For years, critics with a limited understanding of cryptocurrency, have been seizing on a point that they think they understand: power consumption. Or, at least, they think they understand that. They understand that global warming is related to energy consumption, and they fear that cryptocurrency is causing it. This blog post looks at the criticisms levelled by journalists and others about the energy use of cryptocurrencies. It begins by examining the critics arguments and concludes by explaining that energy use of cryptocurrency is not particularly different from other energy uses. What's particularly interesting is to look at the benefits to people who do not hold or use cryptocurrency, who benefit from its existence even without using it.
Everything Uses Energy
The critique of cryptocurrencies isn't that it uses power, but rather that it uses disproportionately more power. Massive data centres use enormous amounts of power and materials, and significant amounts of that is what many people would consider a waste (e.g. high resolution ads on YouTube). Firing rockets into space so billionaires can look down on the world. These are all wasteful to many and fun to some. But the critic of cryptocurrency really has in mind a different kind of "waste". The critique is really that it's particularly less useful than other uses of power that some regard as wasteful.
The critic has in mind a relative measure, one of utility to society per unit of energy. The remainder of the article explains why this isn't the case, while agreeing that cryptocurrency uses far too much power. The problem is even worse than many critics even recognize, because crypto miners also consume significant amounts of computer hardware which costs energy and rare resoruces to make. So how can bitcoin be defended?
Why Defend Bitcoin?
Why defend a cryptocurrency network that runs on open-source software, made by one or more anonymous people? There are no shares of bitcoin, aside from the accounting units within the bitcoin network, created by the most popular parameters (BTC). The reasons to care about the bitcoin network, and similar cryptocurrency networks, is that they have unrecognized value. Not value in the money sense, which is well covered by the media, but in other kinds of value.
Waste
Before getting into the non-monetary value of cryptocurrency, it's helpful to examine the critics point of view. The criticism is usually that it's wasteful, or possibly even dangerous, given the atmospheric crisis that worsens every year.
There's a lot to unpack in the "cryptocurrency is a waste because it's a waste of energy" critique. Firstly, the majority of energy consumed is not in the form of electricity, it's fossil fuels used in cars, trains, planes, boats, heating, etc. So many comparisons, which show cryptocurrency vs. an entire country's electricity production is a bit misleading since electricity is typically a fraction of total energy consumption. This point is further undermined by the use of especially green, low-cost power by cryptocurrency miners, such as hydroelectric sources. Some miners even go beyond the electricity grid, buying their own hydroelectric dams. But much of it does involve consumption of fossil fuels, even coal power in many countries. Unfortunately, so does everything else. And the "everything else" is enormously larger than even the upper bounds of estimates of how much of world energy is being used by cryptocurrency.
"Waste" is usually a term to evaluate of the merits of something. Reasonable people often have different views on what is and isn't wasteful. Some would consider gambling to be "waste", others would consider it "waste" to pay too much to government contractors. Then there's waste in the material sense (e.g. consumption of oil), such as the tens of thousands of empty flights that airlines have been doing for regulatory/airport slot reasons during Covid. Billions of litres of fuel are wasted annually on exercises created by law. Even more by militaries, organizations that many people consider a "waste". Canada was last attacked in 1812, fifty years before the country became independent from the United Kingdom. All of these are examples of uses of energy that reasonable people cam disagree on.
In The Eye Of The Beholder
Waste is an emotional concept. It's a values concept. It's an opinion on hypothetical alternate uses of power and resources. But it should be one that's based on a rational evaluation of all of the ways that energy can be used. Fossil fuels are the main source of the world's energy, and approximately the entire cause of global warming. Around 80% of the world's energy needs are met by fossil fuels. Evaluating the problem of energy use in this context helps show why critics should be even more hesitant about labelling uses they don't understand as waste.
It's a waste to make a car trip to buy a few items from a grocery store when you could walk instead. Energy-wise, there are many larger sources that significant numbers of people in the world would consider to be not only a waste but actively harmful. For example, unnecessary car trips endanger the lives of drivers and pedestrians, in addition to the large climate impact. Pick your issue and reasonable people can have many different views on it, and they always will, because the world is incredibly complex.
Few of the "wasteful" uses of energy given above are ever being considered by a critic who's evaluating cryptocurrency. If they thought about it, they'd probably point to other sources as being even more wasteful. But what of the die hard critic who claims that any amount of energy is too much? The real limit of this argument is how much value you think cryptocurrency has. Cryptocurrency prices show that there are obviously many people in the world who strongly disagree, if only for its use as a type of alternative money/speculation. But it's also valuable in a non-financial/non-monetary sense.
System Of Last Resort: Benefits To Non-Participants
I've previously written about some of the many benefits of cryptocurrency. The benefit probably least considered by critics is also the one that most benefits those who don't participate in the networks (through owning cryptocurrency or other network activities). The non-participating public (which is nearly everyone, even with the recent surge in popularity) doesn't care about cryptocurrency and probably doesn't care about most political or economic issues either. But the problems exist, whether or not people pay attention, and they are frequently held at bay by a relatively small number of people. Everyone depends on someone else doing their job in society, to keep everything running smoothly, even if we never see them do it or recognize why it's important.
It doesn't take many people employed as police to patrol a city, because most jobs only need a small percentage of the population to accomplish for everyone. Similarly, knowledge of aspects of society can only be spread so far. In a complex and specialized society, people can only be expected to pay attention to a relatively small number of areas of their country, whether that's local firefighting or national shipping regulation. Similarly, only a small number of people need access to cryptocurrency for it to have many of its positive effects.
Timestamping & Financial Blacklisting
Only a small number of people are needed to participate in bitcoin in order for it to be useful as a means of timestamping data. Timestamping is a bit esoteric but quite value to society for intellectual property, plagiarism, evidence, and anti-counterfeiting. There are other ways to do timestamps that don't involve cryptocurrency but at least some of the people using it have done so because it is the best technical solution for their needs. Similarly, few people can imagine themselves having something to say that's so valuable but unpopular that they would be blacklisted by financial institutions. But this happens regularly to people who are human rights defenders in authoritarian places and unpopular workers in rich nations. Vastly different life circumstances make the need for cryptocurrency more or less obvious.
A Global, Public System
Some people love the idea of a money divorced from government, because they don't particularly like their government or even government in general. Or they fear government-created inflation or unstable economics (many governments spend more than $4 out of every $10 of economic activity). The current volatility of cryptocurrencies offsets a lot of the utility in terms of reducing risk, but holders of cryptocurrency have generally been rewarded with appreciation over the last many years, so this position is difficult to analyse at the moment because there isn't enough track record compared to other economic systems.
Speculative interest can certainly lift prices beyond what's justified by non-speculative uses but decentralized technologies are actually technically useful. This is not to say that the use cases justify a certain price, but they justify a price. There is some value to having an uncensorable global computer network for sending small messages, without many of the problems that typically overwhelm publicly available facilties. The price of a cryptocurrency is related to its value as a means of paying to send messages on that network.
Public Messaging And Public Systems
The value of payment use cases are enormously larger than for public messaging, but it does exist, and is one of several ways that people make use of cryptocurrency. The existence of this mechanism ensures that people of limited means have a way of broadcasting messages in a highly anonymous fashion. In a world where violence still exists, it's valuable to some whistleblowers and dissidents to have a channel like this. A global messaging system is a valuable thing to society. It's valuable to you, even if you will personally never use it, because you benefit from being able to, and from other people being able to. Whether it's worth a million dollars a year or some other number, there's value to technical services that are open to the public. In this case, "open to the public" means something more like belonging to the public, since these sysems emphatically do not belong to governments, unlike many other systems in society.
Conclusion
Every industry, and virtually everyone in rich countries, needs to drastically cut back their emissions in order to avoid increasingly catastrophic atmospheric damage due to energy consumption, primarily caused by the burning of fossil fuels. Cryptocurrency is no different than these other industries. It ought to be evaluated in the same way as other uses of energy that aren't obviously valuable to a wide number of people.
Should an industry be evaluated based on how much it benefits or harms society?
Society is harmed by pollution greatly, while almost none of the people in society profit directly from, say, a coal mine. But the mine is an economic activity, and its product is valuable to many people. It's almost impossible to say which things are more or less "valuable" in the broad sense, especially given the distribution of harms. This methodology is not useful in evaluating whether an activity is good or bad. The only measure that makes sense is whether it's worse or better, for each unit of economic activity. It's the comparison that matters, and the comparison depends on knowing the pollution/resource use of all other applications of energy. It's unlikely that cryptocurrency would be the worst offender if such a list was ever made.
Being "not the worst" is hardly a strong case. How strong the case is depends on which use cases you know and value. In an increasingly authoritarian world there's wisdom in building services that are publicly accessible to regular people, who can be slightly more free with access to cryptocurrency. Freedom is difficult to value economically, but it's easy to see the cost when a country becomes not free. Focusing on these use cases is trickier for journalists but better respects the intentions of the people who made Bitcoin in the first place.