number five points out that there is a complete lack of protection for sensitive data in the money laundering Directive, in contrast to Article 10 of the Police and Criminal Justice Authorities Directive on data protection. The money laundering Directive completely ignores the need for special protection on sensitive data.

The concern number seven the author raises is the cost of the whole exercise to financial institutions. This point is not very convincing; but this is a good occasion to recall that the basis for this legislation is being worried about these costs might differ between Member States, which would in turn distort competition in the internal market.

So how high exactly are these costs? And how much did this Directive contribute to leveling the playing field? More important, how much electricity is wasted watching all citizens all the time and producing all these suspicious reports? How much CO2 is emitted because of that energy waste? The recent “European Green Deal” policy calls for more attention to these matters. Can we really afford to waste all that energy on a system without any measurable success?

Readers aware of the current discussion on Bitcoin will understand that I am alluding to assertions that Bitcoin mining uses too much energy. And turning that talking point right back at the supporters of the present system.

Concern number fifteen is about the retention period of relevant data, which is set to five years, calculated from the end of the business relation with a customer. Business relations with banks often last for a lifetime, which means effectively storage forever in most cases. In contrast, when talking about telecommunications data retention mandates even six months was regarded as being too long.

I have left out a couple of the seventeen concerns. The author then sums up and concludes that the AML Directive should be ruled invalid by the CJEU, as the data retention Directive was before. That would be in conflict with positions of the FATF, but said positions would need to be adapted accordingly.

I agree with that conclusion.

And I would like to turn around the argument a bit. One can ask if this mass surveillance is necessary in a democratic society. But one can also ask if one would be comfortable with the state having these powers if it is not sure that standards of democracy are kept up.

The United States came close to a coup ending democratic elections of leaders in January of this year. Some EU Member States are under review for deficient rule of law values.

Democracy is fragile. Mass surveillance installed in Germany in 1921 (if there was the technology at the time) would of course have been used by the Gestapo to find Jews in 1937. Don’t install harmful and useless mass surveillance systems assuming the government stays benevolent.

The B-Word

I just watched the Youtube record of a conversation between Elon Musk, Jack Dorsey, and Cathie Wood titled “the B-Word”, moderated by Square Crypto lead Steve Lee.

I learned that Twitter still does not take Bitcoin as a payment for advertising. Musk asked Dorsey to think about doing that. And that Musk is considering taking it again at Tesla, since he seems satisfied that earlier conditions about CO2 emissions from mining dropping below 50% are met and things are improving.

There also was much consensus on people needing to own their keys. Use non-custodial ways to own your coins.

That is interesting since the EU Commission just published draft laws to push for more custodial Bitcoin use with their new money laundering framework.

They basically want to have the government informed about all payments, as it is with banks. Bitcoin does not need to use banks. If people keep their keys to themselves as was the consensus in this particular conversation, there are no intermediaries that can be targeted by anti-money-laundering legislation. That in turn means that it may be difficult to achieve the dream of having the government get all the data on all the citizens without a warrant and without limits.

I for one have no problem with that.

On the contrary. Those surveilling powers are always only increasing. I am not convinced that it was a good idea to let the government win at the Supreme Court in 1974 and introduce this system in the first place. And I certainly don’t believe in a society where the government gets to know everything about everyone without a warrant.

The reason for the Supreme Court majority to let the government get away with this was that claims of customers were premature, since they did not show actually having sent over $10,000 and that anyway, they disclosed their records voluntarily to their banks.

But with bitcoins under control of individuals, there is no such disclosure to any financial service provider. So if the government gets wholesale access to that information, there is really no way around requiring a warrant, which in turn removes the basis for treating anyone in sight as a criminal by default.

I recall that the surveillance fans lost at the European Court of Justice in 2014 when the fight was about recording all citizens’ communication traffic records. That was about six months worth of data. This latest proposal wants to oblige financial institutions to keep records for five years.

Maybe it is time for another challenge to the idea of the state knowing everything about everybody. The dissents in the above Supreme Court case are a good starting point for the discussion.

Book Review:Bobby C. Lee, The Promise of Bitcoin

This book was recently published. Having some interest in Bitcoin, I bought a copy on Kindle.

What I liked best about it was the conviction the author has. As he remarks frequently, the only thing that matters is the long term development. And said long term development is good news for anyone buying and holding.

As well it should be, with no other asset having a strict limit on issuing like Bitcoin.

I also found the family history interesting. Lee explained that his parents smuggled some gold in their clothes when leaving China first. They later emigrated to Africa, where they operated a business started with that gold.

If Bitcoin had been available at that time, it would of course have been easier to take their money with them in the form of some information or other. No need to sew gold into hidden pockets.

The editor of the book overlooked a mistake, where the author talks about 〝Cypress” meaning “Cyprus”.

This book describes a lot of the basics. I think it is a good guide for the intended audience of people who are curious about investing in Bitcoin and need to find out about it.

In contrast, there is not much information on the ballet wallet, which is the startup Lee is now spending some time and effort on after selling his bitcoin trading business. From what I understand this is a simple solution for people who like offline physical designs.

So this book gives people some reasons to buy bitcoins. It leaves it for other channels to describe what the wallet is and how it works.

I for one enjoyed the read.

Harry Sudock on Bitcoin Mining Energy

I just listened to the podcast “The Truth about Bitcoin’s Energy” with Harry Sudock on the “What Bitcoin Did” podcast hosted by Peter McCormack. Sudock is working as a VP of Strategy for the “Griid Infrastructure” mining project.

I learned that in the American market power lines don’t extend more than 500 miles. I learned that power cost for miners are between 80 and90 percent of their budget. I learned that by co-locating the miner close to the generator he saves about 30 percent of those costs. I learned that miners will go for cheap electricity prices, but his project would not look at coal generation, since there are so many attractive alternatives.

For the generator party having a mining project up close means they can increase their capacity factors. As Sudock explained, there is a lot more capacity built in the system than is needed at normal times. That in turn means that there are lots of time slots where you could generate electricity but can’t sell it. A mining facility close by will give you demand in those time slots, increasing the percentage of time the generator actually delivers (capacity factor). Generators are willing to accept lower prices in return for that.

Sudock likes nuclear energy.

Unfortunately for him, the Bitcoin Central Authority (BCA) just decided that nuclear energy may not be used for bitcoin mining purposes.

On the other hand, such an authority does not exist, just like the Central Internet Authority (CIA) does not exist.

That in turn means that whatever economic advantage for generators comes from the larger capacity factors goes to all methods of generating power equally. Bitcoin gives support on a level playing field.

There may still be a difference. Sudock mentioned that a nuclear power plant delivers 99.9 percent of the time, which leaves them with more times slots lacking demand than a wind site with a capacity factor of 41.9 percent.

I don’t know how that will play out. As someone interested in supporting renewable, I just note that any advantage for renewable projects will favor geothermal, solar, wind, biomass, and hydro in equal ways. There will not be different tariffs.

EU Climate State Aid Rules Draft

The EU Commission has published a draft of their revision of the State Aid Guidelines for renewable energy. The public has a chance to comment until August 2nd.

This is a public comment on this draft.

The existing 2014 version of the guidelines helped change the German law on renewable energy from a very successful feed-in tariff to an auction based model. I perceive it as “Not an Absolute Disaster”, but close. I am disappointed that the Commission still insists on their auction model.

The motivation for the change to auctions might be to save costs. I applaud such a motivation. Especially in recent times, the Member States are issuing much new debt and the European Central Bank is buying up all that debt, printing lots of new Euros in the process, with no end in sight. Trying to limit costs may help with that problem.

On the other hand, the track record for installation of renewable projects is somewhat lacking.

In an auction system, there never will be more installations than whatever the state decides to put up for auction. The decision on price moves in the direction of the market. The decision on volume moves away from the market to central planners.

Therefore keeping calling for auctions in the new guidelines draft is misguided.

Fortunately, there will be two important elements mitigating the damage these Guidelines will be doing to the climate.

For one, prices for renewable energy have already come way down. That battle was won in 2000 when the EEG was introduced without the Commission being able to stop it. The Court of Justice upheld the system in the PreussenElektra case. The Commission argued against that result and tried to resist this historically important successful support scheme, but fortunately they lost at the Court, just as they lost again in 2019. There is no way to get costs for renewable up again over the level of fossil fuel energy.

And the other factor is that we are about to see a completely new world wide massive support scheme for renewable energy. Said scheme will not be financed by taxpayer money and not be paid for by any one EU Member State. There will be no way for the Commission to mess up this one, or even to require their permission.

I am of course talking about the El Salvador volcanoes.

As anyone paying attention knows, El Salvador just decided to make Bitcoin legal tender and to use some of their geothermal energy for bitcoin mining, turning renewable energy directly into money.

If you are running a bitcoin mining operation close to the geothermal well, you have a guaranteed source of stable income before the first power transmission line is built. You get that income secured even in time slots where demand from household or industry users is not sufficient to cover for supply. That means a massive financial support scheme for the operation of the renewable energy facility, courtesy of the 150 million Bitcoin users in the world.

Their economic interest in Bitcoin makes it possible to mine with that volcano geothermal energy. You can do the same thing everywhere on the planet. You get a stable source of demand 24/7, before building any transmission lines.

And without asking the EU Commission for permission.

I will be interested to see what will be left of the EU support schemes for renewable energy once the new guidelines are in place. I hear that there will be massive funds available under the “Next Generation EU” drunken sailor spending scheme.

I expect it will be interesting to come back once the next update of the Guidelines needs to be done another decade later and see if this time was as spectacular a failure as the 2014 version.

And it will be interesting to see if the new Bitcoin support scheme will be more effective in promoting renewable energy than whatever the EU and the Member States do.

Nayib Bukele on Twitter Spaces

Just spent an hour or so listening to a discussion hosted by Nic Carter on Twitter Spaces at the occasion of the Assembly in El Salvador passing the Bitcoin Law.

There were over 20,000 people listening. And President Nayib Bukele was one of them. He turned out speaking a bit to the crowd about this project.

And someone asked him if El Salvador had any plans on mining bitcoins. The answer was interesting.

He said that he had not thought about the issue, but that it might be a good idea. El Salvador has some good geothermal resources and had already plans to find some more industry close to the energy projects. And mining bitcoins may be a good fit.

I agree. And one of the people listening was Jack Dorsey, who just announced plans for a $5 million investment in a renewable energy mining project. Maybe they can do one in El Salvador.

El Salvador Bitcoin Law Draft

President Nayib Bukele just tweeted the draft Bitcoin Law that will establish the status as legal currency in El Salvador. For further reference, I retyped the English translation text from the pictures in the tweet, adjusting for a minor translation error from the original Spanish version in Article 15.

Update: Already approved by the Assembly shortly after presenting.

THE LEGISLATIVE ASSEMBLY OF THE REPUBLIC OF SALVADOR

CONSIDERING:

  1. That in accordance with Article 102 of the Republic, the State is under the obligation to promote and protect private enterprise, generating the necessary conditions to increase national wealth for the benefit of the greatest number of inhabitants,
  2. That under Legislative Decree No. 201, published in Official Gazette number 241, Volume 349, dated December 22, 2000, the United States dollar was accepted as legal tender.
  3. That approximately seventy percent of the population does not have access to traditional financial services.
  4. That it is the obligation of the State to facilitate the financial inclusion of its citizens in order to better guarantee their rights.
  5. That in order to promote the economic growth of the nation, it is necessary to authorize the circulation of a digital currency whose value answers exclusively to free market criteria, in order to increase national wealth for the benefit of the greatest number of inhabitants.
  6. That according to the previous considerations, it is essential to issue the basic rules that will regulate the legal course of bitcoin.

THEREFORE,

DECREES the following.

BITCOIN LAW

CHAPTER I

GENERAL DISPOSITIONS

Art.1. The purpose of this law is to regulate bitcoin as unrestricted legal tender with liberating power, unlimited in any transaction, and to any title public or private natural or legal persons require carrying out.

What is mentioned in the previous paragraph does not hinder the application of the Monetary Integration Law.

Art. 2. The exchange rate between bitcoin and the United States dollar, subsequently USD, will be freely established by the market.

Art. 3. Prices may be expressed in bitcoin.

Art. 4. Tax contributions can be paid in bitcoin.

Art. 5. Exchanges in bitcoin will not be subject to capital gains tax, just like any legal tender.

Art. 6. For accounting purposes, the USD will be used as the reference currency.

Art. 7. Every economic agent must accept bitcoin as payment when offered to him by whoever acquires a good or service.

Art. 8. Without prejudice to the actions of the private sector, the State shall provide alternatives that allow the user to carry out transactions in bitcoin and have automatic and instant convertibility from bitcoin to USD if they wish. Furthermore, the State will promote the necessary training and mechanisms to that the population can access bitcoin transactions.

Art. 9. The limitations and operation of the alternatives of automatic and instantaneous conversion from bitcoin to USD provided by the State will be specified in the Regulations issued for this purpose.

Art. 10. The Executive Branch will create the necessary institutional structure to apply this law.

FINAL AND TRANSITIONAL PROVISIONS

Art. 11. The Central Reserve Bank and the Superintendency of the Financial System shall issue the corresponding regulations within the period mentioned in Article 16 of this law.

Art. 12. Those who, by evident and notorious fact, do not have access to the technologies that allow to carry out the transactions in bitcoin are excluded from the obligation expressed in Art. 7 of this Law. The State will promote the necessary training and mechanisms so that the population can access bitcoin transactions.

Art. 13. All obligations in money expressed in USD, existing before the effective date of this law, may be paid in bitcoin.

Art. 14. Before the entry into force of this law, the State will guarantee, through the creation of a trust at the Banco de Desarrollo de El Salvador (BANDESAL), the automatic and instantaneous convertibility of bitcoin to USD necessary for the alternative provided by the State mentioned in Art. 8.

Art.15. This law will have a special character in its application concerning other laws that regulate the matter, repealing any provision that contradicts it.

Art. 16. This decree will take effect ninety days after its publication in the Official Gazette.

GIVEN AT THE BLUE HALL OF THE LEGISLATIVE PALACE: San Salvador, on the 8th day of June, 2021

.

Hail Mary Project

I read the “Project Hail Mary: A Novel” by Andy Weir yesterday.

Compared to the previous books “The Martian” and “Artemis” by the same author, the plot is far away from reality. The basic idea is an “astrophage” life form that eats up the sun and other stars in the vicinity. That does not make any sense.

It is still a fun to read book, which is what the author most wants to achieve when writing.

And it contains some interesting ideas about climate change.

One is the part where they plaster one fourth of the Sahara with energy collecting devices to farm the energy needed for interstellar space travel. I recall being interested in this kind of thing. Energy from the desert, at really large scale.

The other is that in the world of this novel, humanity needs all the global warming it can get to delay the cooling induced by the astrophages until the interstellar space expedition yields some results. So they proceed to nuke the Antarctic ice to release methane stored there.

The project is called “Hail Mary” for its low probability of success.

I believe that in the present state of global warming, humanity needs some kind of “Hail Mary” project as well. Not as impossible as making it to another star, but certainly some kind of high risk high return thing.

The author talks in a recent interview about global warming and identifies the lack of a world government as one of the reasons it is difficult to solve. I share that belief. It would be much easier if the world had for example one currency as a basis to build a solution on. And the solution must look something like Internet governance, which also needs to work without a world government.

He also seems to think that there is no zero emissions technology available that is cheaper as fossil fuel.

Having studied that issue a bit, I disagree. Renewable energy has passed the cost of fossil fuel already years ago. Now it is just a question of how long it takes to transition everything to the new way of business.

El Salvador

The President of El Salvador, Nayib Bukele, just announced to the big Miami Bitcoin conference going on that El Salvador plans to be the first country adopting Bitcoin as legal currency. There was a standing ovation for that announcement, as well there should be.

Bitcoin shines for developing countries. For El Salvador it will help reduce cost of remittances. It will help the currently 70 percent of the population without banking services.

Last I checked (already close to 10 years ago), the country was in my list of those with over 60% of renewable energy. Obviously they will also hold bitcoins and add to their holdings by using some of their hydropower.

At the same conference, Square and Blockstream announced a modestly sized project to mine bitcoins with solar power. They plan to have a dashboard accessible by the public on the economics of said project. Maybe someone will be interested in porting this kind of thing to El Salvador.

This also has some consequences in other countries like Japan, which drafted their laws under the premise that Bitcoin is not legal currency in any other country. They will need to rethink said premise and change some of these laws. If bitcoins are handled like dollars under Japanese law, that changes a lot of things.

Reusable Proof of Work and Renewable Energy

When discussing the energy expenditure of the Bitcoin network one should note that Bitcoin is not only a proof-of-work but a reusable-proof-of-work system.

The electricity used for mining new blocks is paid for by issuing new bitcoins and by fees for including transactions. The first part of that reward is for making something that will never be destroyed. If you don’t lose the private keys, bitcoins minted now will be usable for centuries to come.

The Suez Canal was opened in 1869 and has been useful for world trade ever since. Once it was built it can be used forever. That means that whatever energy cost or dollar cost was necessary at the time has been paid back many times over in the 1.5 centuries since.

So if you are worried about the energy cost of Bitcoin, don’t think about the CO2 cost per transaction. That metric is largely meaningless, since there can be any number of real world payments settled by one Bitcoin transaction.

If you think about the CO2 cost per bitcoin mined, remember that once a bitcoin is mined it may be used forever. Also note that this cost has been going down massively over the first decade of the project. Since a large majority of bitcoins are mined in that first decade, society can now use a bitcoin mined at much lower CO2 cost years ago.

Anyone familiar with the concept of proof-of-work will know that Hal Finney proposed “reusable” proof of work as an improvement on the original idea. And Bitcoin is the RPOW idea without a central server.

Fossil fuel is not reusable. Once you burn it, you need to wait millions of years for new oil to form.

Bitcoin is reusable. A coin spent in one transaction can be spent to someone else in another transaction. That is important for debating the energy cost. If you get something for eternity, it does not matter much how much energy you needed to burn for mining that bitcoin in the first place.

Correction: Energy and CO2 cost of mining one bitcoin has been changing massively over the last decade, but the change was in the other direction. The bitcoins mined now cost much more energy than those mined 10 years ago, which is a good thing on the whole since most bitcoins were mined in the first years of the project. The way the bitcoin supply is created actually comes with a large advantage in saving energy.