Bitcoin Mining And The Case For More Energy
When we first published this essay in May, we did so pseudonymously for the same reason that many other authors adopt pen names: to let our ideas stand (or fall) on their own merits. In the months prior, Bitcoin’s energy debate had heated from a simmer to a boil, yet we continued to find the mainstream conversation lacking. There was little consideration of energy’s fundamental importance to human progress, and even less appreciation for the cosmic beauty of bitcoin mining that has inspired us so deeply.
Our aim was simple: to outline humanity’s relationship with energy from first principles and describe the role bitcoin mining can play in building a better future — one defined by sound digital money and cheap, abundant energy. This is the future we are working to build at Cathedra Bitcoin. And we invite you to join us.
Much ink has been spilt on the topic of Bitcoin’s energy consumption. Many have condemned Bitcoin’s growing use of energy, and in response, many others have sought to justify it. The war wages on, atop the battlegrounds of Twitter timelines, Medium pages and major news outlets. But much of this discourse fails to fully address the concept of energy itself.
Energy is quite literally the foundation of existence. In the words of Robert Lindsay, “no other concept has so unified our understanding of experience.” But energy is also a very subtle concept, so our intuitions on the topic often lead us astray.
The goal of this essay is not to defend Bitcoin’s social benefit. We take for granted that a sound money free from bureaucratic debasement has value independent of the speculation, money laundering and nefarious activities it is so often accused of enabling.
The goal of this essay is to outline our view of the future of energy, bitcoin mining and how these two currents will converge. We conclude that this convergence will catalyze an energy revolution that has the potential to usher in a period of unprecedented prosperity. But first, we will lay the groundwork with some energy fundamentals.
Energy: The Foundations
“Energy is the only universal currency.” –Vaclav Smil, “Energy And Civilization”
Earlier, we stated that energy is the foundation of existence. This is not hyperbole; at the beginning of time — what some have called “The Big Bang” — our entire universe was a dense ball of energy.
In the billions of years since, the significance of energy has not diminished. Even today, all matter contains energy; this insight lies at the heart of Einstein’s famous equation, E=MC². But energy takes many other forms as well: the movement of your hand (kinetic energy), the calories in the food you eat (chemical energy), the light from the sun (electromagnetic energy), the heat from the kettle (thermal energy)… the list goes on, but the underlying concept is the same. Energy is the capacity to do work, regardless of the type of work involved (“power,” on the other hand, is the rate of energy flow).
But not all energy is created equal.
The first two laws of thermodynamics tell us that while energy is conserved, it flows towards equilibrium. A hot body (high energy) connected to a cold one (low energy) will eventually give off its heat until the two are the same temperature (equilibrium). And in this approach toward equilibrium, order is lost. As waste heat is created, entropy increases.
Entropy tells us how the energy of a system is distributed among its parts. Over meaningful time horizons, the entropy of any system will increase. To reduce entropy within some part of the system, entropy must be increased elsewhere. States of order and complexity are lower entropy than states of disorder. The creation and preservation of structure requires a decrease in entropy locally, resulting in an increase in entropy elsewhere.
Though entropy is often viewed negatively, life itself depends on it. Life compresses energy into low-entropy states and pays for it by emitting energy with much higher entropy elsewhere. You ingest resources from the environment (air, food, water) to preserve your internal order and create structure (amino acids, tissue, etc.), and in doing so, you increase entropy in your immediate surroundings.
When considering energy, there are other factors beyond entropy that are relevant as well — density and efficiency in particular. Some forms of energy are more dense than others. Likewise, extracting energy from some low-entropy sources is more efficient than others (this holds true in physics as well as economics).
This inequality between various forms of energy is all the more pronounced in practice. Heat is considered waste in many industrial processes (entropy in its most literal sense). Other ambient, low-density forms of energy may be abundant on earth, but are quite hard to utilize. Today, it would seem foolish to burn grass for energy on an industrial scale. Meanwhile, humans scour the planet for rare minerals to build expensive batteries in hopes that they might offer us a few hours of densely packed energy when we need it most.
It is not just “energy” we care about, but energetic order. We want our energy in a distilled form. We want energy that is easy to command and transport wherever we need it. And we want energy that can be used for anything.
“It is energetic order that’s scarce, and the order in energy that’s expensive.” –Peter Huber and Mark Mills, “Bottomless Well”
The story of our “energy consumption” is really the story of humanity’s Sisyphean effort to create and preserve order, harnessing ever-greater amounts of energy to support life by reducing entropy locally and shedding more entropy elsewhere.
In this light, the terms “energy production” or “generation” are misleading. The energy is conserved, but its order is not; the energy is distilled so that it can be more functional, more concentrated, and more easily controlled. A watt that can be delivered on demand through a tiny wire is far more valuable than a watt of ambient heat. Power plants do not “create” energy; they merely convert it into a useful form. Thus, our “energy footprint” is determined by our ability to facilitate these conversions, limited only by the laws of physics, current technology and economic realities. And a massive portion of this footprint is used to distill energy into its most fungible form: electricity.
The Age Of The Electron
Electricity is the most distilled form of energy. It is highly dense; electricity allows for a single transmission line to carry enough energy to power a small country. It is also highly versatile; electricity can power cars, household appliances, many industrial processes, and perhaps most notably, the entire apparatus of information technology that’s allowing you to read these words.
In terms of energetic order, electricity is king. For this reason, technology continues to select for electricity as its primary source of energy. As this trend continues, our economy is becoming increasingly dependent on this form of energy (various climate change policies are only accelerating this electrification).
Developed nations take ubiquitous electricity for granted. Meanwhile, intermittent power can be one of the biggest burdens for developing nations to overcome in their quest for economic growth.
But electricity is a particularly tricky commodity to depend on.
Electricity is a distinctly local phenomenon. If there are no transmission wires, it is trapped at the site of generation. This is fundamentally different from the fossil fuels that powered the last roughly 250 years of global industrial growth, which can be extracted around the world, stored cheaply, and transported wherever there is demand.
But we don’t care. Our demand for electricity is fickle. When we plug our phone charger into an outlet, we demand it be met with fresh electrons.
Unfortunately, however, the supply of electricity is constrained. It takes time to build out new power generation projects and complete the requisite regulatory processes. It also takes money, as electrical generation and transmission infrastructure requires substantial capex. So, potential electricity supply is relatively fixed in the short term.
Yet, despite the fickle supply and demand, the electrical grid must be balanced. Grids are effectively massive circuits, so if supply does not match demand, the consequent variations in voltage and frequency can cause blackouts. Phrased differently, unlike every other commodity, electricity must be consumed as it’s produced (though much investment has been made into industrial scale battery storage, this technology has yet to prove viable for long-term storage). Fortunately, at scale, much of the short-term fluctuations in demand cancel each other out. But the balance is still actively managed by grid operators who dispatch different generation resources, storage mechanisms and curtailment programs to achieve this outcome. One of the more common methods is…
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