Addressing the Energy Consumption Issue

Hello everyone!

A young wizard named Forrest took me aside at a new years eve afterparty and told me his concerns about the energy use of cryptocurrency.  He was very passionate about this problem and so I dedicate this post to him.  We really ought to address this as carefully as we can, and with an open mind to this problem.  After all there could be real danger of a "Economics 2.0" situation a la Charles Stross's book "Accelerondo", in which economic competition drives some rather nasty developments which eventually leads to the building of a Dyson sphere around the sun, taking all the energy available in our star and using it towards some financial processing.  Scary stuff indeed!

First off, lets try to recognize the factors that are involved.

When we see a line of thousands of idling cars waiting on a packed highway, as we do all too often, each with a single occupant, spewing carbon dioxide and worse into the atmosphere, we don't immediately say "cars are evil".  Nor do we do so when we see a crushed armadillo or frog or human lying mangled by automotive impact.  We know that there is more to this problem than might at first meet the eye.  The price of gas and the history of the oil refinement industry are part of this story, as are the social factors that went into the construction of the highways, and the adoption of drive-to-work suburban mentality, and the fiat empire that watches over and feeds this hierarchy that makes it possible.  It's easy to have sympathy with the "cars suck" viewpoint, and cars are often compared to cryptos for pedagogic reasons.

When we see that people are being murdered over marijuana deals, we don't immediately say "the plant known as cannabis is evil".  We know that prohibition is the evil thing here, and drug abuse, and lack of education, and various other factors.

So to see a ton of electrical power being used by bitcoin miners, lets just say this is power that might have gone to something more useful, or perhaps carbon that might have remained in the ground.  If the heat isn't being used, it's wasted.  Like the nuke plant that dumps the tepid water in the river, or the flare-off at the local oil field.

Why are these folks using so much electricity and isn't it wasteful?  How could it be avoided?

That's the problem in a nutshell.

Before we continue with looking at answering this question, lets look at some metrics to define the problem.



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Many commentators state that bitcoin miners use as much power as a small country, or give some numbers to describe the amount of power being used.  However this belies the difficulty of analyzing the issue: in fact we don't know how much power is being used.  It might be enough power for 100 countries, or it might be a lot more or less.  The only way we can estimate is by looking at the efficiency of commercially available miners and making some assumptions about what people are using.  Technically, there is the possibility that a big fraction of mining is being done by one guy in a closet with a set of AA batteries.  However we know from all the mining porn we've watched that there are indeed large farms spinning lots of fans and at least making it look as if they are big power-hungry mining ops.  And logic says there would be, as there is spare capacity and people who want to turn it into money.

If we want to know how much energy is being used by the miners, we need to know something about the efficiency of their machines.  This is a little difficult because we know for sure that somebody is out there now mining with some old x86 CPUs powered with a diesel generator, while others are mining with stealth super-efficient technology which we don't know the name of yet.

So what can we say?  Well a good order-of-magnitude estimate is the upper bound on rational miners in the steady state : they aren't going to be using more energy than the mining reward provides.  For BTC today that's about 13 BTC per block (12.5 in coinbase and half a coin or so in fees) or 1872 BTC per day.  Let's call it about 2 million dollars a day.  To find some comparison for this figure we can look at the earnings of Exxon-Mobil [XOM] which are declared to be something like 53 million dollars per day.  So that's kind of the hard cap on energy consumption of Exxon-Mobil (not the energy you use when you buy it, but what they use).

The argument here is that marginal cost = marginal revenue is the upper limit of the cost, as presented by Paul Sztorc.  This is an economic equilibrium so I argue it is unlikely to be actually reached, however it is as good an estimate as we can come by.  The actual power use will be somewhere between 0.01 and 0.99 of what we calculate as all the miners block reward spent on electricity at some nominal price.  Since we are speaking in order of magnitude one-significant-digit terms here lets call it ~ 1 million USD per day spent on electricity.

Wasteful?  Perhaps.  However it's worth pointing out that this is peanuts compared to some other energy sinks.  For example, US military energy costs are estimated to come to some 20 billion USD annually, or near ~60 million USD per day in energy costs (apparently down quite a bit recently as measured in real units).  3000% higher than bitcoin miners, and probably much more.  How about street lights?  Cars?  Airplanes?  The waste goes on and on.  But before we get carried away, lets try the analysis of Paul Sztorc on the energy requirements of fiat issuance.

How much fiat is issued daily?  Well of course we don't even know that much, that's the nature of the beast.  But we can look at some estimates.  My quick search of FED stats suggests that the figure is close to 3/4 of a billion USD per day.  What are the costs associated with this production?  At first one is tempted to dismiss out of hand Paul Sztorc's claim that marginal revenue tends to equal marginal costs here.  What are the costs of issuing fiat currency?  Basically nothing, as no energy or cost is a associated with fiat issuance.  However, this leaves off the associated indirect waste of the process.  Sports cars rotting away in garages, empty mansions being heated, massive development projects that are unneeded or worse, and of course warfare, fascism, monopoly business and destruction of free markets towards even greater inefficiencies.  All these things produce waste far beyond what the measly 2m usd per day of BTC rewards can do.

While this comparative analysis is useful in the present day, we should be clear it doesn't necessarily work in future economic conditions.  The energy costs and potential wastes of proof-of-work in other political conditions also needs careful consideration.  Back to that later.

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OK so by now we've addressed how energy use is certainly a concern, we've put an upper bound on the problem and compared it to some other problems.  Now lets take a look at some other folks discussing this badly:

 

What nonsense! The bitcoin network has NO minimum energy requirement per transaction. People are choosing to use whatever spare capacity they can find to mine as they see fit, as this is how the system is designed to run - on spare power capacity. Tying money to energy results in LESS energy waste, not more. Maybe we should turn the lights off after all, now that money doesn't grow on trees and every joule could be satoshis in the wallet. Which scenario are you more likely to watch carefully your fossil fuel usage: 1- fuel price tied to fiat which you can issue to yourself in arbitrary quantities at no cost 2- fuel price tied to bitcoin which nobody can issue privately and is tied to energy use ? Go on answer the question as to which scenario you are more likely to be efficient about your fuel usage.

Another example, this one from an in-color whitepaper that pushes a 100% premined proof-of-stake coin:

All four points are dubious here.

So there are many examples of people incorrectly stating the nature of this problem, but does that help us?

In fact many people push the agenda that proof-of-work is an out of control energy disaster requiring tons of energy, when in fact the networks function at any level of energy and are designed to run on spare capacity.  The issue is not that proof-of-work is somehow an energy hog, but that people are choosing to put their energy into mining rather than into other projects.  This is the issue we need to address.

Another opinion is that a tie from currency to energy would be a huge boon to the energy budget of humanity, leading to far less wasted energy.  How would this work?  Well once there are tools that let us turn energy directly into money, and once we cannot get money from nothing by knowing the right people, we will be much more careful with our energy usage.

Such a future is that which many public coin users hope for.  Ask yourself who is more likely to waste energy, somebody who can issue currency or get it very cheaply and trade it for energy?  Or somebody who had to use energy to get currency.

Let's review:

1 - The excessive use of energy by miners of POW coins is both a problem itself and a symptom of other problems inherent in our financial system.

2 - This problem is often misunderstood and misportrayed by people pushing their own agenda

3 - The rise of public proof-of-work coins has a potential to vastly decrease the waste of energy currently occuring during the anthropocene extinction

4 - The energy and other wastes produced by private currency issuance are vastly worse than those produced by public currency issuance

5 - The jury is out on whether other techniques of public ledger maintenance could be improvements

 

That's all for now.  Tune in later for an updated quantitative analysis of satoshis-per-joule.

Monumental Ignorance - an instruction manual

Hello everyone!

Mea culpa - of course we do this tongue-in-cheek exercise as a way of understanding better the causes so we can avoid the disease.  We need to fear this condition, recognize that it could strike at any time, and avoid it at all costs.

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There are various reasons we might wish to avoid knowledge.  Or so they say. "Ignorance is bliss" suggest some folks who I was going to call idiots but am going to hold off there.  Perhaps what is meant is that lacking the courage to fight, or to progress, one can simply throw in the towel and pursue monumental ignorance as a cause and a creed.  Then we are free to shout "bliss" or "win" whilst decaying away in obscurity, never advancing to reach the next screen nor to influence the world in any further substantive way.  There are some communities dedicated to this goal; perhaps you know some.  I spent some time reading up on them and have been on the fence as to whether this was worthwhile or not.  Lets look at the modus operandi and see if we can learn from their technique or if I've just been wasting my time.

The difference between ignorance and monumental ignorance is that all of us have ignorance (or at least, I do), and at least feebly try to improve, but those monumentally ignorant pursue and champion ignorance - avoiding any progress.  It doesn't matter from what position on the path of knowledge you start, it could be very advanced or near the start.  What matters is that you choose to avoid continuing on the path of learning, consciously or not.

The first thing to note is that to give up the pursuit of knowledge is to allow the four enemies of knowledge to run rampant on our game; to take them as our allies.  Lets look at them in order.

1 - Fear

Fear is the ultimate motivator.  Learning something would mean that you were previously wrong, and childish egos are deathly terrified of such an occurrence.  The fear of public embarrassment when we make a mistake, of something new surprising us, is apparently crushing.  The fear of seeing that we aren't very quick at learning keeps us from trying.  Embracing fear as an ally means that we must be deathly afraid of an alternative point of view, fact, language, symbol, or tailing of knowledge to pass before our thoughts.  Fight it!

Label anything "other" with a tedious pejorative

When a teacher, a book, or some other information comes near, we must fear it - we must label it with a pejorative and push it away in disgust.  Generally those pejoratives that we are most sensitive about ourselves work best for this task.  It doesn't so much matter if anyone else is insulted by them, just that we would be.  Use them regularly and build a repertoire of such insults, so that you can throw them out when something which might push you to consider a new viewpoint comes near.  Really anyone not in your small clique of let's charitably say like-minded individuals should immediately be ignored and insulted just in case.  Especially if the messengers look different or speak differently or dress differently or eat differently or have different relations or vocabulary.  Even those in your own clique had better be on the lookout - if they introduce a book (god forbid) or a symbol or idea which might lead to some learning - they must be banished and branded with some of these tedious pejoratives.  Always and immediately label any potential knowledge with a tedious pejorative!  This will safely keep us isolated from learning about the scary world.

2 - clarity

The second enemy of knowledge is clarity.  We see that those in pursuit of monumental ignorance take this very seriously, like some Christians take immaculate conception.  As a citizen of monumental ignorance, you must refer only to the canon of "everyone knows" as something that cannot be questioned, in deference to absolute clarity.  That one's world view is in fact somewhat fuzzy in various places simply cannot be acknowledged, for this would allow some knowledge to creep in at those places.  The key to embracing clarity as a tool to remain ignorant is repeated self reference and continual attention to the same material as gospel, followed by continued self-assurance that you know some stuff, when in point of fact you don't.  The fact that you really think you know it all is actually quite good evidence that you don't! [Note self-reference here]

Credentials

You might expect that some people use their credentials to fool themselves with clarity to remain ignorant. "Of course I know everything to know about XYZ, look at my Nobel prize". Indeed, such credentials can be quite helpful in maintaining our ignorance.  For this reason many don't choose the path of monumental ignorance until late in their academic careers, achieving first enough publications and degrees that one builds up a tower in which to hide.  However some folks don't even bother with obtaining credentials!  A little imagination and the same effect can be produced with almost anything: "Of course I know everything about XYZ look at my bottlecap collection, bitcoin stash, sad companions, furrowed brow, beer belly... ".  It all works because anything can be a credential in the mind of the monumentally ignorant.  In extreme cases I might even say that a blog post itself could be an act that proves I know something and therefore can't possibly learn anything more.  You see the pattern here.  Tell yourself forcefully that you know everything about XYZ because of reasons, believe it, and this will save you from learning anything new.  Rinse and repeat.  Remember to repeat the mantra: you know more than everyone else.  This is a great way to fool yourself into remaining ignorant.

3 - Power

So-called power is a very useful tool for the citizen of ignorancia.  Of course it isn't real power here we discuss but petty tyranny which you can pretend is power that we seek for this purpose.  If somebody tells you that you are wrong, then you can simply have them drawn and quartered.  To the ignorant, this is power.  This will ensure that you can go on being ignorant and that nobody else will ever try to help you learn something.  In such a way your entire life can easily be wasted in misery.  Isn't that great?

4 - old age

Lastly we have old age, another clear ally of those in pursuit of monumental ignorance.  Diet and behavior needs to encourage early onset dementia, such that it's there for all to see.  Cancers usually are also near.  Start early!

One can here also supplement by telling ones self that nothing matters because one is going to die anyway.  This might be helpful because in the end, the truth is that ignorance is miserable.  We must avoid this truth at any cost so that we can remain in our state of monumental ignorance.  That "it just doesn't matter" can help to keep up motivation for the charade.  After all, if one contemplates death one might realize that time is of the essence and perhaps we should use every moment to learn more.  This wouldn't do for our goals here - so instead, death must remain something like other elements of knowledge - to not be considered.  You know it all already.

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In addition to learning the techniques of the would-be ignorantists, observing them we can also see the misery that such a strategy creates.  Forcing your mind shut in this way often forces you to view others as fundamentally unequal, as they don't have your clarity and petty power.  This means we cannot have friends.  After all, a friend could be a teacher - so we definitely don't want that.  Remember to be afraid of equality, and of the other - and you will be well along your way towards a life of abject misery and monumental ignorance.

Postlude

In fact those with the wherewithall to pursue such a program likely deserve our sympathy.  The empath will be wondering how on earth these people found such levels of torment, was it parental abuse?  Early hopes dashed?  Beatings by another poor soul pursuing monumental ignorance?  Or something else that produced such fear of knowledge?  It could also be that the car simply entered the rut, it was not steered into the rut.  The driver simply hasn't found the energy or motivation to get out of the rut.

In any case, we might also ask how such a condition could be escaped from.  The traditional answers are either that 1) let them stay there, they serve a purpose as demonstrators of the archetype of failure or 2) keep at them with stuff that could wake them up, eventually some part of them will see that there is something to learn - learn it - and then like a bird finding a berry bush for the first time - return to the tree of knowledge.

Some tools recommended for those stalwart souls who would attempt to educate the monumentally ignorant include trickery, hallucinogens, adventure, and danger.  The typical things used in adulthood rituals.  Getting folks physically outside of their zone of contentment can really help them to see things differently.

Just as the empath might shed a tear for the fate of a man on the street rubbing his own excrement on his face, or for a rapist (quite a similar condition of public idiocy really), the empath will also cry for the monumentally ignorant.  However lets not forget that everything in life has it's purpose, and its reason, in every season, forever jah.  If we are to give up hope entirely that we could learn something from the monumentally ignorant, then would we be monumentally ignorant ourselves?

Yeah maybe, but that doesn't mean you should skip class to hang out with us does it 🙂

I will see you next time.

What happens when bitcoin is secured by fees?

Hello everyone!

As you probably know as a reader of this blog or as somebody who has heard of woodcoin, I've been particularly concerned with this issue.  It's the issue that LOG tries to solve.  So lets take yet another look.

To be explicit: the rapid drop of the coinbase reward given to miners, chosen to be in a geometric series, means that BTC will change from paying those who secure it with coinbase rewards (new money) to paying those who secure it with transaction fees (old money paid by existing users).

This has come up a few times recently as other people besides me have considered the issue.

Today we have full blocks that contain something on the order of 2000 transactions per block.  The average fee is about half a millie so the fees per block come in at something like 1 BTC per block.  That's almost 10% of the coinbase reward already.  Another halving, and another factor of 10 jump in fees, and 2020 could see the new era upon us already.

In 2020 the coinbase reward drops to 6.25 BTC per block.  A factor of 10 increase in fees as people compete to get their transactions into limited block space would mean 10 BTC in fees.  This implies a per TX fess of 0.05 or 5 bitcents.  Today that is roughly worth a case of beer.  In other words - you aren't going to buy a case of beer with bitcoin anymore after 2020.

Part of the problem here is that BTC doesn't exists alone.  There are thousands of other bitcoins all vying for miner's time and consumer's transactions.

It's 2032 and you're 18 years old, what coin will you use?

Imagine for a minute that you now are starting to work, to spend, to save.  The year is 2032 and only 63/64 of the total bitcoin supply have already been given out.  The coinbase reweard is now 0.78125 BTC.  This looks an awful lot like a premined coin doesn't it.  To make matters worse the fees are higher than some other coins (cough) that still have substantial coinbase rewards to pay miners.  Are you going to jump into bitcoin as this person with the same enthusiasm that others jumped into bitcoin back in 2012?  I suggest that no, you wouldn't.

So what happens then?  As people move out to other coins, the price lowers, the fees lower in chorus with this so perhaps the effect is slowed somewhat, but also the network security against double-spends lowers also in chorus.  In short, this is something of a crisis for mainnet BTC.

How about LOG ? 

OK so if BTC doesn't look that great to our newly financially independent teen in 2032, lets take a look a LOG.  Instead of 63/64 of the supply being already released, well under half the supply is released.  This means that compared to BTC you are still an "early adopter" of logarithmic release coins, and yet without the spectre of no-cap inflation.  The fees are also lower for the same level of double-spend security.

So you tell  me, what coin are you going to use for spending your allowance on the latest virual-sex sim-stim, purchasing your hoverboard for delivery from the space station, or for saving up to buy that camel?