Nic Carter, co-founder of Coin Metrics, has strongly refuted a number of key claims that energy-intensive bitcoin mining is causing an environmental disaster.
In a detailed article titled Noahbjectivity on Bitcoin mining, written on March 30. the Castle Island Ventures partner responds to claims made by Bloomberg columnist Noah Smith in a March 24 article. March with headline Bitcoin miners are on their way to self-destruction.
Carter’s first claim was that bitcoin is unique among assets in that higher prices lead to greater energy consumption. Carter noted that gold has exactly the same property, namely that higher prices lead to higher production and energy consumption.
Second, Smith argued that bitcoin depletes local energy resources, depriving ordinary customers of electricity. However, according to Carter, production is concentrated in areas where there is a surplus of unused energy.
In China, the vast majority of mining activities take place in four provinces: Xinjiang, Sichuan, Inner Mongolia and Yunnan. Together, they accounted for 63% of the global bitcoin hashrate between Q4 2019 and Q2 2020. These regions use a mix of coal, solar, wind and hydro power. They all have relatively low population densities and energy surpluses.
Carter calls this excess energy that never makes it to the grid non-viral, and according to the figures, China has reduced or captured an average of 100 TWh of combined hydro, solar and wind power in recent years. Curtailment is a process that refers to removing excess energy from the grid or from government consumption, often to maintain price levels.
According to Digikonomist and the University of Cambridge, bitcoin mining would consume between 89 and 138 TWh per year.
Suffice it to say that there is enough non-viral energy to run Bitcoin multiple times. It’s just a matter of placing the hashrate in the right places, which is what miners do – and aggressively.
If bitcoin mining, which is relatively mobile, is concentrated in areas where electricity is not consumed (and is therefore cheap), this complicates the argument, which is simply about energy consumption.
So wrote Alex de Vries, founder of Digiconomist, in a recent article:
A record high bitcoin price in early 2021 could lead to network electricity consumption equal to that of all the world’s data centres, and the associated carbon footprint would be as large as London’s.
The Cambridge Bitcoin Electricity Consumption Index (CBECI) estimates that bitcoin’s annual electricity consumption is currently somewhere between Sweden and Malaysia.
In Smith’s original article, he argued that bitcoin developers should adopt an alternative to proof of work and named proof of work as a viable candidate. Ethereum is moving to stake validation with Eth2, which is estimated to consume 99.98% less energy.
However, Carter doesn’t think Proof of Stakes can compete on security and decentralization:
This is the cornerstone of the anti-Bitcoin energy argument: the notion that you can get something for nothing with Stake Proof. No energy is consumed, but there is still a decentralized consensus. If this logic makes you think of a perpetual motion machine, that’s because that’s exactly what’s being offered here: a completely free lunch where you get exactly the same guarantees as bitcoin, at no cost.
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