Internet giants are angling towards bitcoin and more
Blockchains will challenge governance and centrally controlled ways of enforcing transactions. For example, why pay an escrow to clear a title insurance if the blockchain can automatically check it in an irrefutable way? Blockchains loosen up trust, which has been in the hands of central institutions e. For example, what if counterparty validation can be done on the blockchain, instead of by a clearinghouse?
An analogy would be when, in the 16th century, medieval guilds helped to maintain monopolies on certain crafts against outsiders, by controlling the printing of knowledge that would explain how to copy their work.
They accomplished that type of censorship by being in cahoots with the Catholic Church and governments in most European countries that regulated and controlled printing by requiring licenses.
To think of printing knowledge as an illegal activity would be unfathomable today. Blockchains liberate the trust function from outside existing boundaries in the same way as medieval institutions were forced to cede control of printing. It is deceptive to view the blockchain primarily as a distributed ledger, because it represents only one of its many dimensions.
These are necessary but not sufficient conditions or properties; blockchains are also greater than the sum of their parts. Blockchain proponents believe that trust should be free, and not in the hands of central forces that tax it, or control it in one form or another e.
They believe that trust can be and should be part of peer-to-peer relationships, facilitated by technology that can enforce it. Trust can be coded up, and it can be computed to be true or false by way of mathematically-backed certainty, that is enforced by powerful encryption to cement it. In essence, trust is replaced by cryptographic proofs, and trust is maintained by a network of trusted computers honest nodes that ensure its security, as contrasted with single entities who create overhead or unnecessary bureaucracy around it.
How can you regulate something that is evaporating? They will need to update their old regulations. Intermediary-controlled trust came with some friction, but now, with the blockchain, we can have frictionless trust. Naturally, trust will follow the path of least resistance, and will become gradually decentralized towards the edges of the network. Blockchains also enable assets and value to be exchanged, providing a new, speedy rail for moving value of all kinds without unnecessary intermediaries.
As back-end infrastructure, blockchains are metaphorically the ultimate, non-stop computers. Once launched, they never go down, because of the incredible amount of resiliency they offer.
There is no single point of failure unlike how bank systems have gone down, cloud-based services have gone down, but bona fide blockchains keep computing. The Internet was about replacing some intermediaries. Now the blockchain is about replacing other intermediaries once again. And so was the Web. Just like the Internet or the Web, and just like data-bases, the blockchain brings with it a new language. From the mids forward, as IT evolved, we became accustomed to a new language: Since the early s, the Internet ushered in another lexicon: If allowed to continue unchecked in our current energy-constrained, climate-threatened world, Bitcoin mining will become an environmental disaster.
In the early days of Bitcoin, the necessary computations could be performed on ordinary personal computers. But now, "miners" use purpose-built machines optimised for the particular algorithms used by Bitcoin. With these machines, the primary cost of the system is the electricity used to run it.
That means, of course, that the only way to be profitable as a Bitcoin miner is to have access to the cheapest possible electricity.
Most of the time that means electricity generated by burning cheap coal in old plants, where the capital costs have long been written off. Bitcoin mining today is concentrated in China , which still relies heavily on coal. Even in a large grid, with multiple sources of electricity, Bitcoin mining effectively adds to the demand for coal-fired power.
Bitcoin computers run continuously, so they constitute a "baseload" demand, which matches the supply characteristics of coal. More generally, even in a process of transition to renewables, any increase in electricity demand at the margin may be regarded as slowing the pace at which the dirtiest coal-fired plants can be shut down.
So Bitcoin mining is effectively slowing our progress towards a clean energy transition — right at the very moment we need to be accelerating. A widely used estimate by Digiconomist suggests that the Bitcoin network currently uses around 30 terawatt hours TWh a year, or 0. If the current high price is sustained for any length of time, Lane's estimate will be closer to the mark, and perhaps even conservative.
The cost of electricity is around five cents per kilowatt hour for industrial-scale users. Miners with higher costs have mostly gone out of business. As a first approximation, Bitcoin miners will spend resources nearly all electricity equal to the price of a new Bitcoin. However, to be conservative, let's assume that only 75 per cent of the cost of Bitcoin mining arises from electricity. Under current rules, the settings for Bitcoin allow the mining of 1, Bitcoins a day, implying daily use of 24,MWh or an annual rate of nearly TWh — about 0.
Roughly speaking, each MWh of coal-fired electricity generation is associated with a tonne of carbon dioxide emissions, so a terawatt-hour corresponds to a million tonnes of CO2. Digiconomics estimated that Visa is massively more efficient in processing transactions.
A supporter of Bitcoin, Carlos Domingo, hit back with a calculation suggesting that the entire global financial system uses about TWh per year, or three times as much as the Diginconomics estimate for Bitcoin.
As a defence, this is far from impressive. First, as we've seen, if the current high price is sustained, total annual energy use from Bitcoin mining is also likely to rise to TWh. More importantly, the global financial system serves the entire world. By contrast, the number of active Bitcoin investors has been estimated at 3 million. Almost all of these people are pure speculators, holding Bitcoin as an asset while using the standard financial system for all of their private and business transactions.
Another group is believed to use Bitcoin for illicit purposes such as drug dealing or money laundering , before converting these funds into their own national currency. The number of people who routinely use Bitcoin as a currency for legitimate transactions might be in the low thousands or perhaps even fewer.
Shifting the whole global financial system to Bitcoin would require at least a 2,fold increase, which in turn would entail increasing the world's electricity use by around per cent. With the current threat of climate change looming large globally — this constitutes an unthinkably large amount of energy consumption. The disastrous nature of Bitcoin's energy consumption should not lead us to abandon the associated idea of blockchain technology altogether.
There are alternatives to the "proof of work" method of validating changes to the blockchain, such as "proof of importance", which is analogous to Google's page ranking systems. Projects such as Gridcoin are based on calculations that are actually useful to science.
But these ideas are in their infancy. For the moment, the problem is Bitcoin and how to deal with it. There is no obvious way to fix the inherent problems in its design. The sooner this collective delusion comes to an end, the better. Originally published in The Conversation. First posted December 12, If you have inside knowledge of a topic in the news, contact the ABC.
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