Reality Check for Bitcoin: An Uncomfortable Truth.
Many technocrats believe in the blockchain, Bitcoin, and other cryptocurrencies to solve the problems of the world by machine power. Well, I am not too optimistic, that this will be the case in the scale we anticipate right now and I think as well many of us are blinded by the crypto-frenzy. It is understandable – the elder ones don’t want to be like the “internet non-believers” end of the 90s and think “this time, I won’t be wrong by denying the future”, and try to be the smart guy, that reads the cards of the future right. Considering all these ICOs that wanted to “disrupt” all parts of human living, it must be a bad joke. I admit, this article has a bad timing – Bitcoin is up again, and it is natural not to want to see the other side of the coin – we want to enjoy the rise, right? But let me be the devil’s advocate today – let’s do it for the tech and not for the money, this single time – as progress only happens if we recognize the shortcomings and fix them. We tend not to see the hand in front of our eyes, and it is time to peep through – with an emphasis on one of Bitcoin’s most significant problems: its hunger for energy. Time for a reality check.
Get Your Feet Back On The Ground
Firstly, this is not a bearish “it was all a dream” – piece. No, I frankly believe that the blockchain has a tremendous power to change things for the better. Though, you want to keep a realistic view, especially with what happened in 2017 – no wonder crypto has had such a hype: young investors, a big herd of people that made money fast – this can generate faith into something like crypto fast. Futuristic ICOs which promise to make the world a better one can be found everywhere – just give that problem to the blockchain, baby – it will solve it. No. It is not as easy as that. It has been proven that most of the ICOs just picked a problem, generated an artificial, theoretically neat sounding blockchain approach to solve it, but let me ask you a question – how many of you have actually ever made actual use of a token you purchased. I believe the numbers could show something <3%. The thing with automation and blockchain governance is a system-immanent problem: we as humans and creators of the technology are imperfect by nature, we barely oversee the whole unity of things and it is the common lordliness of mankind to think we can create a technology, which we can use to overhand all of our problems to solve them in a better manner. I don’t want to take it too far here, but there are similarities in the belief in a God. It is all about pushing problems forward to a higher instance.
Besides all that funky problems many small-scale ICOs wanted to tackle, the megalomania seems to have no boundaries – like for example, the idea to put legal courts on the blockchain and let the blockchain act as judges – I mean, “Hello? Hello? Anybody home? Huh? Think, McFly!”
The underlaying principle of action which dictates all activity is in question: the disruption, which comprises the destruction of the current, shall improve things, and make processes more efficient and better. But what if the old is not that bad? Furthermore, if you want to disrupt something, shouldn’t you know upfront with what kind of thing you want to replace it in its entirety, before your go out and destroy the former approach?
It might be the beginner’s gold digger optimism, it might be the young age structure crypto attracts, though past has shown it is rewarding to stay grounded and to tackle one hurdle by the other, going step by step into the future and before we can even think of making the blockchain a court, judging about our problems, we need to solve one big problem first: energy.
Bitcoin – Value Pegged to Power
Let’s stay with the “master-coin” Bitcoin, for now, we don’t know what the future brings, and it is the #1 coin Joe Average thinks of if we hear the word blockchain or crypto. Right now, there are more than two million miners (based on conservative numbers) out there, running machines like the Antminer S9 to provide the needed calculation power to make Bitcoin possible. The decentralized network makes sure that our transactions are stored on the blockchain – encrypted and unchangeable. This has a cost – and many of us think, that this is the reason why Bitcoin will remain in the future, you have to put something in to get value out, unlike an ICO where you can generate the spread amount of tokens out of thin air. Yeah, unlike the US Dollar or any other currency on the world, Bitcoin is backed by energy. What a chance for countries where power costs are next to nothing! Equality! What an opportunity to redistribute wealth! Or?
The thing is the consumed energy also comes with a price again, and while eco-pioneers demand to price in the ecological footprint (the sales price is not only the simple production costs plus profit, but includes also the environmental costs), this is not the case with Bitcoin. BitcoinEnergyConsumption.com estimates that our Bitcoin transactions, all things considered, consume more power than entire Switzerland, Czech Republic or Colombia and could consume as much power as whole Denmark in 2020.
Considering that a single bitcoin transaction consumes 1,000 kilowatt-hours, while 100k Visa transactions consume only 169 KWh – energy-wise we have a clear loser here, and that has to change for the better, to make crypto work for the masses.
An eco-friendly Bitcoin
To become even close to the currency of the future, a change in how the energy is sourced is urgently needed. The hunger for power is not sustainable – also if you ride an SUV and get your bread rolls delivered by your plane, you cannot deny this fact. But we have all these eco-friendly sources of generating energy today. Why don’t we use photovoltaic, wind energy and the likes as a power source for Bitcoin mining? The problem is, to run a mining farm profitable, you have to run it continuously – without any interruptions. If we don’t talk about the regular households where John Doe built a mining rack in his cellar, but about the big mining pools with massive machine power, this can become an issue quickly. Bitcoin shall be an independent and sovereign currency for the people, an alternative to financial institutions, which have the little man by his balls. It is not only a “fast money machine” but an important mighty tool to equilibrate the world of finance. This is also the opinion of big mining pools like Northern Bitcoin, which are searching for new, more green and sustainable ways for the mining business – they start to switch to Canada, Iceland, Norway and the US – where they can get cheap energy, coming from hydropower. Norway is a good example, where the company uses the Lefdal Mine Data Center, which harnesses the 8° cold fjord water for a recuperator to decrease the costs of the cooling process. The trucks are rolling in to store their GPU farms there, which is significant progress. Have a look at this fascinating mine:
China and Mining – Not a love relationship anymore
China was big in mining in the past – cities like Sichuan or Ordos were luring for miners with cheap power prices and huge discounts: 30 percent price reduction has been a substantial reason for many mining companies to use the daily energy volume of 12k households to create 2/3 of all new Bitcoins at the peak. Now, where China realizes its pollution problem, sourced by dirty energy sourcing, they stopped the subvention and wanted a controlled exit from the mining industry – even Bitmain, the largest mining pool, might be in trouble.
Sustainable Bitcoin Mining – The BIG Money?
The problem the miners face, when trying to use sustainable energy sources, is the profitability. Mining pools need to work nonstop – a permanent utilization of the machines is required in order to generate the necessary profits and green energy like from sun or wind power cannot provide an ever ongoing electricity stream. Energy sources like sun or wind power usually create spikes and lows in energy supply, which makes it difficult to use this kind of energy to mine. This is a problem to be solved, and several companies are on it. Moonlite, Novamining, Hydrominer or the excellent HARVEST project are approaches trying to tackle this issue. There is an immense potential which sustainable energy can bring into their business – not only that we would support the world itself which we actually need to spend our Bitcoins, but also concerning profits – the mining pool that makes Bitcoin green will bank big time. Nature itself offers “free energy” to all of us – imagine you can convert sunbeams into Bitcoins.
Alternative, PoS is ready to replace crypto mining.
Proof-of-Work was the first consensus algorithm, but times have changed and it is time to replace it in order to prevent miner control as well as the harm they do to the environment. Proof of Stake and the advances made here with coins such as NEO or Cardano with the Ouroboros system are ready to replace the miners and should be adopted by all in the future for environmental reasons alone, along with the protection from conglomerate mining operations taking over the network. Proof-of-stake creates blocks instead of miners, which does not require many hashes per second as possible. With that, the energy consumption is minimized to such a degree, leaving a small footprint. Bitcoin/Etherum and other coins all could adopt these consensus algorithms in the future, thus eliminating the need for miners and the environmental harm they are causing.
Get Ready For The Future, Bitcoin!
Seeing the significant progress that Blockchain has made in the past years, we need to shout to steer the wheels in the right direction. 1,2, REALITY CHECK! Before we can delegate our lives on the blockchain, the sustainability issues must have been carried out. It is all connected – success comes with scalability and performance – to achieve network consensus, the insane energy consumption has to be scaled down first.