PoW is Efficient

Most people think #Bitcoin’s PoW is “wasteful.” In this article, I explore how everything is energy, money is energy, energy usage is subjective, and PoW’s energy costs relative to existing governance systems. This article is a collection of direct thoughts from many individuals in the space — my value-add was in the aggregation, distillation, and combination of narratives.

Work is Energy

The idea of “work” being energy started when the French Mathematician Gaspard-Gustave de Coriolis introduced the idea of energy being “work done.” A long time ago, the work done in the economy was entirely human. That work was powered by food.

World GDP in 2010$ compared (from USDA) compared to World Consumption of Energy (from BP Statistical Review of World Energy 2014).
I’ve paired this song to “Soil” because I think it fits the feel of the piece and adds additional depth. If you enjoy listening to this, please follow my playlist on Spotify.

Energy Consumption

The cryptopocalypse is coming — Bitcoin’s (PoW) is so bad that it’s going to destroy the world in 2020! You may have noticed that most of the “doomsday” articles were based on the results of an analysis provided by Alex De Vries, a “financial economist and blockchain specialist” working for PWC Netherlands and author of the site Digiconomist. His estimation has already received a fair share of criticism due to its poor energy consumption calculation. But the KPI of his choosing was intentionally misleading: “the electricity consumption per transaction” for several reasons:

  • The economic density of a Bitcoin transaction is always increasing (Batching, Segwit, Lightning, etc). As bitcoin becomes more of a settlement network, each unit of energy is securing exponentially more and more economic value.
  • The average cost per transaction isn’t an adequate metric for measuring the efficiency of Bitcoin’s PoW, it should be defined in terms of the security of an economic history. The energy spend secures the stock of bitcoin, and that percentage is going down over time as inflation decreases. A Bitcoin “accumulates” the energy associated with all the blocks mined since its creation. LaurentMT, a researcher, has found empirically that Bitcoin’s PoW is indeed becoming more efficient over time: increasing cost is counterbalanced by the even greater increasing total value secured by the system.
https://cseweb.ucsd.edu/~mbtaylor/papers/Taylor_Bitcoin_IEEE_Computer_2017.pdf
https://research.bloomberg.com/pub/res/d3bgbon7nESTWTzC1U9PNCxDVfQ
https://www1.eere.energy.gov/manufacturing/resources/aluminum/pdfs/al_theoretical.pdf

Relative Costs

Everything requires energy (first law of thermodynamics). Claiming that one usage of energy is more or less wasteful than another is completely subjective since all users have paid market rate to utilize that electricity.

Type I Civilization

In the hunt for cheap energy sources, we will unlock greater economic abundance in the real world. Bitcoin, through the harnessing of these new or disparate energy sources, not only moves us forward to a Kardeshev Type I economy but may bring us closer to a Kardeshev Type I energy civilization (We’re ~0.72 on the Kardashev Scale). With Bitcoin mining as an incentive, it may shrink the time we get to T1 from 200 years to less than a few decades. After reaching Type I status, there is less of a need to restrict the growth of energy consumption, which increases the standard of living for everyone.

  • “Governments” are the total annual expenditures including military spending
  • In 2006, the DoD used almost 30,000 gigawatt hours (GWH) of electricity, at a cost of almost $2.2 billion
  • Global military spending annually is ~$1.7T
  • Initial research this analysis was based on
  • Gold mining, banking system, gold recycling costs are all estimates from 2014
  • Banking system and government estimates are a combination of annual expenses which includes electrical cost
  • US energy usage as % of world
  • US federal government energy expenditures
  • Bitcoin Mining Costs
  • $63.8B a year is spent on electricity alone for the banking system
  • Bitcoin has had 0 recorded worker deaths, whereas gold has had 50,000 recorded deaths over the last 100 years
  • Inflation for fiat currency has been approximately 2–3% annually which is a stealth tax that erodes savings. The costs are enormous to calculate and are not included
  • Bitcoin isn’t issued by a government, there is little to no corruption involved in distribution

Growth @Krakenfx . Frmr: @InterchangeHQ (acq by @Krakenfx ), Global Data/Rider Growth @Uber , First PM @Blockchain , Co-Fndr @ZeroBlock https://danheld.substack

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store