11: Bitcoin Mining & Energy: Debunking Misconceptions
In “4: Proof of Work vs Proof of Stake,” I gave an intro to Proof of Work (PoW), so if you haven’t read that yet, I’d recommend going back first to that article.
Also, before going much further, I want to share the following as it’s an awesome resource.
A common analogy used to describe mining are gold miners expending physical energy to produce gold. However, there are 4 notable exceptions/improvements (h/t Jason Maier).
There are only 21 million bitcoin; the supply is capped; there is no possibility to create more. Bitcoin is the only asset on Earth with a finite supply.
Unlike with gold, the act of mining bitcoin can be done by anyone, anywhere, no land rights or excessive
equipment required.
Unlike with gold, the act of mining not only leads to the creation of bitcoin, but secures the network as well.
In Spring ‘24, bitcoin’s stock-to-flow ratio will be more than double gold’s at 124, a number higher than any previous commodity and programmatically guaranteed to increase as time progresses.
*Note: You may be wondering what “stock-to-flow” means. All this means is that in Spring ‘24, if gold has a S2F ratio of 62, then it would take 62 years to mine all the gold in existence. <- That reality should really drive home the signifance of bitcoin’s cap of 21,000,000. Also, the number could be anything other than 21,000,000, all that matters is that it is capped.
Mainstream media criticizes Bitcoin for its energy use. They fail to understand that Bitcoin’s use of energy is a feature, not a bug. The value of exerting physical energy is not a novel concept (as we discussed in “10: Bitcoin as property.”
Bitcoin mining is the only endeavor to date that can support a sustainable energy transition and address the issues of energy inequity and energy poverty. Energy equity should be a fundamental human right. Bitcoin fixes this.
Here are some quick facts...Bitcoin uses:
● 2% of the world’s energy consumption; 55% of that 2% comes from renewable sources
● 56x less energy than the traditional banking system
● Less energy than US Christmas lights
