top of page

Reconciling Europe with Bitcoin and mining

On the 14th of March, the Economic and Monetary Affairs Committee of the EU Parliament agreed on a version of the Markets in Crypto Assets framework (MiCA) which fell just short of banning any crypto-asset based on proof-of-work also known as mining, a process requiring lots of electricity and costly computing hardware. Much ink has been spilled over sustainability issues and energy waste of proof-of-work or mining. While sustainability is a definite concern, applying a caricatural knee jerk approach to all areas of human activity and seeking to simply diminish energy consumption and carbon footprint everywhere, is counterproductive and even contradictory with the more general goal of sustainability. As the saying goes: “If the only tool you have is a hammer, you tend to see every problem as a nail.” And that’s very much so when it comes to the topic of sustainability and climate change.

In this article, I will argue that ultimately, it is impossible to objectively determine whether energy used to mine Bitcoin is “efficient” or sustainable, as it depends on factors which are outside of human control and knowledge.

Let’s start with a simple example. Imagine if you are living in the 15th century, you’re at a tavern, and you meet one of your old friends you haven’t seen for a while. He’s surrounded with plenty of food, eating like there is no tomorrow, and has taken on a lot of weight. As you sit down next to him, you judge him for his unsustainable behaviour: “You’re wasting food! Don’t you know how scarce food is?” Your friend just sits there smiling candidly while he continues stuffing his face. A few weeks later, a massive famine breaks out as all crops have been destroyed by a combination of drought, insects, flooding, basically a biblical series of plagues. Just like any normal human, you’re starving to death, and as you lay there on the street, clutching your empty stomach, your old friend walks by, looking somewhat leaner, and says: “Well, I guess that food I ate wasn’t wasted after all!”.

This little story is meant to illustrate a simple principle: judging whether some activity is a “waste of time” or a “waste of energy” requires a kind of foresight humans simply don’t have. If there were no famine, then you would have been right. Your old friend was wasting food and would have probably died of one or the other diseases related to obesity and over-eating. But given the circumstances, it is your behaviour that was unsustainable, from the perspective of your body's cells, as a collective (much like the human collective), since it can no longer sustain itself!

How is this at all related to Bitcoin and mining? Well, let’s transpose the metaphor to the current situation. Replace food with money, and you get the picture. What is Bitcoin, ultimately? A way to convert electric energy into “human” energy or money (which is basically a type of energy which puts people to work as it changes hands). What is “fat”? A conversion of one type of energy into another. And that process is also wasteful: converting food into fat, or an energy which is readily assimilable by the body. Bitcoin clearly serves the purpose of “fat”, for the human collective, as it stands. It’s a way to set money aside, a “store of value” as it were, even if ideally, it should be distributed more equally rather than concentrated into a few hands. In the example above, the financial system corresponds to crops: the food/money production system. And it has been pummelled by one biblical plague after another: the 2008 financial crisis, the 2011-2012 European sovereign debt crisis, the 2020 coronavirus crisis, rampant inflation, and now the Russian-Ukrainian conflict. And the main counter-measure that authorities could muster up, was to just flood the crops with as much water/Quantitative Easing as possible. So imagine if the entire financial system suffers from a major “crop failure”. What would happen to the economy? Without an alternative source of “human energy” or money, it would come to an abrupt halt, and many humans would die, much like the cells in your body would die if you suffered from a cardiac arrest. In such a scenario, crypto-assets would definitely be very good candidates to ensure that human exchanges continue and the economy keeps chugging along, albeit at a slower or distorted pace. Bitcoin has already served that purpose. If you look at failed or failing economies and currencies, such as in Venezuela, Lebanon, Turkey or Russia and Ukraine, Bitcoin has become a fall-back in case all else fails. Had our financial system been at full health, with no sign of strain or problems, the use case and rationale for Bitcoin would be virtually non-existent. But nowadays, to be stubbornly obsessed with Bitcoin’s energy consumption all the while we may be at the brink of the biggest economic and financial collapse of all time, is clearly “unsustainable” for humanity as a collective. If humanity becomes extinct, for sure we will reduce our carbon footprint. But the word “sustainability” will have lost all meaning since that which was supposed to be sustained (humanity in balance with the rest of the ecosystem) is now gone.

Does anyone of us have a crystal ball which can show us the "future", and whether or not the current financial system will suffer from a major meltdown, and where Bitcoin or crypto-assets in general will serve as a buffer to prevent a civilizational scale collapse while we find a fix and roll out a more resilient financial system? No, and neither do I. But in highly uncertain times, it's best to have a little extra fat than to be super-efficiently lean...

Am I saying that we should therefore allow mindless mining, even if it pumps energy and electricity away from households’ other needs? Absolutely not. On the contrary, I believe that much can be done to “optimize” the usage of mining to heat buildings, warm up communal swimming pools, or even heat the water in every household’s water boiler. Mining farms are clearly inefficient if they do not recoup the excess heat produced by mining, thus there is much room for innovation in that space. But being opposed to mining by principle is unsustainable, to say the least.

If you are fluent in French, you can also buy my book, which discusses the role of crypto-assets from a larger vantage point and many more topics relevant to our present situation:

0 views0 comments
bottom of page