Bitcoin and the Climate: a Balanced view
Thoughts on Pomp vs Ripple Founder on "Change the Code, Not the Climate"
A summary of this letter:
Two giants in the crypto space, Pomp and Chris Larsen, recently had a debate about Bitcoin’s energy use.
It was regarding “Change the Code, not the Climate”, an ESG campaign that advocates for a shift away from proof-of-work citing climate concerns.
Chris has contributed about $5 Million to the campaign for advertising thus far.
(Brief Summary of the Debate) Pomp and Chris most disagree on statistics: 1) BTC price-energy usage correlation, 2) mining’s net energy consumption, and 3) how much Bitcoin is powered by renewables.
(My takes on these three points) 1) Price-electricity correlation can’t be meaningfully projected, 2) mining’s net energy consumption is not the real problem, and 3) Bitcoin is relatively very green today.
Chris’ money and the campaign’s efforts would be more worthwhile if directed at forking, as opposed to advertising.
Else, the campaign should minimally go past the “consuming energy is bad” narrative towards explaining why Bitcoin does not encourage a broader transition away from fossil fuels.
A reference and some Tweets on why Bitcoin can help the planet.
Kudos to both for the debate.
Let’s dive in!
Hey everyone,
While previous letters largely examined macro policy and inflation, this letter will shift towards examining Bitcoin and the climate. I’m no expert, but the Bitcoin proposition — whether you agree with it or not — is extremely fascinating.
Earlier this week, Bitcoin maximalist and entrepreneur Anthony Pompliano aka “Pomp” hosted a debate with Ripple co-founder Chris Larsen on “Change the Code, Not the Climate”. It’s a new ESG campaign encouraging a shift away from proof-of-work to reduce Bitcoin’s energy consumption. Chris recently funded $5 Million for the campaign’s advertising.
Chris isn’t saying that this change has to be to proof-of-stake per se. However, based on the campaign’s official website, that definitely appears to be a possibility. But it’s worth noting that something of that sorts currently exists: “BitcoinPOS”.
Pomp and Chris both wrote follow-up articles after the debate. I encourage you to read both their pieces before making conclusions.
The ONE THING that both sides can agree on:
Chris’ critiques would carry more weight if they came with alternative solutions of some kind.
People would be much more interested in his proposal if the focus was on forking — i.e. taking Bitcoin’s open source code and making changes. After all, the campaign is named “Change the Code, Not the Climate”.
Pomp actually asked Chris about this, and his response was that he didn’t have any concrete alternatives either. Fair, but if he really wants this campaign to succeed, his money would be better spent on forking as opposed to advertising.
Where Pomp and Chris most disagree:
Statistics. Pomp disagrees with the numbers that Chris is quoting and vice versa. It’s a pity when the clash is on statistics. They’re harder for readers to verify, and parties tend to lean towards data that supports their argument.
Most notably, they clash in the following areas:
These areas are especially problematic because they’re either projections or estimates with plentiful assumptions. Nonetheless, here are my brief conclusions on the answers to the questions posed in the three areas. Do let me know in the comments if you’d like to hear about how I arrived at them:
1) Bitcoin price correlation with energy usage
I’d lean towards Chris here: we just don’t have a crystal ball, and Bitcoin using more gross energy over time is a possibility. But as Pomp rightly said: the relationship is far from direct.
(Quick explanation on the relationship between price and electricity/energy usage. Feel free to skip this if you’re familiar.)
This is an area of concern because both Pomp and Chris advocate for Bitcoin’s success, which obviously comes with an increase in its price. How are these two related? When bitcoin’s price increases, mining becomes more profitable and more miners enter the industry to solve the cryptographic puzzle. Competition increases, and the difficulty of the puzzle increases in response. In turn, miners expend more energy hoping to solve the puzzle first.
But the correlation isn’t so simple: for example, mining equipment can become more efficient and drive down energy usage during a period when bitcoin’s price is rising.
2) How much net energy will Bitcoin mining consume in the future?
I don’t think that this is the question we should be asking. Firstly because this isn’t the actual debate and secondly because this value is impossible to meaningfully project. The real debate’s around how much energy is TOO MUCH.
If you asked a Bitcoiner, he/she would say that 4% is well worth Bitcoin’s propositions. On the other hand, Peter Schiff would throw shade at even 0.01%. Value is completely subjective.
3) How much of the energy in mining is from renewables?
I lean towards Pomp here: Bitcoin is relatively very green. (Though truth be told, I genuinely can’t find the data Pomp cited — Cambridge said that 66% of mining is powered by renewables. If anyone can help, I’d appreciate it very much! Perhaps it’s a derived value?)
The vast majority of estimates range from 30% to 70%. Larsen’s estimate is likely too low too low, whereas Pomp’s estimate is probably too high. But even if we assume a lower range value of 40%, it’s still double the U.S. grid’s usage of renewables.
Still, there’s one thing that this campaign isn’t acknowledging enough:
More net energy usage isn’t necessarily a bad thing — because increased energy usage doesn’t necessitate an increased carbon footprint.
Let’s be realistic: with or without Bitcoin, we will use more energy in the future than we do today. The real question is: where is that energy overwhelmingly sourced from? For the sake of our planet, energy has to be sourced less from fossil fuels and more from nuclear and renewables. Both sides can agree on this.
Interestingly, mining in proof-of-work can aid this endeavour, for example, by stabilizing the grid to increase potential usage of renewables. Below are some relevant Tweets. Feel free to skip to the next section if you’re familiar with this stuff.
John asks a great question: is Bitcoin just drawing relatively more from renewables as opposed to encouraging a genuine transition?
Sidetracking here, but I love these types of questions because they take a middleman stance in an age where people take extremes without really understanding what’s going on. Troy gives an excellent answer:
If Troy’s answer is too cryptic for you, here’s one simple explanation:
Nonetheless, these ideas deserve entire articles, and I’m not the most qualified to do the answering. Thankfully, there’ve been many who have dedicated their time towards writing such pieces. Here’s a link from a publication that I think both sides would be pretty comfortable getting their info from:
The classic How Much Energy Does Bitcoin Actually Consume? in the HBR.
Michael Saylor quite elegantly summarises the Bitcoin-Climate proposition:
You’re recycling marginal energy in order to create a digital monetary system that’s capable of holding all the money on earth. So… what’s wrong with that idea?
If the campaign wants to contribute to genuine debate, its approach should shift:
Forking is the best way. But if that’s not what they choose to do, they ought to minimally go past the “consuming energy is bad” narrative towards explaining why Bitcoin does not encourage a broader transition away from fossil fuels.
I find it interesting how this debate never ceases to come into the spotlight year on year. I guess that’s how things tend to be, but as Pomp nicely put: The world could use more nuanced conversation between people who disagree.
For that, props to both Chris and Pomp, and hopefully both sides of the aisle can constructively disagree and find common ground moving forward. I hope you enjoyed reading this letter, and I’ll be back next week.
Till then,
Ja ne!
P.S. I created this newsletter to share, get roasted, and learn along the way. So if there’s anything you feel that I got wrong, or you’ve feedback in general, do let me know in the comments or DM me on Twitter!
P.P.S. The central report behind “Change the Code, Not the Climate” which claims that “Bitcoin emissions alone could push global emissions above 2%” has been repeatedly debunked. The campaign is only smouldering its image by continuing to cite this report, and we ought to move towards a more nuanced discussion.
Some may say anyone against POW does not understand Bitcoin. Or has an ulterior agenda. POS is what Elon did with Twitter- a rich guy influencing how Twitter behaves. We have to work on making POW more efficient and that’s already happening. By design, BTC actually can help the climate movement greatly. Perhaps that’s another great topic to explore!