Executive Order: Attacking Bitcoin’s Energy Use
Per a White House executive order, a report was released yesterday covering the climate implications of Bitcoin’s PoW mining. Read our recap, highlights and major concerns outlined in the report.
Bitcoin And The Climate Emergency
Yesterday, the White House Office of Science and Technology released a long-awaited executive order report, Climate And Energy: Implications Of Crypto-Assets In the United States. Throughout 2022, there’s been increased political and regulatory focus on bitcoin and other cryptocurrencies as many seek to understand the industry in-depth for the first time. The executive order and report also comes at a time when the government is unsure how Bitcoin’s proof-of-work (PoW) consensus protocol fits within their own climate agenda goals amid a growing global energy crisis.
The main framing of the report is nothing new: the current administration is focused on a climate emergency, has ambitious emission reduction targets over the long term and highlights many ways why growing PoW electricity use may conflict with this agenda. A bias towards a less energy-intensive proof-of-stake (PoS) consensus protocol is clear in the report.
The main takeaway is that there is still little understanding about Bitcoin and more studies will likely need to be done. The key academic literature cited has been heavily debunked (i.e., de Vries, Mora et al.) and the report reads as a mix of many different voices and viewpoints taking a first pass at a deep dive into the industry. It’s not a report that will shape immediate policy but instead gives us an idea of what current scientists and regulators are thinking. The report largely outlines reasons why PoW mining is a net negative to key environmental goals while highlighting only a couple key benefits.
For more in-depth commentary on the report (from those who submitted materials for consideration and are trying to work with Washington on Bitcon’s behalf), listen to the latest Twitter spaces from the Bitcoin Policy Institute.
Below we dive into some key concerns and benefits from the report.
Main Concerns
A key concern in the report is the energy use and comparison of PoS and PoW; it’s a theme throughout. The below section doesn’t focus on the technical difference between the two and rather equates them by highlighting that there are growing calls for PoW blockchains to switch consensus mechanisms just because of energy use estimates. Bitcoin isn’t Bitcoin without PoW and there are no legitimate movements to change the consensus mechanism, a point the report fails to address.
“An alternative, less energy-intensive consensus mechanism, called Proof of Stake (PoS), was estimated to consume up to 0.28 billion kilowatt-hours per year in 2021, less than 0.001% of global electricity usage. Current discussions about reducing crypto-asset electricity usage primarily focus on PoW blockchains, particularly Bitcoin.17,18 There have been growing calls for PoW blockchains to adopt less energy-intensive consensus mechanisms. The most prominent reaction has been Ethereum’s promised launch of “Ethereum 2.0,” which uses a PoS consensus mechanism.”
Another concern is the growing desire to compare Bitcoin’s total electricity use to a range of countries and industries to understand if it “uses too much electricity.” The much more apt comparison is to build cost estimates of the current monetary and payment networks and the government infrastructure needed to secure and operate those networks. Anything short of that produces little insight into what is actually being compared and for what purpose.
The report does highlight the blanket electricity comparison to current payment networks (excluding FedWire, banking system and the vast government infrastructure needed to support them) while not citing any research about Layer 2 or Layer 3 scaling solutions like the Lightning Network or the total benefits and costs of a decentralized final settlement payment network. This is par for the course for many critiques to focus on electricity usage per on-chain transaction without articulating Layer 2 potential and scalability in the future.
“Noting direct comparisons are complicated, Visa, MasterCard, and American Express combined reported around 0.5 billion kWh of electricity usage in 2020, inclusive of all operations, in addition to electronic payments. In other words, these three entities consumed less than 1% of the electricity that Bitcoin and Ethereum used that same year, despite processing many times the number of on-chain transactions and supporting their broader corporate operations. Responsible development of digital assets includes ensuring operations with dramatically lower energy intensity, as digital assets are adopted.”
Keep reading with a 7-day free trial
Subscribe to Bitcoin Magazine Pro™ to keep reading this post and get 7 days of free access to the full post archives.