The Bitcoin Magazine's Letter To Elon Musk
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It is probably not the best idea to start a personal blog and abandon it after only five posts. It also turns out that when you plan revision for the CFA Level 2 exam, you tend to be very optimistic. So yes, I had to take an extensive break from writing the blog to prepare for my exam and then take some time off after it.
I did not waste time, though. I spent some time planning and thinking about new crypto topics and areas I would like to explore in my blog.
But I would like to start by touching on an old topic I already covered -- Bitcoin energy consumption.
What drove me to write this post is the letter written by the Bitcoin Magazine Policy Team team earlier last week and directed to Tesla and Elon Musk.
Long story short, early in 2021, Tesla announced that its consumers would be able to buy their cars using bitcoin. In July, the company reversed its decision, citing the concerns about the energy types used to mine bitcoin as the primary reason.
In this letter, the authors call Elon Musk and Tesla to reconsider their position on Bitcoin's environmental impact. I believe they raise some interesting points worth exploring further for educational purposes.
To be clear, I'm not saying that Tesla made a wrong decision (I'm sure it had its reasons) nor claiming that bitcoin is environmentally friendly. All I want is to keep an open mind and continue exploring this topic.
Let's dive in!
Renewable Adoption and Aligned Interest
The authors open their discussion of Bitcoin's environmental concerns with an argument that Bitcoin can actually facilitate the transition towards sustainable and cleaner energy sources.
They point out that renewable energy providers could boost their profits by joining forces with Bitcoin miners, who will consume excessive electricity when demand is weak.
Bitcoin miners can be viewed as flexible customers willing to buy when no one else wants.
The letter states that this additional income stream can make some renewable energy projects profitable, making them more attractive for investors. Bitcoin can help us in the expansion of clean energy.
On top of monetary benefits, integrating Bitcoin mines into electricity networks can help us build profound and robust energy grids, said Mark Goldwin during his latest podcast interview. Besides, as Mark points out, this integration will allow the Bitcoin community to secure the whole network with nearly zero cost energy.
So, as the letter's authors rightly point out, the Bitcoin community and Tesla have overlapping interests in accelerating the transition to clean and sustainable energy.
For example, last June, financial services company Block (then Square) and Bitcoin infrastructure company Blockstream announced joining forces to build a bitcoin mining facility powered by solar energy.
In September, Blockstream also announced a partnership with Macquarie Group to work on carbon-neutral alternatives for Bitcoin mining facilities and "pilot a bitcoin mining facility."
However, it's not just Bitcoin-related companies that work on renewable mining projects.
Lancium, a Huston based tech company, announced that it raised $150 million to construct bitcoin mines around Texas powered by renewable energy. Lancium also entered into an arrangement with the Electric Reliability Council of Texas to compensate miners when they power down during peak demand periods.
These are just some examples of the initiatives happening at the cross-road of renewable energy and bitcoin.
Back to the letter, however.
Double Standards
The letter also raises an argument that I think is the most thought-provoking and less discussed. Some people criticise Bitcoin for its environmental impact while using other technologies with similar or greater carbon footprints.
Last July, Elon Musk commented that Tesla will resume accepting bitcoin when 50% or more of the energy used in mining comes from renewable energy.
The authors point out that "it's a bit ironic that Tesla is so concerned about Bitcoin's energy sources[,]" and not about the energy sources used to charge Tesla cars.
I think this is where the misunderstanding lies. We hear about how much energy Bitcoin consumes and its carbon footprint. In reality, the absolute electricity consumption of Bitcoin and its carbon emissions are way lower than that of some other everyday technologies and commodities. Nic Carter and Ross Stevens found that Bitcoin’s energy consumption and carbon emission represent 0.2% and 0.1% of global electricity generation and global CO2 emissions.
And let's look at the Bitcoin mining electricity mix.
Although new studies on Bitcoin energy composition and carbon footprint are done frequently, it is hard to find definitive numbers for the metrics above. Here are some reports from recent years.
The 2020 Cambridge study, for instance, found that only 39% of the total energy consumed by Bitcoin miners come from purely renewable energy sources. Meanwhile, a survey done by Bitcoin Mining Council showed that sustainable electricity composed around 56% of the mining electricity mix in Q2 2021.
In the meantime, according to the US Energy Information Administration, only 12.6% of the energy consumed in the US in 2020 came from renewable energy [Link J].
The Proposal
The authors conclude the letter with some food for thought.
They admit that there is still a long way ahead of us in understanding Bitcoin's environmental impact, and there are questions that haven't received any attention yet. Such questions are:
What is the environmental impact of the overall bitcoin network to operate?
What is the incremental impact of bitcoin transactions?
What is the environmental cost of custody of one's bitcoin?
In what ways does bitcoin positively impact the environment?
Besides, the authors point out that companies like Tesla should engage and work closely with the Bitcoin community to better understand the actual bitcoin's impact on the environment and answer the above questions.
Final Thoughts
The debate about Bitcoin's environmental footprints is unlikely to stop anytime soon. To be honest, I don't think that we should ever end it.
Bitcoin is a novel technology with unique benefits to our society (check one of my last year articles about the monetary properties of Bitcoin). So, as long as we find what to criticise Bitcoin for, we will work on improving it to unleash its full potential.