The distributed network can help incentivize development in the energy sector leading to a more abundant future, Swan Bitcoin’s Steven Lubka writes.
Much has been written about how Bitcoin’s energy use is less carbon intensive than its critics think. This is true because of the high use of renewable and zero-carbon energy.
Much has been written about how the energy use of Bitcoin is justified by the economic outcomes it supports. If Bitcoin provides people around the world with an unrelenting store of value, it is true.
CoinDesk columnist Steven Lubka runs Swan Private, Swan Bitcoin’s concierge service for high net worth investors. Much has been written about how Bitcoin’s energy consumption is small in the context of global energy consumption. Bitcoin uses less energy than electric clothes dryers, so that counts as well.
However, not much has been written about how Bitcoin’s energy can actually be harnessed effectively. In fact, the use of energy itself is good because people benefit from the use of energy and the more they use it, the better.
I recognize that this is a controversial position in today’s world of climate issues. I agree and share the view that preserving a habitable planet is an important goal. However, the path to environmental security and the path to economic security are the same: increasing energy efficiency.
The reality of how people change and achieve important things is connected to our control of energy. So are geopolitics and issues of war and peace. Even our ability to reduce our environmental impact is a function of how much control we have over energy. Bottom line: Energy is the main source of human civilization and we must always strive to become better masters of energy.
If you support more deployment of solar and wind power, nuclear power, or even if you think we really need to use more fossil fuels, you need to support people who use more energy in the aggregate.
Why? The simple fact is that in order to better implement, maintain and improve your preferred method of energy production, we need to build more of that energy production!
Human knowledge does not just arise in the vacuum of academia. Industrial knowledge is only created when we build and operate things. César Hidalgo, one of the leading thinkers in the field of “economic complexity“, found that such knowledge only comes from direct study experience, not from universities and textbooks. From practice, not theory.
In other words, the idea of a nuclear power plant being built and operated entirely by PhD students who have never operated a power plant in their lives is a scary thought.
This quickly leads to the realization that the accumulation of productive knowledge requires industry to exist first and second to provide opportunities to improve our knowledge through continuous operation.
We need productive knowledge to manage industries and industry can only be run if we have productive knowledge. It is an intimate dance of progressions.
Inevitably, Hidalgo found, countries will shift from products they already produce to new products that rely on similar productive knowledge.
Therefore, to improve our ability to generate energy, we must first produce energy. The more energy we produce, and one could even argue that the more energy we produce, the more opportunities we have to improve our productive knowledge.
Whatever form you think future human energy consumption should take, it’s important to remember that we can only become effective owners of that form of energy if we produce and operate more of it. This means that more capital must be committed to this effort. Bitcoin (BTC) mining makes this possible through green market incentives.
Some people see the allocation of capital for the energy transition as a government responsibility. But if history has taught us anything, it’s that free markets are a modern-day marvel and are better at allocating capital than any central entity known to mankind.
I do not intend to argue whether governments should play a role or how much of a role they should have in this process. Whatever your views on the role of government in our energy future, there is no denying that true market incentives provide a huge advantage in developing better, cheaper and more efficient energy technologies.
More capital supports more energy production is a virtuous cycle, the end result of which is more prosperity and more knowledge about energy production. This inevitably includes our ability to control the amount of carbon emitted in energy production.
Bitcoin is a unique force for allocating capital to the most efficient energy producers. Any miner who can secure cheaper energy can earn more profit than their competitors by mining bitcoins. When new Bitcoin miners come online with cheaper power than existing miners, they actually make it harder for other less efficient miners to continue mining with their old power sources. The end result is a virtuous cycle that chases cheaper energy and makes bad energy sources unfinanceable on the Bitcoin network.
Let it flow for a while: Bitcoin mining will give the most efficient power plants increased cash flow and will take their cash flow away from the less efficient ones. It will facilitate the creation of efficient sources of energy production and possibly the shutdown of inefficient sources.
Do you think that renewable energy sources are the cheapest and most efficient energy available to mankind? Then, hallelujah, Bitcoin mining is the best thing that can happen to reformers! Because if renewable energy is really the cheapest and most efficient energy, then it is inevitable that Bitcoin miners will use almost exclusively renewable energy sources (no government subsidy for less efficient energy).
And what if you believe that the big atom is the best source of energy? What if you look at the sun and think that if nature produces all its energy through nuclear reactions, then it stands to reason that nuclear reactions are the most efficient way to produce energy in the universe? Hallelujah once more! Bitcoin mining is the best thing to happen to nuclear power! Let’s go ahead and split some atoms!
Whichever view seems to be correct, which actually generates energy more efficiently, is bitcoin mining which will help for the longest time.
The only way we can make progress for our energy future is to build, use, operate, improve and develop our knowledge of energy production, processes and resources. The more energy we use, the more energy jobs and the more energy researchers and innovators will be funded by the capital flows of the global economy.
The amount of capital invested in energy, including recent renewable energy financing, has declined significantly as a percentage of total capital investment over the past century. How can we build our energy future if we don’t invest in it?
Instead of waiting for some government to recognize this problem and allocate capital centrally, we will unleash the natural incentives that the Bitcoin network so beautifully provides.
Energy Growth, not de-growth
Using more energy is not against environmental initiatives and certainly not against the development of civilization and economy. Whatever future you want, it will require better energy knowledge and Bitcoin will help you build that future.
The biggest opponents of this view are those who think humanity should produce and consume less, sometimes called “de-growers”. In other words, they believe we should engage in energy conservation – we should stop economic growth and conserve our resources as much as possible.
Is it possible politically, economically and socially to participate in de-growth given that our economy is built on constant economic growth? Is it fair to impose economic stagnation on people around the world, especially those who use even less electricity every day than my refrigerator?
Weakening growth is not a viable policy goal, right or wrong, necessary or not. I don’t believe that governments can get the world to support the policies needed to use less energy and less hope that their children will live better than before. This is a utopian dream, not realpolitik.
No matter what you think about energy, climate change or economic development, one of the ways forward for human civilization is to solve the age-old question of creating sustainable and abundant energy.
How can we make energy cheaper, cleaner and more efficient? How do we find new sources of energy? How do we create a rich world for a living global population?
Bitcoin’s power consumption is part of the answer to these questions.
Bitcoin helps us improve people’s energy efficiency, which is a useful end for sustainability because it’s good for human development and our ability to reduce our impact on the environment.