Bitcoin is a stupid idea, but blockchain is a revolutionary one
Martin Gallardo
TheStrategyMBA.com Founder | Partner @ martinhacks.com | Built 7 Figures Growth Services for Big4 | x-PwC Director, x-Accenture Digital Lead | Business & Sci-Fi Author | Board and Angel investor in AI & Climate
“Bitcoin’s electricity consumption will grow to rival that of the nation of Denmark by 2020” March 2016, Motherboard
Published originally in my blog in 2017.
What is blockchain?
Some people believe that Blockchain is the silver bullet for everything. Let´s explain what blockchain technology is briefly and why all this fuss around it.
Speaker Bettina Warburg explained in a very clear and concise manner at a TED talk (1) “Blockchain technology is a decentralized database that stores a registry of assets and transactions across a peer-to-peer network. It's basically a public registry of who owns what and who transacts what. The transactions are secured through cryptography, and over time, that transaction history gets locked in blocks of data that are then cryptographically linked together and secured. This creates an immutable, unforgeable record of all of the transactions across this network. This record is replicated on every computer that uses the network. It's not an app. It's not a company. I think it's closest in description to something like Wikipedia” 
Source: Financial Times
Applications where blockchain can be critical and an adding value technology. Blockchains excels at verifiability, transparency, privacy, integrity, redundancy and trust (2). Some of the solutions DO make sense are:
- High value transactions and cross-borders remittances. Transferring thousands and millions of dollars between countries could be easier, faster and more secure.
- Smart contracts and ICO. A smart contract (e.g. Ethereum) could facilitate secure, trusted deals between parties and ICO offerings could help companies raise money faster with much lower legal fees.
- Fractional ownership and real estate. Clear ownership and rights divided between different owners (e.g. Fractional ownership in autonomous cars).
- IoT Machine-to-Machine transactions.
- Digital rights. Books, music and video could solve the large problems related to proof of ownership and digital content rights.
- Digital identity, health records and voting. Decentralised personal information could be a fantastic tool for governments and administrations.
Applications where blockchain are superfluous and a waste of energy and resources for society:
With the power of blockchain, some people started to sell “This can be solved with a blockchain”, “Let´s get rich with a ICO” and “Let´s get rich creating our own cryptocurrency”. Blockchain is a complex technology with “fifty shades of legal grey”. Sometimes, existing digital systems are faster, cheaper, more flexible and a better solution for a given problem. It is sort of a death by being too secured. Some of the solutions DO NOT make much sense are:
- Data storage. Internal corporate data storage and communications may not be as secured, efficient and cost effective as current alternatives. Only start considering a blockchain database if you require “shared write access”, “unknown and untrusted writers” and “untrusted 3rd party”.
- CryptoCurrencies, like Bitcoin. Paul Krugman argues that Bitcoin, similarly to gold, has no real value to society and so represents a waste of resources and labour (3). Bitcoin is like gold… but without intrinsic value… um… yeah…. so… basically, smoke? Yep. The extrinsic value or price of Bitcoin is up due to its great demand bubbled up by speculators, new gold mine diggers, techies wanting to get rich and its constrained supply by Chinese bitcoin miners and the system itself. The supply of Bitcoin is fixed and there is no other use for it besides as a currency (4). https://i.memecaptain.com/gend_images/d8SWxg.gif But people love speculation and easy money… until it crashes or arrives at the final number of bitcoins.
Even if you disagree with the utility… you will agree with me later on why it does not make any sense. Do I need a blockchain? “Could this have been fixed before blockchain?”. Blockchain is composed of existing pieces of technology (a bit of cryptography, a P2P consensus protocol and basic storage capabilities), so it is key to ask yourself why you couldn’t use these pieces of technology before.
Researchers have created some decision trees or decision models to infer if you need a blockchain or not (2)(5). 
Source: ETH Zurich (2)
The blockchain is unsustainable as a currency system or for high volume monetary transactions. But let´s say Blockchain is the silver bullet for everything. There is a big elephant in the room: Power consumption
I was very lucky to meet John Lilic, Co-founder of Code to Inspire and ConsenSys member, at Oslo Blockchain 2016, where I was speaker on the possibilities of blockchain for solving grand challenges (6). He wrote a great piece about the sustainability of blockchain (7) and I will talk more about it later (8).
Bitcoin runs an average of 300 000 transactions a day and 14.02 TWh of electricity consumption annually (10). Actually, I just checked again before releasing the article and it stands at over 16 TWh. The “A Single Bitcoin Transaction Takes Thousands of Times More Energy Than a Credit Card Swipe” (10) article highlights how the cryptocurrencies are still unsustainable. Bitcoin uses around 147 kWh per transaction. Ethereum performs better, at 45 kWh per transaction. Bitcoin and Ethereum already consume more energy than some countries. Bitcoin is already equivalent to the 78th country in the world (9) and close to the 0.1% of the world´s electricity consumption. If we were to have a complete cryptography based economic system, the amount of electricity needed would be massive. Some of the current supporters logic is disparate (12), claiming that by 2020 Bitcoin could replace the entire economic system, requiring “just” Denmark´s equivalent electricity consumption (13) or around 33 TWh (14). That´s just a complete non-sense. Bitcoin value is not interesting (as it works more like gold). Bitcoin (or blockchain as transaction mechanism) level of transactions is important. VISA and MasterCard process together more than 100 billion transactions a year. If a new world super-cryptocurrency were to replace them, and assuming 100 kWh per transaction, it would consume around 10 000 TWh, or almost a third of the current world´s electricity production. Other way of calculating it, it is by percentage. VISA and MasterCard together process around 1000 times more transactions. Scaling up Bitcoin would consume 0.1% times 1000 = 100% of the world´s electricity production. It is important to note that these are different systems (VISA are transactions while Cryptocurrencies are monetary systems) and that there could be improvements in the efficiency of the system (26), but it serves us to illustrate the upcoming problems of cryptocurrency sustainability.
From coal to crypto
Where all of this electricity comes from? Let´s take a look at some statistics: “Chinese mining pools control more than 70% of the Bitcoin network’s collective hashrate. China´s extremely cheap electricity prices has spured the crazy race to the bitcoin mining. Energy producers can freely burn coal and use the energy for Bitcoin mining. Instead of physically transporting the coal, it’s easier and more cost-effective to establish a Bitcoin mining operation near a source of coal and convert carbon directly to crypto” (8). China has some of the most polluting electricity networks in the world, composed mainly by coal power plants. Your bitcoins are not yellow, they are black and dirty. They are still smoke, and smoke made of coal ash polluting the lungs of people in the other side of the world. Do you want to know how a mining center looks like?
Life Inside a Secret Chinese Bitcoin Mine (15) 
Is this the future that we want?
Stay tuned. The Future is Waiting.
A fascinating introduction to Climate Change, Transport, Energy, Society and Space, Robots, Artificial intelligence, Androids, Enhanced bodies, Brain-technology interfaces, cyborgs, 5G, AR, VR, MR, HR, IOT, Quantum, Bio and Optical computers, genomics, supermaterials, nano factories and the future of food.
A mind blowing forecast for our near future.
Read the book reviews and get your copy in .pdf .epub .mobi (Kindle) and format here
Get the Amazon Kindle version directly here
Get your paperback version through Amazon here
———————
References:
(2) Do you need a Blockchain? Karl Wüst∗, Arthur Gervais† ∗karl.wuest@inf.ethz.ch, †arthur.gervais@inf.ethz.ch. Department of Computer Science. ETH Zurich, Switzerland https://eprint.iacr.org/2017/375.pdf
(6) Youtube https://www.youtube.com/watch?v=ZipWu7rqxeo
(7) Blockgeeks https://blockgeeks.com/bitcoins-energy-consumption/
(8) Buybitcoin https://www.buybitcoinworldwide.com/mining/china/
(9) Digiconomist.net http://digiconomist.net/bitcoin-energy-consumption
(10) Motherboard Vice https://motherboard.vice.com/en_us/article/ypkp3y/bitcoin-is-still-unsustainable
(11) Motherboard Vice https://motherboard.vice.com/en_us/article/aek3za/bitcoin-could-consume-as-much-electricity-as-denmark-by-2020
(14) Wikipedia https://en.wikipedia.org/wiki/Electricity_sector_in_Denmark
Team Leader - Data & Analytics at Sporveien AS
6yOne interesting way to see this is to draw a parallel to traditional monetary mechanism called Seigniorage. It is the difference between face value of currency to their printing cost. A currency note printed by governments should have complicated design and features difficult to replicate. In bitcoin, similar mechanism used is exponential increasing difficulty in calculations to create an additional bit coin, after certain threshold. Whenever the market price of bitcoin exceeds cost of electricity to produce it, people tend to mine them to reap the arbitrage. To make things worse, BTC and its market is unregulated, decentralized. So no one can intervene. Inshort, Seniorage = arbitrage = value of BTC = electricity consumed = social loss due to electric consumption. It cannot be stopped until the perceived value of BTC remains lesser than electricity cost to produce them. PS: No one is saying, underlying technology behind BTC is robust and its potential to prove as a disruption to incumbent monetary mechanisms - if succeeded. I dont think it will succeed. As long as it stays speculative, and as long as its value is mentioned in fiat currency, it is a high tech ponzy scheme , consuming energy and fooling masses with speculations.
TheStrategyMBA.com Founder | Partner @ martinhacks.com | Built 7 Figures Growth Services for Big4 | x-PwC Director, x-Accenture Digital Lead | Business & Sci-Fi Author | Board and Angel investor in AI & Climate
6yIt s a pity that we do not see the energy consumption of this wasteful approach 😞😞 Bitcoin is on its way to consume 1% of the worlds electricity while billions are used on green investments to reduce 1%. Nobody wants to talk about this unfortunately as it s better to think about how to profit from speculation. There are much better value holding assets and monetary systems. On the other hand, blockchain can have tremendous positive impact on how we trade energy, save energy and become efficient. I believe more in systems like IOTA or even some use cases of ethereum
Senior Project Manager | Pharma Packaging Machinery | PMP® | Leading International Projects @ Uhlmann | Lean Six Sigma Green Belt | Industrial Engineer
6yMartin I totally agree with the blockchain part, it will most likely revolutionize Technology in the next decades. Regarding bitcoin, it is the best live blockchain prototype test, It will probably need some refinement but it may revolutionize monetary systems in the future. Right now it serves speculation as well as helping people against hyperinflation in many corrupt countries. Btw Christmas lights are really a waste of energy 😉