by Susie Violet Ward
Most people have heard about Bitcoin but they are unsure about what it is. Its magic internet money, only used by criminals and has no intrinsic value are some of the common misconceptions. Even governments, traditional fund managers and journalists do not yet understand this new technology. The FUD (fear, uncertainty and doubt) in the media is often misinformed or downright dangerous.
What is Bitcoin?
Bitcoin is a peer-to-peer electronic cash system that allows money to cross borders without a 3rd party within milliseconds, 24 hours a day and for pennies. It solves a multitude of issues we have with our current financial system including fraud and trust. All transactions are recorded on an open-source blockchain. Since Bitcoin’s inception on January 3 2009, it has never been hacked.
There is a capped supply of 21 million and each bitcoin is divisible into 100,000,000 Satoshis. With the Lightning Network, it has the potential to be divided into smaller increments, giving it the potential to be used as a world reserve currency. The Lightning Network is a payment protocol layered on top of the bitcoin blockchain to facilitate faster transactions and is enabling bitcoin to scale.
Its hard-capped supply means it cannot be inflated and no more can be made, thus making this the ‘hardest money’ known to humanity. It means that in the future your bitcoin is mathematically programmed to go up and not down, unlike the fiat money we use today.
Bitcoin is decentralised, meaning it’s operated by a global community of miners and nodes, instead of a central authority. Its rules are programmed into code and cannot easily be changed. Sounds amazing, right? So why are there only a select few who have taken the time to learn about this revolutionary ‘new’ blockchain technology?
Who created Bitcoin?
Satoshi Nakamoto created Bitcoin and the first widespread application of blockchain technology. This name is a pseudonym to disguise the person or team who developed Bitcoin. Satoshi was active in the development of Bitcoin up until December 2010, then they withdrew from the project and handed it over to developers who have continued to work on the mission. Many people have claimed to be Satoshi Nakamoto but, in truth, no one knows who he/she/they is/are.
Bitcoin’s development started in 2007 and its release coincided with the 2008 Financial Crisis. A few weeks after the bankruptcy of Lehman Brothers and the Merrill Lynch bailout, Satoshi published the Bitcoin White Paper and hid a message in the genesis block, which was mined on 3 January 2009. Satoshi wrote of the failure and injustice of central banking and our fiat system.
He also wrote : “We have proposed a system for electronic transactions without relying on trust.”
The birth of Bitcoin would eventually lead to us rethinking the existing global financial models and systems currently in place.
Myth 1 – Bitcoin has no Intrinsic Value
As mentioned above, there will only ever be 21 million Bitcoin and this scarcity is a major driver of its value. In addition to this supply cap, the amount of new Bitcoin being mined is declining over time. An event called a “halving” takes place every four years, and the result is block rewards paid to miners in the network are cut in half. This ensures the supply is always reducing which, by the basic economic principle of scarcity, has worked to keep the price of Bitcoin gradually trending upwards over the long term.
Bitcoin also provides value from the work the computers on the network contribute via a process called mining. Powerful computers all over the world supply a vast amount of processing power towards the work of validating and securing every transaction and in exchange, they are rewarded with new Bitcoin. This is called ‘proof-of-work’ and is essential to the security of the network. I’ll come on to this in more detail later.
Myth 2 – Bitcoin will be replaced by a competitor
There are about 22,000 cryptocurrencies and some are direct copies of the original Bitcoin white paper; however, Bitcoin currently makes up approximately 60% of the total cryptocurrency market cap. The transparency and virtue of its task as a decentralised and open currency make it unrivalled to date. Cryptocurrencies are technologies trying to solve different problems and there are others with smart contract capabilities however, these are not all decentralised and do not all use proof-of-work (PoW), more on this later.
Myth 3 – Not secure
It’s probably one of the only systems on earth that has not yet been hacked. Satoshi’s genius was to make it so it was easier to join the movement and mine Bitcoin than to try and hack it. It simply moves too fast for it to be hackable. It has been up (online) 99.9% of the time since 2009. The amount of computing power it takes to secure the network is large, however it is still relatively small in comparison to the current financial system. The miners that power the network are located around the globe in over 100 countries. The more miners and nodes the stronger the system becomes as there is no single point of failure. In a nutshell, this is the benefit of Proof of Work.
Myth 4 – Bitcoin is a bubble
Bitcoin has gone through multiple price cycles throughout its 14-year history, each time the price has recovered to achieve new highs. As this is a new technology, boom and bust cycles are to be expected. As adoption increases, Bitcoin’s volatility will subside and it will settle into relative stability.
Myth 5 – Bitcoin has no real life uses
Bitcoin can make payments to anyone in the world without a bank or payment processor, all for a fraction of the cost of traditional banking. The disruptive nature of this technology has the potential to make banks and companies such as Mastercard and Visa obsolete as these payment systems have not changed since the beginning of the 20th Century. In addition to this, nearly every human being on the planet has a mobile phone but not everyone has a bank account. This improves accessibility for all. I’d say this has real value.
Myth 6 – It is a speculative asset
It could be considered speculative depending on your vantage point. As this new technology is adopted by institutions, I would argue we are coming out of the speculative phase. I would also argue that Bitcoin has held up better against more traditional equities and gold in the past 6 months.
This leads me to the most important myth:
Myth 7 – Bitcoin is bad for the environment
I am not disputing that mining Bitcoin is energy intensive but so are all aspects of the digital world and economy we now live in. The current banking system is nearly 10 x more energy-hungry if we look at the global system of processing transactions, running banks and powering offices. Moving away from traditional banking and into DeFi (Decentralised Finance) would be a benefit to the environment.
Extract from Bitcoin Magazine.
The amount of energy used by the Bitcoin network is inconsequential compared to other industries. Most industries round off the amount of global energy used by 1-2% and Bitcoin uses approximately 0.002% of the Global Energy in terawatt hours, which is less than a rounding error.
Data sources will vary and the Cambridge Bitcoin Electrical Consumption Index shows a slightly higher consumption rate with the caveat that the exact proportion is dependent on fuel type and power plant efficiency. Regardless of where you get the data, consumption in comparison to other industries is low.
Cambridge Bitcoin Electricity Consumption Index researchers concluded: “Bitcoin’s environmental footprint currently remains marginal at best.” The economic incentives fundamental to Bitcoin i.e. finding the cheapest source of energy to mine from, are helping to drive renewable innovation. They need cheap, renewable energy to make mining economically viable.
The FUD around this industry falls in line with history when any change is implemented which disrupts. What you often read in the news is centralised misinformation. It is found constantly in the writing on this subject and some journalists are often reporting false and misleading information.
Email was demonised initially and this new technology was considered too energy intensive and the post service was deemed more efficient. The same narrative to the internet, again it consumes too much energy. The energy argument is used ad-nauseum to demonise a switch from an analogue system to a digital system. These narratives just prove one thing; we are early.
Studies have already concluded that running Bitcoin is more efficient than the current system. In fact, due to the FUD around Bitcoin mining, it has driven the industry to find ingenious ways to run mining equipment from stranded and renewable energy.
Bitcoin is even mined from the geothermal energy of volcanoes. According to the Bitcoin Mining Council, 59.5% of all energy used is green. They are working to make it 100% renewable. In addition, the Bitcoin Network could reduce global temperatures via the direct reduction of greenhouse gases. This can be made possible with the use and curtailment of methane from landfill and agriculture and much more.
Troy Cross and Michael Saylor say it best…
Troy Cross on Twitter: “Once they see how mining balances grids… Once they see how mining incentivizes renewables and nuclear… Once they see how mining replaces fossil-powered heating… Once they see how bitcoin substitutes for more carbon-intensive equities…” / Twitter
If we can turn excess and stranded energy into a store of value then the renewables industry will become more cost-effective and economically viable. It would provide money to invest and regenerate, making the industry and its companies even more sustainable by providing investment for the future and consuming stranded energy.
Excess natural gas and geothermal are also being utilised. Some renewable plants need to switch off production when there is a chance of overloading the grid. By switching this excess power over to Bitcoin mining it could help stabilise the grid. Bitcoin provides a solution for using this excess energy while creating value.
Bitcoin promotes energy independence and this benefit cannot be overstated. Eventually, mining could become a matter of National Security. Countries that produce cheap energy will be independent because they want to mine cheaply and sustainably. The countries that understand the technology, mathematics and engineering behind this will have a geopolitical advantage. A world with more localised energy production is a more robust world.
Mining Bitcoin can assist with our climate goals. There are many projects already up and running. Initiatives such as Gridless Compute work in Africa to mine bitcoin while stabilising grids to prevent brown-outs from excess renewable energy. Vespene Energy is using micro-turbines for harnessing waste methane from multiple landfill sites, preventing the methane from being released into the atmosphere. In Texas, Bitcoin miners have returned energy to the grid when additional electricity is required in extreme hot and cold temperatures. These are just a small number of examples.
If these enterprises were understood and embraced by politicians and businesses, we could be heading towards carbon-negative energy and the potential of decarbonising and stabilising grids using Bitcoin mining; making the grid greener. This is not a proof of concept; it’s happening.
“Using Bitcoin as a tool for fighting for a habitable future is undoubtedly a kind of Hail Mary pass for the climate, but we are running out of time and mass demonstrations and a failing representative democracy are not doing enough.”
Our rampant consumerism is the environment’s worst enemy. If we can create an economy that provides a good store of value available to all it could steer us away from the debt cycle and debasing currencies.
If you thought your Bitcoin would be worth more in the future you may think twice about what you are purchasing today. This is quite a meaty subject in itself which I’ll save for another day.
Wikipedia describes ESG as ‘Environmental, social, and corporate governance is an approach to evaluating the extent to which a corporation works on behalf of social goals that go beyond the role of a corporation to maximise profits on behalf of the corporation’s shareholders.’
It sounds great and is exactly the information we need to make informed decisions. The ethos is good but the execution needs improvement. It’s difficult to audit and open to fraud. It’s another industry innovation, like carbon offsetting which often means very little when you dig into the detail.
That said, if managed correctly, the ideology has a lot of potential. For example, if a company were to reinvest its ESG credits into renewables, they could be used to incentivise further investment. The billions of dollars of ESG budgets that have been set aside could be redirected to support the mining industry and the work it does to support renewables. If you offset the infrastructure that supports mining, you’ll get a return. It’s the most ESG-friendly technology that has existed.
The difference between the two methods is quite involved. To provide a summary, proof-of-stake (POS) uses randomly selected miners to validate transactions, resulting in those with the most wealth/stake enjoying the most control. Proof-of-work (PoW) uses a competitive validation method to confirm transactions and add new blocks to the blockchain. PoW, therefore, provides the best security and without this, Bitcoin would not be fully decentralised and the fundamentals would be compromised.
If you remove the PoW consensus accounting technology you remove the innovation. Bitcoin would essentially revert to the old legacy system where the people that control the books and records can control the network and change the code. The innovation is the consensus mechanism that does not rely on trust; an immutable accounting ledger with a self-auditing network.
Greenpeace is championing a ‘change the code, not the climate’ campaign, partnered with a ‘rival’ protocol called Ripple. Ripple paid Greenpeace $5,000,000 to promote a ‘greener Bitcoin’. If Greenpeace understood Bitcoin and its potential they would be an advocate for the Bitcoin Mining Council instead. What is clear is that the corporate side of Greenpeace is driven by funding which often leads to questionable focus.
If moving to PoS was possible for Bitcoin, it would remove all the greenhouse-gas-reducing benefits that PoW unlocks. PoS is almost a replica of our current system which prevents a new way of reducing greenhouse gases.
Chris Bendiksen of Coinshare put it best when he said ‘’I’d put the chance of Bitcoin ever moving to proof-of-stake at exactly 0%. There is no appetite among Bitcoiners to destroy the security of the protocol by making such a move.”
Greenpeace and Ripple understand their campaign will be fruitless, in the meantime, environmentalists will have to work harder to undo the damage caused.
A more detailed explanation can be found here: Proof of Work vs. Proof of Stake: Beginner’s Guide
This is a monetary, environmental, and social revolution. We are at the beginning of the adoption curve and the potential and possibilities are vast.
The downside is that we are fighting against an old establishment. The potential of Bitcoin’s disruptive technology could upend the existing financial system. I truly believe that early adopters will reap the rewards and those fighting against the revolution will fall behind in the same way that countries late to adopting the gold standard did.
If we can think of Bitcoin as digital energy and work mining into our renewable energy innovation, we will be on to a winner. There is now a global system in place that can send value across borders in seconds and for pennies. The unbanked can now be a part of the system.
To understand Bitcoins’ value, you need to understand the technology, the philosophy and the potential. It’s a global collateral that can be sent to anyone on the planet, with a smart phone, for pennies and received in seconds. Now throw in its green credentials and you have a game changer.
Bitcoin the open global network is here to stay and more and more people hold and transact with its BTC token. It is being intimately threaded into our energy grids at the base level and the benefits it brings are finally being recognised. From overbuilding renewables to reducing bills for customers.
Not many industries can take a potent greenhouse gas like methane and convert that into work that both secures a global network and drives down CO2. Bitcoin does this and more. A glimpse of the world weaned off throwaway consumerism and an open landscape where we can see precisely what our money costs us. It should not cost us the world and its ecosystem.
It’s hard to unlearn what we have always known. We are at a point in history where we can explore, embrace and become empowered by this new technology or become late adopters and fall behind those that had the foresight to investigate and learn. I know which side of history I’d rather be on.