Another Bitcoin hit piece
Tags: Underbanked, Financial Inclusion, Esg, Bitcoin

Bitcoin has been alive and growing since its inception in 2009; since then, every bull run has been met with criticism and attempts to defame the network. Often recycling the same counterpoints against Bitcoin (it is for criminals, it is a bubble, it is useless, it is boiling the oceans, etc.), the New York Times (NYT) chose the Environmental, Social, and Governance (ESG) lense to argue against Bitcoin in their latest piece. However, like the NYT and others who chose ESG to refute Bitcoin, they entirely miss the “S” and “G” arguments.

The argument around Bitcoin’s energy usage is not an argument at all; in fact, it's irrefutable. The Bitcoin network consumes a lot of energy — The NYT quantifies this consumption at the same amount of electricity as Washington State does yearly; or more than a third of United States’ air conditioning energy expenditure; or more than 7x more energy than what it takes to power Google’s global operations. Bitcoin’s 91 terawatt-hours of electricity consumed annually outpaces that of Finland. Bitcoin consumes a lot of energy. But before a critic can decide on its utility, any ESG savvy investor/activist knows that energy expenditure does not equal carbon emissions.

Energy expenditure ≠ carbon emissions.

A voluntary self-reporting group of 23 Bitcoin mining entities compiled their data to report 67.6% of Bitcoin mining done by the council members was done through a sustainable energy mix. Thus, bringing the industry sustainable energy mix to 56%. Likewise, the NYT claims the sustainable energy composition of Bitcoin is likely somewhere between 40–75%.

Using the lower bound of the NYT figures, the 40% renewable energy used to power Bitcoin is better than the ~30% renewable energy used to power the US and Canada.

Bitcoin critics often claim that despite whether the energy is sustainable, there are better uses for the energy. This is the underlying argument to the Bitcoin energy debate — utility. No one argues that Bitcoin does not consume country-sized amounts of energy; people argue the utility of Bitcoin, a system using country-sized quantities of energy.

One rebuttal to the “better use” argument is that Bitcoin consumes non-rivaled energy. A Bitcoin network participant using energy to mint Bitcoin is not hindering others from using equal or more energy to serve their purpose. Bitcoin energy consumption is not a zero-sum game. Those using energy for Bitcoin are not competing against hospitals needing the energy to perform necessary procedures.

Bitcoin creates demand for an otherwise wasted or stranded supply of energy. One of the most significant problems with sustainable energy is getting it to consumers at the time of need. Erecting solar-panel farms or wind turbines can create massive amounts of renewable energy; the problem is often that these renewable energy farms are some distance from the population that would consume the energy. Bitcoin provides a constant and reliable source of demand for an otherwise stranded and underused energy source. Unfortunately, solar panels and wind turbines collecting energy often fail to deliver sustainable energy to consumers continuously. With solar power, clouds, obstructions, and nights prevent constant energy, which is a rather significant hindrance in the wide-scale adoption of solar energy. With wind, wide clearings are required as well as strong winds to turn the turbines. These factors have limited renewable energy adoption and are contributing factors to why the world is not as green.

Bitcoin, a stateless yet constant monetary system, could be the consumer demanding this energy. Even better, Bitcoin could collect this energy and store it as a digital monetary good, bitcoin (BTC), to be used at a different time and place. Simply reducing money to its purest form, money can be defined as a tradable unit of one’s stored energy.

To illustrate this point, if a farmer grows a harvest of apples and trades the harvest for $30,000, it is safe to say those $30,000 are one way of measuring the time and energy the farmer took to produce the apples. The farmer no longer needs to count all of the painstaking hours to produce the apple harvest; the farmer can state the labor + harvest = $30,000. If it took the farmer a year to produce the $30,000 harvest, then it can be stated that a years’ worth of time and energy is equivalent to $30,000. The same can be said about a single bitcoin. Quantifying this number and denominating it in USD provides a floor price for the monetary good. All else equal, a bitcoin is worth the energy it cost to produce it. Whether BTC trades at a premium or a discount to its production cost is up to the market to decide.

A hypothetical solar panel farm collecting unobstructed rays in the Saharan desert could produce and store vast amounts of energy. The problem is that the Saharan desert is one of the world's lowest population-dense areas but one of the richest measured in the unobstructed sun. Therefore, if those residing in the Saharan desert could convert and store the solar energy into a monetary good, real wealth creation could be achieved for underserved populations while simultaneously efficiently using non-rivaled energy from the sun.

By powering the Bitcoin network and receiving compensation in BTC, stranded and wasted energy can be used to create transferable value.

Once understanding this, a reader might notice the gaps in an ESG-centric attack on Bitcoin that lacks “S” and “G” considerations like that mentioned in the NYT article.

While there is no refute to energy consumption by Bitcoin, there are millions of people in emerging markets, oppressed states, and broken economies being empowered by the sovereignty of Bitcoin. Let there be no doubt that criticism of Bitcoin’s utility from a person who has never experienced problems accessing organized financial services, let alone has a federally insured bank account, comes from a position of extreme privilege.

Bitcoin has a small population of ~200 million global users today, mostly in western and developed nations. The minority of its users are those facing real consequences for accessing a financial system that skirts the purview of broken or totalitarian states. Let that sink in. 200 million people globally are choosing to store value in a decentralized, stateless, censorship-resistant monetary system, and the majority of those are from western and developed nations. Right now, over a billion people are earning, spending, and storing their wealth in currencies suffering from double-digit inflation. 2.5% of the world’s population has exposure to bitcoin, while 12% of the world’s population suffers from hyperinflation. The need for an uncorrelated asset has never been greater for investors attempting to protect against inflation and those needing a sound store-of-value asset.

For several reasons, bitcoin adoption is growing for citizens of countries like Afghanistan, Venezuela, Nigeria, etc. Political instability, crippling sanctions, failing economies, and so on are felt by the citizens of countries who suffer from these problems. For example, Afghan citizens fleeing Taliban rule made last-minute stops at banks where governing authorities limited their withdrawal requests to $200 weekly; lifetime savings were left and lost instantly. Separately, Venezuelans often store, quote, and spend in US dollar terms as a safer, more predictable unit of account than the Bolivar, which has been in a state of hyperinflation since 2016. For citizens experiencing difficulties such as this, a financial alternative is in desperate need.

But for countries with limited financial services, citizens have found ways to access these services at a premium. Like many of those in Latin America, underbanked communities suffer the consequences of a cash economy via high fees or high unit costs for services that come standard at a bank. Remittance services, cash management, currency conversion, and interest-earning accounts are services that underserviced communities forgo entirely or pay multiples higher for inferior services to those in the traditional system. This is where the real utility of Bitcoin is found.

For those separated from reliable forms of financial services, those lacking safe places to store wealth, and those using predatory lenders are the real beneficiaries of Bitcoin. Before critiquing the utility of Bitcoin, one must walk through the process of value transfer via the traditional financial system. To transfer via Swift or other traditional forms, a bank requires a large amount of information on both the sender and recipient, not to mention that both parties must have a bank account to source and receive the funds. Assuming both parties have bank accounts, a wire can be transferred, but the transfer requires a fee and takes several days to process before the funds are settled.

Those in Latin American countries working abroad and sending money back home have an even more complicated process. After earning their income and deciding to send an amount home, remittance services can charge exorbitant fees for the remittance alone. On top of that, processing and conversion fees may be incurred. After all fees and processing, the remitted amount might be 50% to 95% of the initial amount being sent—a crushing fee to pay for an often critical source of income.

Bitcoin, an open network, permissionless, and free to use, can process this remittance in 10 minutes and only require 2 data points: an amount to send and an address to receive said amount. This is the utility of Bitcoin. This utility is discounted by individuals who lack insight into the financial alternatives available to the under and unbanked. By simply choosing to remit via Bitcoin, participants are preserving 99% of their initial amount. Better yet, the transaction incurs no counterparty risk. Because Bitcoin is Peer-to-Peer, it relies on the network, not an intermediary, to process the transaction. When a participant chooses remittance via Bitcoin, the transfer starts at A and terminates at B. Remittance via traditional financial system mechanisms requires trust in each leg of the transaction. Trust that the institution will remit the full amount to the individual listed in the time stated. These service providers are highly regulated trustworthy institutions in the West, yet over $36 billion has been paid in bank fines globally since 2008. Another key factor is remittance via Bitcoin is permanent and censorship-resistant. When remitting via Bitcoin, once the transaction is confirmed, the process of adding a new block of transaction data to the Bitcoin blockchain, the transaction is considered permanent. This censorship resistance and permanence of Bitcoin provide features of sovereignty to the users of the Bitcoin network not traditionally found in the legacy financial system. These features are highly desirable to disenfranchised communities battling unstable conditions in their home nations.

When critiquing an energy-intensive novel technology, it is best to forgo subjective takes on its utility. Bitcoin is the latest in a long line of revolutionary technologies met by critical skeptics. Failing to acknowledge revolutionary technology despite not gaining the same amount of value as its users is like discounting the future success of an online bookstore because the skeptic is not a big reader.