Breaking ChatGPT’s Bitcoin FUD #7: Energy Consumption – part 1

Breaking ChatGPT’s Bitcoin FUD #7: Energy Consumption – part 1

Vlad Costea’s “Breaking FUD” series continues with the 7th “top threat” to Bitcoin according to ChatGPT. Critics say that Bitcoin consumes too much energy. But anything useful takes energy. Plus, the fiat banking system is more wasteful of energy. Bitcoin keeps getting more energy efficient as it seeks the cheapest possible energy. Even if you believe in apocalyptic climate change brought on by carbon dioxide (CO2), you’ll see that Bitcoin is a benefit.

On to the segment from the e-magazine “BTCTKVR 3: Breaking FUD”, released May 2023. I’ll keep posting the rest of this e-magazine over the coming days.

“Breaking ChatGPT’s Bitcoin FUD #7: Energy Consumption – part 1:

WASTE/USE, MINING, BITMAIN, CO2, POW

According to ChatGPT, the amount of energy that’s required to secure Bitcoin is concerning because the decentralized Proof of Work network consumes more electricity than other payment systems. As usual, the AI model provides little to no nuance and presents a rather generic criticism. Nonetheless, the fact that we’re given a comparative perspective (worded as “consumes systems”) is really useful and we can use it in the FUD deconstruction.

Before we dive into breaking the FUD itself, it’s important to distinguish between two types of mainstream commentary which regard Bitcoin’s electricity use:

– the first one is inherently nihilistic and implies that Bitcoin is useless or should not exist alongside banking services. This type of logic leads to a conclusion that Bitcoin is wasteful, trivial, and too damaging for the environment to receive any kind of credit. This is the most common type of attack, even when it’s presented indirectly under the disguise of “Bitcoin has no utility” and “Bitcoin can’t be money”;

– the second type suggests that Bitcoin should switch to Proof of Stake. It’s a more nuanced, technical, and ultimately destructive argument which is mostly perpetuated by altcoin proponents who seek to undermine Bitcoin’s decentralization and possibly gain a degree of control. Ethereum is often presented as the example of a transition to Proof of Stake that Bitcoin should follow, while Ripple executives actively fund anti-Bitcoin campaigns to damage the system’s reputation. Some of these points sound reasonable to the average person, but it’s important to explain why Proof of Stake can’t provide security in the absence of a concerning degree of centralization.

Both of these arguments are destructive in the sense that they aim to erode Bitcoin’s fundamental properties. The first one benefits bankers, while the second one serves the interests of altcoin proponents whose networks can’t compete with Bitcoin on the free market…so they consequently choose to play the political game.

Now let’s provide a little bit of context to explain how Bitcoin works and why it needs to consume energy to function. Because yes, Bitcoin is a form of money which uses large amounts of electricity to remain secure. The system is bound to the laws of physics, as transactions get thermodynamically protected against future changes. New transactions from users worldwide get added into a memory pool which gets stored by Bitcoin nodes, while miners take part in a global competition to find a rare number (referred to as “hash”). Once a miner or group of miners discovers that number, a message gets broadcast to the entire network, and a time-stamped block which encapsulates a few thousand transactions from the memory pool gets added to the public ledger.

Only one miner or group of collaborative miners can take the reward. Bitcoin is a “winner takes it all” system which encourages competition and doesn’t favor inefficiency. Miners need to find an inexpensive and reliable source of electricity, use hardware which produces the greatest amount of hashes per consumed kilowatt, and constantly adapt to a dynamic global market which never stops innovating and sometimes gets regulated by local or national governments. Inmost cases, the best source of energy for Bitcoin miners is also the greenest – renewable electricity production is a burgeoning field, and there are always some excess kilowatts that can’t be stored and therefore gets used to contribute to Bitcoin’s security in exchange for mining rewards.

Bitcoin’s Proof of Work mining is the element which connects the digital money network with the real world and creates a cost for the production and transaction of funds. It provides thermodynamic finality to every operation and makes sure that the history can’t be altered without great costs and permanent evidence. At first, Proof of Work was a mechanism to deter denial of service attacks (as described by Moni Naor and Cynthia Dwork in 1993) and prevent e-mail spam (as implemented by Adam Back in Hashcash). Basically, operations within a Proof of Work system require either a monetary payment or a computation cost: if you want to spam a mailing list, you must use your computer’s processor to run the right amount of hashing cycles.

In Bitcoin, Proof of Work also works as a protection against censorship: if all transactions pay fees and require a miner to include them in a block, then there will always be someone who will accept to take the fee to cover electricity costs. On a global scale, this mechanism circumvents political censorship. If certain users are sanctioned in a certain number of countries, it’s impossible for the entire network to collaborate in censorship because a miner from a free jurisdiction will have no moral or legal issue with taking the fee – therefore include that transaction in a block.”

Vlad next delves into another advantage of Bitcoin’ mining… its permissionless nature. See you in part 2 of 5 on Energy FUD.

I’m Charles Polanski and I seek to turn the Bitcoin-curious into Bitcoin investors and enthusiasts.