In my previous post on proof-of-work several commenters suggested that bitcoin, the biggest proof-of-work coin, is good for society because it spurs renewable energy production.
The full argument is worth reviewing. (See Nic Carter, here). Briefly, the supply of renewables like solar and wind is finicky and doesn't neatly overlap with demand. Luckily, bitcoin mining farms are flexible. They can shut down and turn back on quickly, consuming energy when it is plentiful (& cheap) and ducking & running when it is expensive. This miner-facilitated smoothing encourages power companies to install more finicky wind and solar power.
On it's surface this is a provocative argument. But if you read carefully it's a version of one of the oldest fallacies in economics: the broken window fallacy.
In the broken window fallacy, a boy breaks a shop window. Observing the flurry of economic activity ensuing from the mending of the broken window, the townspeople decide that the boy has helped the local economy. "Breaking stuff is good, let's do more of it!"
But we know that breaking stuff is not good for the economy. The economic activity devoted to fixing the broken window comes at the expense of economic activity that would have occurred otherwise, say repairing the shop's furnace or purchasing more inventory. Economists call this opportunity cost. The broken window parable forces us to recognize that the cost of any activity is all the things that could have been.
Let's bring this back to bitcoin. Bitcoin using up renewables isn't a benefit, it's a cost. There are many industries that can efficiently consume electricity in a staggered or interruptible manner, of which bitcoin mining is just one. If bitcoin miners use this electricity, then these other industries cannot.
And so bitcoin isn't good for society because it uses renewables. Rather, it should be judged whether it is the best use of renewables. Is the product a useful one? The market seems to think so.
What I've said up till now is just bog standard economics. Here's the more controversial bit:
I'd argue that bitcoin is NOT the best use of renewable/interruptible electricity.
What the average bitcoin owner values is bitcoin's up-and-down price movements. But fabulous amounts of renewable energy are not necessary to produce a volatile speculative vehicle. Unfortunately, most bitcoin holders aren't aware of the huge energy cost of maintaining bitcoin—they don't bear, or internalize, this cost.
If the bitcoin protocol were to shift to an energy-lite production method, or, alternatively, if bitcoin speculators were to swap into competing energy-lite coins, then users would still get to enjoy the same up-and-down experience—and other industries would be free to use the interruptible/renewable electricity liberated from bitcoin processing. That would be a good thing.
Thursday, January 13, 2022
The fallacy of bitcoin and renewable energy
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What are these other industries that can be switched on and switched off seamlessly (without suffering other external costs). Also, to mimic Bitcoin mining, they also have to be co-located with the source of energy.
ReplyDeleteBitcoin mining hardware can be loaded into a car/truck and moved pretty much wherever there is cheap energy. I cannot easily think of an energy consumer that can do that, and still be profitable.
Also, there is a normative argument you make that Bitcoin itself is not worth the energy. So, any argument around usage of energy will seem wasteful when someone holds that opinion. If Bitcoin's value proposition is zero in your view (or negative if you believe its only useful purpose is speculation or criminal use), any positive energy used for it is a waste of energy.
There is a separate argument that the non-energy techniques don't actually work for Bitcoin's use-case. But that's a slightly different discussion that gets into the weeds of distributed consensus, etc.
"...is a normative argument you make that Bitcoin itself is not worth the energy."
DeleteI don't think it's a normative argument. I'm making a market failure argument based on the assumption that most people value bitcoin because of up-and-down. I think that assumption is open to critique.
"What are these other industries that can be switched on and switched off seamlessly (without suffering other external costs)."
In my home province, around 2,400 MW of electrical capacity is consumed by interruptible users (of which around 300 MW is cryptocurrency-related), out of a total of 44,000 MW installed. So whatever these industries are, they exist.
https://www.npcc.org/content/docs/public/library/resource-adequacy/2020/2020-12-01-quebec-comprehensive-review.pdf
Clearly those conveniently unnamed "other industries" cannot be applied everywhere as a simple counterexample proves: https://www.reuters.com/technology/costa-rica-hydro-plant-gets-new-lease-life-crypto-mining-2022-01-11/
DeleteThe difference between hodlers and speculators is that hodlers are only interested in UP, and not DOWN. Speculators speculate on both sides. There are no hodlers shorting Bitcoin. That's a contradiction.
DeleteClaiming that hodling is speculation is clueless at best, and disingenuous and in bad faith at worst. Hodling is definitely tied to an expectation of Bitcoin's purchasing power going up, but that is also called saving in a non-inflationary monetary good.
"Claiming that hodling is speculation is clueless at best, and disingenuous and in bad faith at worst."
DeleteSome people are short term traders anticipating a 10% rise in the next few hours. Others are speculating on a 1000% rise over a period of two or three years. Either way, what these people want is exposure to an instrument that has the potential to rapidly appreciate in price. But high-risk opportunities don't require energy-intensive proof-of-work. We can produce these kinds of risky bets at a much cheaper cost.
"We can produce these kinds of risky bets at a much cheaper cost."
DeleteThat is the root of the problem. Most digital assets can be created at much cheaper cost, and in fact, for free. Like Tesla shares, or NFT's, or USD. Bitcoin is the only digital asset that is not easy to create out of thin air. Physical assets come with their own problem (confiscation, etc.)
"Bitcoin is the only digital asset that is not easy to create out of thin air. "
DeleteSure, bitcoin has a 21 million cap. But I don't think the median speculator really cares about details like that. They want price momentum. But let's entertain the idea that a cap is what attracts the median speculator. There are dozens of other digital coins that are capped, like bitcoin, but are far cheaper to maintain. Shifting these people from bitcoin to these energy-lite coins improves societal welfare.
Energy-lite coins are not capped. Their monetary policies can change at the whim of their creator or the company that controls the coin. Dogecoin and Ethereum have changed their monetary policy a few times. They both are not quite energy-lite yet, but they will soon be - if you were to believe their promoters. Most other coins don't even pretend to be capped.
DeleteBitcoin is the only digital asset whose monetary policy has remained fixed since inception and has a credible chance of being fixed forever.
Yet speculators love buying Dogecoin, Ethereum, and PoS coins like Solana. The average buyer -- folks like the Moon or Lark Davis or BitBoy -- don't care about the geeky stuff. They want a coin that rapidly rises from $x to $y.
DeleteOne example of an industry that can be switched on and off is the charging of electric vehicles. Companies like Nuvve are working on Vehicle-to-Grid connection, which would allow users to elect to use their car batteries as variable consumers/providers of electricity. Essentially, they could agree to have digital controls on their car such that it charges when demand is low and returns power to the grid when demand is high. They make money on the difference, and Nuvve scoops up some of that money as a fee for the service.
DeleteObviously there are external costs to the arrangement: gasoline-powered car users can reasonably expect that a full tank of gas will be available the next time they drive if they filled up before they got home. Under the Nuvve arrangement, you can only expect to have a fully-charged car if you leave your house when power demand is low. This external cost would add to the others involved in owning an EV: rarer charging locations, shorter driving distances, etc. People still buy them, though, so obviously those costs are worth it to those people.
The requirement that such an industry lack external costs seems like a bit of a red herring, however. Obviously, there is an external cost to turning your bitcoin mine on and off. You're not producing bitcoin when your mine is off. The question isn't whether there are costs, it's whether those costs are worth it. In an ideal world, power is cheap enough that you can run your mine 24/7. In practice, sometimes power is expensive enough (or bitcoin is cheap enough) that it is no longer profitable to mine bitcoin, so you shut off your mine. In the same way, in an ideal world, power is generally cheap enough that you can keep your EV fully powered all the time. In practice, power is sometimes so expensive that it is worth accepting the cost of not keeping your EV fully charged in order to make money selling power back to the grid. There are costs in both cases.
Unlike all other uses of energy, bitcoin mining allows for monetization at the source and moment of energy creation, eliminating the cost of transport and storage, and eliminating the need for a counterparty human customer to sell the energy to.
ReplyDeleteIt follows that eliminating these costs will make some previously unprofitable energy generation now profitable. And so more energy is produced. That same calculation applies to renewable energy ventures.
"And so more energy is produced."
DeleteMore energy being produced is not in and of itself an economic benefit. This becomes apparent when we consider a company using that energy to run a window breaking machine. Economic advancement involves useful services being produced with as little electricity as possible.
Why it is stranded in the first place? It could not be economical or it could be that there is gov restrictions in place that prevents building out infrastructure.
Delete>There are many industries that can efficiently consume electricity in a staggered or interruptible manner, of which bitcoin mining is just one. If bitcoin miners use this electricity, then these other industries cannot.
ReplyDelete>I'd argue that bitcoin is NOT the best use of renewable/interruptible electricity.
Would you list them?
See:
Deletehttps://jpkoning.blogspot.com/2022/01/the-fallacy-of-bitcoin-and-renewables.html?showComment=1642085831162#c3897037352050206775
By the way, here's a good article in the Journal de Montreal that touches on all of the Quebec industries that use interruptible energy:
Deletehttps://www.journaldemontreal.com/2022/01/11/froid-extreme-record-fracasse-chez-hydro-quebec
-23 companies in the pulp & paper, chemical, and metallurgical industries had their electrical interrupted on Jan 11 after a call from Hydro Quebec
-800 organizations participate in HQ's demand management program, including hardware stores, universities, and ski hills
-when Hydro Quebec negotiates contracts with crypto miners and greenhouses, it includes a clause requiring reduced power use when cold
-all told, HQ can count on an extra 1600 MW during cold snaps
It would be very useful and informative for your readers I think if you start referring to BTC as BitcoinCore rather than just Bitcoin. There are several versions of the Bitcoin protocol, each with their own philosophy and variation of the software protocols. The BitcoinCore development project took one specific view, and while it is the most publicly recognized, it is really the only one that is within the purview of your legitimate critique, which does not otherwise apply to, say BitcoinSV https://bitcoincore.org/
ReplyDeletethe one that is down more than 95% against btc?
DeleteHi craig lmao
DeleteGenuine question: does BitcoinSV do anything in particular to ward speculators away?
DeleteI guess there's not much formally that can be done (and BSV does attract pure speculators), but Craig Wright & Calvin Ayre have made (and continue to make) repeated comments about it's not about speculating in the coin, and that the key is to build: to create useful apps and ecosystems, to build real world value.
DeleteProof-of-Work as a philosophical concept is as much as about that people should create value, as opposed to living lives of rentiers. That's the founding spirit of capitalism, as opposed to feudalism.
Ultimately the coin should reflect the transactional value of the network and database use (utility is the precursor to value).
The HODLer community joke about BSV being worthless, but AFAIU, what's laughable is that you see totally dysfunctional coins with huge value placed on them *because* they're dysfunctional. Ethereum trades at ~$3,000 because it has ludicrous, unsustainably high fees. BSV trades at ~100 because it has ridiculously low fees.
The long-term economics of this space are diametrically opposite to the short-term economics in the bubble era.
"If bitcoin miners use this electricity, then these other industries cannot."
ReplyDeleteDisagree, generally Bitcoin miners use it in the absence of other industries, not in competition with them, and often where there is excess generation capacity but existing industries find it uneconomical to utilise. Hydro farms are a good example of this.
"What the average bitcoin owner values is bitcoin's up-and-down price movements."
Incorrect, most bitcoin is hodled not traded. Most bitcoin owners value the long term potential.
"...use it in the absence of other industries, not in competition with them."
DeleteSee my first comment at top.
"...most bitcoin is hodled not traded."
Whether you buy bitcoin for a quick 1-day 10% movement, or for a longer 365-day quadrupling, you're still holding it because you value the up-and-down.
It seems you don't know what a hodler is - we're holding forever, bequeathing to our grandkids etc. Up and down trading doesn't concern us.
DeleteBitcoin is a baby mouse compared to the elephants in the room, the fossil fuel giants, maybe they'd be a better target for your concern. Read The New Climate War by M Mann.
Bitcoin isn’t just affecting competition for the energy, it is affecting the structure of the energy production, by partnering with cheap gov subsidized renewables in RTOs using ‘demand response’ and getting favors with ercot.
DeleteIn developed markets, such as ERCOT, Bitcoin miners negotiate "Demand Response" energy contracts in advance, in order to get a better price on their energy consumption. This turns miners into a buyer of last resort. Demand Response energy contracts are widely seen by the DoE as beneficial to energy grids. Your argument needs to factor this in.
ReplyDelete"Demand response provides an opportunity for consumers to play a significant role in the operation of the electric grid by reducing or shifting their electricity usage during peak periods in response to time-based rates or other forms of financial incentives. Demand response programs are being used by some electric system planners and operators as resource options for balancing supply and demand. Such programs can lower the cost of electricity in wholesale markets, and in turn, lead to lower retail rates" — US Department of Energy
"Demand Response energy contracts are widely seen by the DoE as beneficial to energy grids. Your argument needs to factor this in."
DeleteMy argument did factor it in.
There are a number of industries that can bid for demand response contracts. If a company uses the power that it purchases under a demand response contract to literally break windows, preventing another company from doing something more useful with that energy, would we that be a good thing?
My point is that we need to consider the cost of miners consuming the energy provided under a demand response contract: other projects can't use that energy.
Being a bitcoin miner on ercot is great. You get to lock in cheap energy, encourage green energy and renewables that are subsidized and then hope for a winter storm ans blackouts so that energy prices spike - you get paid to shut off and pretend you are doing something noble and you also get to sell your energy contract ( contract not production) to some sucker public until the that can’t shut off.
DeleteIt’s amazing that bitcoin miners talk so much about oh we can shut off no worries- well hospitals can’t or people die. Some industries can’t shut off and must pay higher prices. Bitcoiners love high prices!!! And that includes our power bills. So they love renewables- one bc they are subsidized and cheap and unreliable. Two bc they cause volatility, and three they can pretend to be pro esg for VCs.
This reasoning could be a non sequitur. The ups and downs of speculating do not necessarily imply ever increasing prices, which is what pushes up the difficulty adjustment and therefore spent elecricity. The price of Bitcoin could have stayed in a range below $1 and still sporting wild % moves, which could be further exploited by speculators through leverage.
ReplyDeleteMoreover, it is not demonstrated that PoS provides the same degree of security than PoW. PoW is an inherently irrecoverable bid to propose a valid block, while PoS is based on a financial pledge where irrecoverability is artifiacilly built through very complex algorithms, which makes it more vulnerable to both technical and financial attacks.
Speculators push up the price because there are more speculators who want to buy than sell. Dunno, seems pretty straight forward to me.
DeleteAs for PoW v PoS security, my working model of the typical crypto speculator is that they are indifferent between the two. That is, the thing that a speculator wants to consume when they buy a coin is a potential 50% jump. They don't care if it's a PoW-based 50% jump or a PoS-based 50% jump. (If I'm wrong and they do care about the type of security, then my blog conclusion is also wrong. Bitcoin IS the best use for renewable/interruptible electricity.)
"If I'm wrong and they do care about the type of security, then my blog conclusion is also wrong. Bitcoin IS the best use for renewable/interruptible electricity."
DeleteI appreciate this note.
I care greatly about the type of security, just like I care that the deadbolt on my front door in fact will prevent someone from waltzing in with ill intent. A deadbolt is not a waste of energy, as it performs the function of deterring intruders at their point of attack. Yet there are probably billions of deadbolts in this world, all manufactured in industry, made of metal, installed with countless labor...
In a potentially adversarial environment, security plays a role which is not simply waste. PoS provides a kind of economic incentive security perhaps, but PoW via unforgeable costliness puts a very specific and extremely high price on 'breaking in.'
I keep some of my money in bitcoin. I want it secured, whether price rises or falls, from being tampered with or stolen. I also want to have deep assurances that at the time I wish to transfer it, it will be spendable without issue and the receiver will have the same assurances. I hold bitcoin in this way like most people have retirement savings in a US Stock Market index fund. Because I think number will go up over the very long term, or at least preserve today's purchasing power.
Bitcoin Help Desk: "I care greatly about the type of security, just like I care that the deadbolt on my front door in fact will prevent someone from waltzing in with ill intent."
DeleteSee, that's the kind of bitcoin consumption that justifies the huge electrical expense of POW. I respect that.
My claim is that you're not the average bitcoin user. These days, the average bitcoin holder is someone who just wants fast & easy price appreciation. The keep their coins on Coinbase. They like to listen what crypto YouTube influencers like BitBoy or the Moon or Lark Davis say. Bitcoin is their chosen flavor of the day, but they'd be fine with Dogecoin or a meme stock.
If the majority of bitcoin holders were like yourself, then it would be a different story. But they're not, and that's why most of the electricity being consumed by bitcoin (whether it be renewable or not) has better uses.
"There are more speculators who want to buy than sell"
DeleteI understand that you think that is the particular case for Bitcoin long term speculators. IMO thinking that the average bitcoin holders that you describe above are the ones that dictate the price is a rather naive view.
If we all agree that PoW security is really useful to some, then there is a reason for speculators to long Bitcoin and not other coins. The fact that there are way more speculators than "fundamental" investors is typical for stocks and therefore nothing special in Bitcoin, they drive the price up and down around the "fundamental" price which would be very similar anyways without speculators.
Bitcoin doesn't have a fundamental price, not like a stock has. The price of bitcoin is largely the outcome of a recursive betting game in which Jim guesses what Bob guesses Jim thinks price will be.
DeleteIf all these speculators migrated away from bitcoin and into a cheaper recursive betting game, the price of bitcoin would fall by 90%. The amount of electricity being burnt would plummet, which is good for the world. Speculators would be just as well off as before. They would still get to play a recursive betting game. And bitcoin maximalists would be happy. They could continue consuming PoW and making censorship resistant PoW transactions. After all, a bitcoin price of $1000 is just as effective for making payments as a price of $50,000.
It's win-win-win.
"that's the kind of bitcoin consumption that justifies the huge electrical expense of POW"
DeleteThat demand would determine that fundamental value. Exchanges render value to the parties exchanging (Menger). A thing that enables exchanges derives its present value from the value of the future exchanges it is estimated to enable, and that is its fundamental value. Money is good for short term exchanges, but long term exchanges are much more difficult and uncertain, in that sense the durability, the security and the certainty on the supply of the thing acting as a medium of indirect exchange is relevant. This kind of assets which are media of wealth transfer (not money) have a coordination role (see Samuelson paper 1958) to solve a very serious economic problem. Overlooking that problem and describing the activity around Bitcoin as a "betting game" seems to me a rather superficial analysis.
To be clear, I don't think that BTC maximalists goal is to use BTC for payments (that could be the case for BCahsers). They praise the SoV function, not the MoE function.
DeleteSamuelson was describing a ponzi in his '58 paper. I'm fine with that. When I say "betting game," it's short-hand for ponzi. You should know that by now.
DeleteYou brought up the SoV narrative. My point remains the same. If a bitcoin price of $1000 is just as effective for making payments as a price of $50,000, a price of $1000 is just as effective for storing value. (Just hold more of it.)
I fail to see how Samuelson described a Ponzi. For a Ponzi you need a promoter who scams all other participants. For the MoE function the demand to hold a balance is not necessarily strong (both in size and time). For the SoV function it is implicit to demand a balance of significant size and for longer time.
DeleteIt is a little bit shocking to me that you rule out the possibility that Bitcoin is useful as an instrument of wealth transfer over time due to its properties (Durable, no supply dilution, secure ownership, low storage cost, difficult to confiscate, etc)
"I fail to see how Samuelson described a Ponzi."
Deletehttps://worthwhile.typepad.com/worthwhile_canadian_initi/2010/03/do-we-need-a-bubble.html
"...a promoter who scams all other participants."
It's not a ponzi scheme. It's a ponzi without a schemer, a decentralized chain letter, a Nakamoto scheme:
https://jpkoning.blogspot.com/2021/06/there-are-two-kinds-of-people-who-label.html
We've been through this many times by now. You may not agree with me, but you should at least be able to steel-man my arguments by now.
Just for the record. Despite disagreement I really appreciate your knowledge, your work, your replies and your patience.
DeleteRegarding the chain letter analogy , the problem I see is that you need to make too many modifications to the original chain letter concept so you arrive to a very different thing (fungible, non hierarchical, fixed amount, etc) which is much better directly described as a thing which is useful as a record keeping device or registry, specially in what is related to the stability and security of your share of the whole registry.
Thanks for this, I believe it's a good way to explain it. The big if here is that this holds true if and only if there is a substitute for Bitcoin that does the same thing (or better), at lower energy usage.
ReplyDeletePromoting my own article here, but I'd strongly argue there is (https://senatus.substack.com/p/swap-bitcoin-for-nano-save-the-planet). Regardless of whether you like the store of value narrative or actually believe in a decentralized digital cash, there is a better option. I'd also argue that, given that we need to be reducing emissions where we can, not using an option that is demonstrably better in every way AND uses a fraction of the energy is absurd.
Again, thanks for putting this so succintly.
This argument is pointless and boils down to morality and the subjective theory of value. Bitcoiners value Bitcoin enough to merit its energy usage while others do not. The question is what if anything needs to be done about it and should people's property rights be violated to benefit one group at the expense of the others. I'd guess that JP and people like him are willing to leverage state power to impose their will on Bitcoiners but hopefully I'm wrong about him.
ReplyDeleteHow about bitcoin miners lunching with gov of Texas and influencing ercot demand response policy and advocating for more subsidies for renewables?
DeleteI could do this all day—- all the ways bitcoiners have cuddled up to government.
Also you are wrong. Subjunctive value doesn’t mean arbitrary value.
DeleteRejecting objective value is bitcoins biggest weakness.
"There are many industries that can efficiently consume electricity in a staggered or interruptible manner, of which bitcoin mining is just one. If bitcoin miners use this electricity, then these other industries cannot."
ReplyDeleteI'd agree with your argument if the grid would be sufficiently connected and has sufficient capacity. I think Bitcoin mining can add value if you have energy consumers "off the grid" or in micro or mini grids. Connecting to a larger grid might be economically infeasible. Storage helps but is also expensive. In contrast to many other industries, Bitcoin mining can quite easily get located, and hence could make the building of a small renewable utility profitable.
There was an article yesterday about this. A hydro plant in Costa Rica was brought back online courtesy of bitcoin mining.
DeleteThe broken window argument applies in this case, too. Imagine if that hydro plant had been rebooted but the energy was being used to break shop windows. We wouldn't say that this was adding value.
What makes bitcoin good (or not) isn't that it can bring an old hydro plant back into production. What makes it good is if it is providing useful services at the lowest cost possible.
The mental gymnastics performed to conclude that bitcoin isn't a waste of energy is alarming.
ReplyDeleteits a waste of energy in your opinion. There is no protocol to determine to deem something a useful waste of energy. I would argue any server space used to store tweets is a waste of energy, yet it exists. I would argue the entire banking physical infrastructure is a waste of energy, yet it exists. I don't care if you think its useful or not, I do.
DeleteAre security guards or armored vehicles for transporting cash wastes of energy?
DeleteThe security guard's job is to make sure nothing happens. If he is successful, the result will be that nothing happened. Yet he expends energy in this job (both the mental/physical work of monitoring a store, but also his commute and other externalities).
How about a country's military? It has warplanes, battleships, tens of thousands of soldiers who must train and spend years of their lives doing... doing... oh right, asserting the sovereignty of a country.
If a military which is not intent on conquest or expansion simply exists, it performs the role of enabling a country to exist undisturbed.
Bitcoin mining is similar to this. All this energy is spent precisely to deter bad actors from disrupting it.
If bitcoin is to be a worldwide trustable money (similar to gold's role through history), it must be secure, and this comes partly via the energy expenditure of mining (a la security guards or a standing military).
> If bitcoin is to be a worldwide trustable money
DeleteAnd there's the root of your problem. Such a thing is not needed.
> "the market seems to think it is"
The market is made mostly of people who don't give a fuck about the ethics/politics/morality but saw a chance to make a buck. You don't get to decide that they're all psychotic libertarians and tacitly assume their buy-ins support your cause.
"bitcoin holders aren't aware of the huge energy cost of maintaining bitcoin—they don't bear, or internalize, this cost."
ReplyDeleteI am a Bitcoin user, hence, I pay directly for mining in the form of transaction fees, and indirectly as someone who also saves in Bitcoin due to dilution via the issuance of new Bitcoin as mining rewards, so, I am in the position to explain to you what I get for paying for mining; which has nothing to do with what motivates your straw-man Bitcoin user.
Before talking about the benefits of Bitcoin, what needs to be stated clearly, and proved, is that your whole article is a collection of fallacies, without internal logical consistency.
Let's start with the "broken window fallacy":
If your "model user" of Bitcoin is a gambler, who only cares about up/down, well, Las Vegas, the archetypal place to gamble, not only uses electricity but consumes water, a seriously dwindling resource: We can find lots of activities that are demonstrably dumb yet at least tolerated, based on fundamental principles such respect for other people's preferences and subjectivity.
In your "straw man fallacy" Bitcoin user, they are stupid, then what they do is stupid hence you conclude Bitcoin is bad. Because stupid people who should not be gambling go to Las Vegas and get in trouble, this does not mean that going to Las Vegas is inherently bad. I have gone to Las Vegas, to watch Circle Du Soleil shows; but make no mistake, the money and relevance of that city comes from people who do something that is demonstrably foolish, to gamble in casinos. This a more extreme form of your argument, because it is not as easy to prove gambling with Bitcoin is stupid as gambling in Casinos; yet it would be ridiculous that you would take your Bitcoin point of view to the extreme of advocating for Las Vegas to stop existing.
You introduced in your "straw man" gambling, that's why I use your own equivalence to prove how ridiculous your core argument is.
Attempting to see if you have a point I can try to "steel" your argument: I agree there are dumb speculators with Bitcoin, furthermore, they may be a big majority of the money in Bitcoin, however, that is not important, because Bitcoin is an emergent technology and it is not reasonable to expect everybody would understand what it really is and how to use it from the very start, I see no moral issue with big numbers of people who just want to gamble with this; furthermore, they are neither the creators of the thing nor the people who are moving it forward, the speculation/gambling is a side issue without bearing on what really matters, the good things the actual creators and users of Bitcoin claim:
Another fallacy of yours: "Because I can't see any benefit to Bitcoin, then it does not have any, then it is obviously bad like breaking a window".
Just one: its ability to resist governmental-level attacks. Such resilience has a cost, the consumption of some real resource might be needed; you don't see the value and thus don't pay the cost, I am not demanding that you use Bitcoin, but you are in no position to impose on me what I should spend my money, resources on, yet that is what you are trying to do.
(the benefits of bitcoin continue on a second comment)
With regards to why it is important to have a form of money resistant to government corruption, it is not to do bad things (illegal and immoral), but because as citizens we have the duty to preserve the equilibrium of powers between us and the governments; that's why we generally agree that there should be freedom of expression (so that a government can be criticized, evaluated, hold accountable), privacy (so that the government can't thwart legal and legitimate actions such as organizing an opposition party), secret vote; just the same, we ought to have some form of money that the government can't corrupt, confiscate except with a lot of effort, in that way it can not simply "print" more fiat money but needs to get approval and consent for explicit taxes to finance wars and other things. I absolutely have the right, as a mere human being, to be able to criticize the handling of money by governments by adopting a non-governmental alternative, I mean to pay the cost of adopting such alternative, including, for example, if my chosen alternative uses electricity; this, from core principles, is far easier to defend than, let's say, using electricity for Christmas lights, which is obviously wasteful.
DeleteInstead of straw-manning Bitcoin (distorting what it really is into something that is obviously bad), you could be a skeptic who diligently tries to find its failures. I claim Bitcoin feeds on active skepticism: It happened to me and a lot of people that the harder we tried to prove Bitcoin can't work, the more it checked-out, and forced us to conclude it actually works. Many Bitcoiners are the opposite of the credulous rabble people like yourself seem to think just about all Bitcoiners are.
Lastly, the essence of "proof of work" is that there is no shortcut, thus you get a kind of grounding on reality, objective, provable from where everything else Bitcoin emerges, I won't explain the problems of alternatives, including "proof of stake", beyond just saying that the name "proof of stake" itself is objectionable because there is no proof of anything; the only thing I need is to make clear that because in "PoW" there is no shortcut, it is inefficient, and inefficient on purpose; in such a way that if this design is optimal for what it tries to do ("sound money", or dependable money) then, this inefficiency-by-design might end up being the most efficient way to incentivize human action...
I just wanted to address the absence of strength and logic in your argument, still, your claims of fact such as "there are plenty of competing alternative uses for the renewal electricity Bitcoin incentivizes" are all wrong; Nic Carter precisely coined the term "non-rival" energy to refer to this phenomenon (here https://medium.com/@nic__carter/noahbjectivity-on-bitcoin-mining-2052226310cb)...
Eddie:
Delete>"...due to dilution via the issuance of new Bitcoin as mining rewards..."
A lot of bitcoiners think this, but it's not accurate. You don't pay the dilution costs from mining rewards. It's already built into the price of bitcoin.
>"...prove gambling with Bitcoin is stupid as gambling in Casinos..."
I think you misunderstood my points about gambling. I am not saying that gambling is bad. By all means, gamble. What I am saying is something different. If people are going to gamble, go ahead, but we're all better off if that gambling occurs at the lowest energy prices possible. Gamble at Vegas, not on bitcoin.
>" I see no moral issue with big numbers of people who just want to gamble with this."
I'm not making a moral argument. I'm making an efficiency argument. It's a waste of energy for people to gamble on bitcoin when they can gamble elsewhere, at a fraction of the energy cost.
>"Another fallacy of yours: "Because I can't see any benefit to Bitcoin, then it does not have any, then it is obviously bad like breaking a window"."
No, I'm not saying that. I'm saying that the folks who are using bitcoin as a gambling platform aren't using it for what it was meant for: censorship resistant transactions. And that's a big waste of electricity.
>" I agree there are dumb speculators with Bitcoin, furthermore, they may be a big majority of the money in Bitcoin"
We agree on this. Why not just admit that dumb speculators using bitcoin is a waste of energy? By switching to another platform, less energy is used up. At the same time, bitcoiners like you get to keep using bitcoin. It's win win win.
Thanks for your reply to my reply, will focus only on the most important things:
Delete"I'm making an efficiency argument"
Yes, you are, agreed, but dear sir, I tried to make clear "Proof of Work" is inefficiency by design, a fundamental part of a mechanism that furthers things I consider, subjectively, valuable.
The core of your argument is that the inefficiency is comparable to breaking windows to further the business of repairing them, what is not getting to your mind is that, continuing with your analogy, the windows we bitcoiners break are not the public windows nor your windows, but our own windows, and that we break so many windows that we stimulate the window making industry; yet, you moan about how much you dislike our breaking our own windows, claim, contrary to the available evidence, that those windows could be used for something else, that the users of the thing that is designed to require breaking windows is used by stupid people doing something stupid and that is all there is to it.
Enlarging your quote:
"I'm not making a moral argument. I'm making an efficiency argument. It's a waste of energy for people to gamble on bitcoin when they can gamble elsewhere, at a fraction of the energy cost."
Then you advocate for people to not go to Las Vegas to gamble at the casinos there, since they can gamble online without incurring the waste of flying, consuming water in a desert with dwindling supplies of water, and using massive amounts of electricity (compared to the online option).
You have a hopelessly weak argument ultimately based on a moral judgement about your opinion of the lack of usefulness of Bitcoin, I don't need you to acknowledge it, I write this for the benefit of the intelligent reader that might not immediately detect the fallacies in your argument, paradoxically, possibly the very same motivation for you to write your article, your own desire to unmask what you think is a fallacy. And I reply to your reply because I owe it to you, since I'm using your forum, to address whatever points you'd like me to; and I thank you for allowing my reply.
>"...due to dilution via the issuance of new Bitcoin as mining rewards..."
"A lot of bitcoiners think this, but it's not accurate. You don't pay the dilution costs from mining rewards. It's already built into the price of bitcoin."
It is generally acknowledged that the investors in something that dilutes their equity effectively pay for that dilution. If you don't agree that we Bitcoin users pay for the mining rewards, then, pray tell us, who do you think pays the miners? We are discussing that resources in the real world, electricity, is consumed doing mining, so, it is not free, then who pays the miners who directly pay the said electricity (and capital expenditures)?
The question of who pays for mining is crucial here, since you don't, yet, you put yourself in the position to pontificate about what are the real benefits of Bitcoin or who are its users, who pay for mining, to impose about how other people should spend their money.
Someone like yourself who won't let other people mind their own business, but intrude lording them with your opinions and preferences would have a very hard time to understand the value of censorship resistant money, just one of many benefits of Bitcoin. Someone who rejects the notion that an investor pays for the dilution of the equity would surely fail to understand the problem of monetary dilution of fiat currencies, a.k.a. inflation, and fail to recognize the value of a form of money that has a predictable, agreed-upon, consensual, algorithmic dilution schedule.
Still, that would be logically consistent; what makes the whole thing illogical is that you claim not to be doing a moral judgement.
I won't bother correcting you on the facts with evidence, since absent logic from your part, it would be a morally wasteful exercise.
Eddie,
DeleteI feel like your mind was made up on most of these issues from the get-go. But there's one point I'm going to push back on which is the technical one about how mining rewards are paid for.
You suggest that the cost of paying mining rewards is like a company issuing stock. So each time a mining reward is paid, the value of everyone's bitcoins falls by the amount of the mining reward.
But that's not the case.
The payment of bitcoin mining rewards is akin to a company paying salaries. The expected cost of paying salary is already built into a company's share price. That is, when a company pays out salary every two weeks, the company's share price does not fall by the value of that outlay. The market incorporated all expected salary payments into the company's share price long before.
The same goes for bitcoin and miner rewards. Miner rewards were already built into the price of bitcoin back in 2009. The fact that mining rewards are encoded into the bitcoin protocol, and therefore 100% certain, only makes it easier for the market to factor rewards into the bitcoin price.
By the way, I used to think the same thing that you did. But I learnt from some pretty smart bitcoiners (Nic Carter, if I recall properly) that the dilution model is the wrong model.
So in closing, while I may not have been able to convince you that much of the renewable energy devoted to bitcoin has better uses, hopefully you'll stop subscribing to the fallacy of bitcoin dilution.
You still seem to avoid answering the question of who does pay the miners if as you think, it is not the coin holders by way of dilution.
DeleteIt's the coin holders, but not by way of dilution.
Delete"Miner rewards were already built into the price of bitcoin back in 2009"
DeleteWhen you say that the mining rewards were priced in 2009, honestly, you prove we are wasting our time considering your writing.
But there seems other people reading this exchange, for their benefit: Bitcoin is "emergent phenomena", extremely hard to predict, I honestly would have never expected that the core values of Bitcoin were going to survive the application to reality to become the global phenomenon it is, yet, those values continue to be present today. Mr. Koning's assertion that mining was priced from 2009 presupposed that even something that triggers cognitive dissonance because of its inefficiency (mining) was going to be preserved all along, meaning that even the most controversial aspects of the design were going to prevail after all of the quantitative and qualitative transformations it has had; or, that Bitcoin had a great design from the beginning.
"It's the coin holders [who pay for mining rewards]". If you admit we pay for the electricity, then either:
1. You don't have an argument, since the electricity is ours to dispose as we like, like I said, our windows to break, our stimulus to the window making industry (your analogy) without any fallacy.
2. Your argument is entirely moral, you claim moral superiority with regards to our use of electricity we paid
Because your argument has always been a (flawed) moral judgement, I reiterate where the moral judgement fails; using one bit of usability of Bitcoin you seem to have admitted, "censorship resistant transactions":
For censorship resistant transactions to be of any value, they have to transfer value, for that, Bitcoin needs to be a form of money (even if not conventional or not entirely what could be described as money), the same freedom from censorship should be expressed in neutrality with regards to use, Bitcoin should be neutral with regards to using it for speculation or gambling, including uses I consider stupid; I'm consistent with what Voltaire said about Bitcoin:
“I wholly disapprove of how you use Bitcoin—and will defend to the death your right use Bitcoin in that way.”
The other opinion can be summarized as this: "I don't see any value in Bitcoin, hence any consumption of any resource Bitcoiners claim is needed for Bitcoin is immoral, even if they fully pay for those resources, because Bitcoiners have no moral agency because by the fact they are Bitcoiners (that has no use) proves them stupid".
I am tempted to ask the natural follow up question, if we coin holders pay for the mining rewards, but "not by way of dilution", then how else, but I won't (it is pointless). Actually, I am disengaging, I can't promise I will care enough about your potential reply that I would check or read it.
Eddie: "I am tempted to ask the natural follow up question, if we coin holders pay for the mining rewards, but "not by way of dilution", then how else, but I won't (it is pointless)."
DeleteSay you hold Amazon shares. How do salary payments to Amazon workers ultimately get conveyed to shareholders such as yourself? At any moment in time, all information about upcoming salary payments is absorbed into the share price price. When Amazon pays salary next week, the price of your Amazon shares doesn't fall by the per share cost of salary. That cost is already absorbed into the stock price.
The same goes for bitcoin mining rewards and the price of bitcoin. An upcoming reward doesn't dilute your bitcoins. That cost has already been built into their price.
I came back to apologize for my uncalled-for condescending tone, and also because this:
Delete"Eddie,
I feel like your mind was made up on most of these issues from the get-go"
was left unaddressed by mistake:
Indeed, my mind was set from the start because try as I might I did not find a novel aspect to your argument but a reiteration of a fallacy already very familiar: "because Bitcoin is useless in my view, any resource it consumes is immoral and thus anything that might be positive is bad in reality".
You might sincerely believe that your angle is novel, from prior experience dismantling this fallacy, I've found that those who held this opinion were trapped in self-confirmation bubbles; being critical of Bitcoin seldom will give you effective push back; Bitcoin is profoundly subtle, prone to misinterpretation, hence easy to "straw-man", both for critics and advocates.
Because I am so immersed in the Bitcoin confirmational bubble, as an antidote for potentially self-confirmation mistakes I diligently revise critics, I began as a Bitcoin skeptic, I got misleading information from people associated to Ripple that I believed, only much later that I saw Bitcoin strangely becoming more popular (Nov 2017), strangely because the things I heard in 2016 should have made it fade substantially.
Sincerely, I have no interest in discussing whether dilution is the mechanism by which we Bitcoiners pay for mining; but the analogy of Bitcoin to a company in which Bitcoin pays for mining as a company pays salaries seems totally not applicable since companies have revenue streams of their business and costs of doing their business they pay directly; if you insist on that analogy, we have to stretch it to the point that perhaps Bitcoin is like an startup with no revenues, no business, that yet is still being financed by investors on the expectation that some business might emerge, and that would still not be enough, we would need that the employees would all choose to be paid exclusively in shares, since there is no company treasury... no company structure to decide how to spend, etc; even if we flex the analogy all that much, and we still are very far from an analogy that rings true, we are already very far into proof that such expenses are paid by dilution.
It is not even as if miners ask us Bitcoiners if we want more mining, because we would be the ones who will pay, we are not their investors, but sort of their clients, we pay them directly the transaction fees, but the bulk of the money is that they themselves become users/investors/savers/speculators without our permission
Bitcoin is being used to push increase reliance on intermittent renewable energy. They can both profit from one another. When we have blackouts and the price of energy spikes the energy traders and the bitcoin traders will be two peas in a pod.
ReplyDeleteWhy do bitcoin miners get to have all the fun trading energy? Let’s get every home owner to give there controls to energy traders who can turn off or increase their energy usage in mass so home owners and energy traders can profit.
The bitcoin miners are going to make POW so profitable for energy traders more POW need to be launched.
The larger generalization I make is all crypto related activities and associated industry are waste of productive scarce assets.
ReplyDeleteIf crypto is a gigantic bubble and unproductive then it will all be a waste including capital energy and labor.
I tend to think it’s all unproductive in the long run for our economy and society, but a long run could be decades in the future and plenty of people are making too much money and too many people are falling for it. I think it’s the philosophy that people have accepted that keeps them dedicated to crypto. And no not the freedom philosophy but the philosophy of rejecting the natural world and accepting virtual service goods as it’s replacement. A confusion about what is real.
Would you mind updating this article or write a new article to address Nic Carter's response on twitter? It seems he has some pretty strong refutation to your claims above. https://twitter.com/nic__carter/status/1481650659548008451
ReplyDeleteNic Carter has for sure implied that bitcoin mining helps renewables / ESG / or the green movement and thus society. I get that he sees bitcoin POW mining as necessary first and the renewable advantages second. But most of the bitcoiners talk about the benefits to ESG movement than their supposedly most important point- the POW is fundamental to consensus.
Deletehttps://www.youtube.com/watch?v=0fm1_W7mbAQ&ab_channel=VinArmani
Nic says: "First of all, I don't think I've ever claimed this. He links to my talk in Austin at the Texas Summit. I didn't say that at the talk, nor to my knowledge have I ever said anything like that."
DeleteIf Nic says my criticism doesn't apply to him, then it probably doesn't. It applies to those in my previous blog post who, when I criticized bitcoin's huge energy consumption and lack of utility, pointed to bitcoin's use of renewables as a back-up line of justification.
"[advocates,] when I criticized bitcoin's huge energy consumption and lack of utility, pointed to bitcoin's use of renewables as a back-up line of justification"
DeleteYou are not arguing that Bitcoin does not use renewables, furthermore, you don't argue that the "huge energy consumption" is not paid by Bitcoiners, actually conceded that the energy consumption is paid by Bitcoiners; then your argument is entirely a moral argument that nobody should pay for Bitcoin resources, even if they disagree with your opinion that bitcoin is useless; when they point out that Bitcoin stimulates the generation of renewable electricity with a positive externality for non-Bitcoiners, you then go on calling that a fallacy.
Ultimately, your argument is that people must do as you say because you know better. The fundamental principle in both dogmatic and authoritarian thinking; yet, because your blog is open to criticism, it strikes me that you are neither...
Why don't you use this episode to learn?
I am going to submit this proposition for consideration: Money and government must be separated, for analogous reasons why religion and government must be separated.
Another one: Bitcoin is money, in a fairly conventional understanding of money, and much more.
Another: Bitcoin works.
I am going to concede that the vast majority of Bitcoin speculators and users are clueless, even stupid.
It takes a lot of effort to show the three propositions to be true, but then it is trivially easy to show how Bitcoin will become the most positive development of our civilization in a long time, even more positive than the massification of the Internet.
Even if you disagree, please take notice because the world is undergoing a process of monetization; something that didn't exist is going to become the keystone of all mechanisms of incentives in our civilization; something comparable last happened about 5000 years ago when after a very long process the world converged on Gold as the superior form of money.
"Bitcoin will become the most positive development of our civilization in a long time" intends to mean that Bitcoin will quickly (in a matter of another decade, at "internet speed") become a positive of a magnitude not seen in a long time, milenia.
DeleteBitcoin miners are no longer just consumers of energy or buyers of energy in a market (where one generally doesn’t care what it’s being used for), but they’ve become policy advocates of certain ‘deregulated’ grids and markets and aren’t energy neutral but advocate for renewables.
ReplyDeleteThey participant in demand response and get paid to do so even though they don’t produce or store any power.
Bitcoin miners can’t claim they are being denied power like any other customer in the future… they are instrumental in lobbying this industry and setting policy - like nic carter trying to get Wyoming to deregulate their grid even though he lives in Florida not under a deregulated grid so doesn’t have to worry about blackouts.
What’s going to happen when we have more blackouts, inflation increases prices and renewable pushed at the expense of fossil fuels makes energy more expensive?
Energy is crucial to human life and our standard of living bc they power machines crucial for human life… bitcoin we can live without - it’s a human abstraction. And will be the first to get the blame when electricity is made expensive and scarce through actions the bitcoin miners contributed to but aren’t entirely responsible for. The greens will turn on bitcoin miners so fast. Bitcoin is imaginary and will also be 2nd to real human life requirements like food and heat.
Bitcoiners want to profit off of blackouts and energy price volatility. I get it. The esg mob is too powerful. But instead of playing the long game and advocating for energy freedom they aren’t energy neutral any longer.
For all the hubbub over NFT trading, its hardly an unprecedented scenario in history. In numerous online MMOs back then and even today, digital goods with artificial scarcity have real world value, to the point there's people in third world countries who "gold mine" in these games for a living.
ReplyDeleteWhat makes something like say, Valve's TF2 digital hats different from monkey NFTs is that the hats don't require massive amounts of energy for people to speculate upon, are generally considered aesthetically appealing or at minimum tolerated, and the market activity surrounded them is used to subsidize operating costs for one of the oldest first person shooter games still played and enjoyed by many people today.
In the future, I imagine companies chasing the potential profits of a "Metaverse" are much more likely to follow the Valve model of digital goods than make something akin to Ethereum's ecosystem, even if they end up splashing some "blockchain" marketing over it to drive up speculative activity. The decentralization and resilience that Proof of Work mining provides is completely and utterly unnecessary for this sort of activity.
Many other industries and even individual companies "use more energy" than BTC. But nobody complains about them nor wants them banned. https://bitcoinmagazine.com/business/bitcoin-energy-fud-and-microsoft
ReplyDelete