> There is no comparison made to the energy consumption of the traditional banki... (2024)

There's also the fact all the power draw of the traditional banking industry is also in the crypto and not accounted for in this analysis.

Crypto still needs POS systems and accounts and large staffs in large offices and all the trappings of finance outside of mining.

That's an excellent point actually. In the current day, more-or-less every watt of crypto is actually on top of the traditional financial system and totally reliant on it.

That's not intrinsic to cryptocurrency, but it is part of the reality we're living in, which is what I want people to be looking at.

Precisely. I don't know how people can argue crypto power consumption against the banking industry when you can drive down main street in any city and pass 15 bank branches and see ATMs every 100ft.

Bank of America alone has 69m customers and real people have real needs - things like going to a branch occasionally, calling customer service, taking out cash, etc. Not only is BoA itself larger in terms of users than all of crypto (I've done the analysis, checked block explorers, etc) it's actually usable by real people in the real world for real activity that contributes to the real economy and actually provides value and utility other than pancake swapping your doodle coins for poodle coins.

I do admit that the comparison is not a strong one. It wasn't intended to be, honestly, it was just an easy example. My point was more that the data presented in the article aren't very useful on their own.

Again, if you think all cryptocurrency has 0 value, then all usage is obviously bad. But the reality is that it has some value, and much of that value is in the form of scams (most types of coins, by number, are scams), and much of the value is just speculative investment, but it is a real thing that people spend real money on. Focusing on miners makes it seem like all the value of crypto comes directly from energy - but nobody would spend energy mining it if others wouldn't buy it.

> My point was more that the data presented in the article aren't very useful on their own.

Yea this is a constant issue in almost all journalism. Numbers are provided mostly without context. E g. "$100k of drugs seized in bust". But was that a single day's re-up? Does it meaningfully impact the local drug supply at all?

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In this case we can dig into numbers somewhat. Bitcoin.com claims the traditional banking sector uses about 2x as much energy. But cryptocurrency handles a tiny, tiny fraction of worldwide banking stuff, so if it was operating at the scale of e.g. 20,000 qps of credit card transactions, for example, it might have substantially higher energy use compared to now.

Your first mistake is assuming that the power used to secure the Bitcoin network is a waste. It is clearly not, since thousands of people believe it is worth paying for.

The second error is implicitly assuming that the number of people Bitcoin serves is correlated with it’s power usage. You could serve the same number of people as the banking sector does now without increased power consumption when you bring layer 2 or 3 solutions into the picture.

Your first point kind of makes it impossible to call anything a waste, right? Everything we do in society is paid for by somebody so it must all be worthwhile.

For the second point, are you talking about Layer 2 solutions that track cryptocurrency in a centralized database, like an exchange, where most transactions happen? Basically just traditional banking but with crypto as the unit of account. Or are you talking about decentralized layer 2 solutions like Lightning Network? I don't think Lightning Network can scale to match what the banking sector does, even if you ignore all the services banks provide other than facilitating transactions. For example you could not pay the US workforce with Lightning Network because it would take several months worth of of blocks just to open a channel to each person, and quickly those channels would run out of inbound capacity and you'd need to open more on top of that, so the Layer 1 capacity still limits the ability to use LN at that scale.

Maybe Lightning Network will scale, maybe not. But VISA or Mastercard could build on top of Bitcoin and allow many more transactions than the base layer does. You would use the base layer for final settlements.

Already now you can get a VISA/Mastercard and use that to spend Bitcoin. But of course, every layer on top of Bitcoin presents its own set of trade-offs in terms of trust and security.

What constitutes waste is completely subjective.

Millions of people play in casinos, that doesn't mean the energy they use isn't a waste and overall negative for society.

Bitcoin is like that times 1,000,000 when it comes to energy usage.

The energy and resources expended mining for diamonds is wasteful also.

> Your first mistake is assuming that the power used to secure the Bitcoin network is a waste. It is clearly not, since thousands of people believe it is worth paying for.

This is a logic error: securing a financial system is not waste but paying more than you need to is. If my bank secured my money by paying an army of dudes with guns to sit around watching cash and did transfers by putting a check on the corporate jet, I’d say that was wasteful, too.

Similarly, the argument that the current system could be matched by L2 systems is both speculative and conceding defeat: even if that worked as well as the sales pitch claims it’d be using more power, and we know that there’s no plausible scenario where usage goes up while power consumption goes down.

The argument that L2 systems is the answer is also directly undercutting your earlier marketing pitch. If the justification for the inefficiency is that it’s needed for security, telling people that they should switch to your I Can’t Believe It’s Not A Bank is either admitting that the security benefits are either not real or necessary, or that they can be provided more cost effectively.

The only people who are committed to using Bitcoin are the people who’ve already bought in: everyone else is going to look for advantages relative to what they’re already using. It’s not just enough to handwave about how the system might at some point be less distant from parity, you need a serious plan for being better at something before you’ll see any significant adoption. Parity might seem like a far off goal, and it is, but it’s not enough to get most people to switch.

What you call inefficiency (I guess in terms of power consumption) is a misuse of the term in a world where value is subjective. It is efficient and necessary for the use case and value it provides. You can argue it is ineffecient compared to Proof of Stake for example, but Proof of Stake is a completely different system and has a completely different incentive structure.

I’m saying also that L2 (and L3, … Ln) is a way to scale the number of users without increasing power consumption. Every time you add a layer, there are other trade-offs for the benefits gained. But at the base layer you still have the benefits of not having a central authority censoring and controlling exchange of an economic good.

> What you call inefficiency (I guess in terms of power consumption) is a misuse of the term in a world where value is subjective

No, it’s simply recognizing that competing systems match or exceed on security without the same cost. You’ve effectively acknowledged this by saying that the system will be more usable and affordable by using something better designed which eventually clears in Bitcoin to reduce the number of expensive transactions.

No, not something better designed. Something augmenting Bitcoin to make it cheaper to transact while maintaining a base layer for final settlement that is secure and decentralized.

You leave out other characteristics that make Bitcoin an attractive economic good, when you think that matching or exceeding the security at a lower cost is a valid argument against Bitcoin. If it was all about power consumption, Bitcoin wouldn’t keep increasing in demand and price.

Look, you can theorize all you want about the inefficency of Bitcoin, but the market has spoken and continues to speak.

> thousands of people believe it is worth paying for.

Except, in good old libertarian fashion, they tend not to pay for it. First, the vast majority of the around $100 it costs to process a BTC transaction comes not from explicit fees, but from (invisible) money supply increase (the mining reward). That still neglects the environmental externalities, which are probably in the $30+ region.

Just in case, there are solutions to scale transactions count outside "7 per second", where these "7 per second" transactions are used to settle a larger set of transactions happening on the layer 2.

Also, when talking about extra service payment networks like Visa offering, like anti fraud, gotta remember that at least part of problems this service solving is caused by the design of the network itself. And while it is not obviously energy hungry service, it is part of what everyone is paying 2-3% in credit card processing fees.

I would love to see a solid comparison of traditional banking total cost vs Bitcoin (if it would replace traditional fi), but it is certainly not as simple as the above, if even possible...

> Also, when talking about extra service payment networks like Visa offering, like anti fraud, gotta remember that at least part of problems this service solving is caused by the design of the network itself. And while it is not obviously energy hungry service, it is part of what everyone is paying 2-3% in credit card processing fees.

The design of credit cards does suck for fraud. I go to a website to buy a product, I put in my card number, exp date, CVV, and it turns out that site was actually compromised and some attacker got my card info. Now I have to cancel it and get a new card. It would be way better if what I entered on that vendor's site was a one-time authorization code, not the full information with which the attacker can spend from my card at other places.

Crypto is better in this regard since I never transmit my secret information to the vendor! But crypto is also worse, in that, if I do send a transaction to the wrong place (for example, because the vendor's website was compromised and told me the attacker's address to send to), I'm screwed. And if my electronic device is compromised and my private key stolen I'm really screwed.

Ultimately even though crypto has a technically better design, since it also has no support department and no dispute resolution I'm at higher risk. I've never lost money from a stolen credit card. You're right that I pay for that in the 2-3% processing fees... but it's not like Bitcoin is feeless, either.

> Also, when talking about extra service payment networks like Visa offering, like anti fraud, gotta remember that at least part of problems this service solving is caused by the design of the network itself. And while it is not obviously energy hungry service, it is part of what everyone is paying 2-3% in credit card processing fees.

Oh, no argument there but that’s not the only part of fraud I’m thinking about. I’ve had a card stolen but it cost me exactly zero because their anti fraud system was able to detect that the person with the credential wasn’t buying the kinds of things I buy at places I normally shop and blocked it. That’s a LOT better than the countless stories of people making a mistake in where they sent cryptocurrency or losing control of their wallet, and not getting help other than people saying it was their fault.

My point definitely isn’t that the current system is perfect but rather that what seems to happen a lot is that people focus on one technical problem like operating a ledger and forget the surroundings. I’d definitely like to see a detailed comparison, too, but my preferred solution to all of this would be an increasingly steep carbon tax to incentivize everyone to do better.

>This is your first mistake: the traditional banking system does not have a security model predicated on the ability to waste power. Bitcoin does, and it’s dynamic so there’s no way to waste less power which isn’t explicitly ceding control.

This doesn't make sense. The power is used to secure the network. Your first mistake here is you must think of Bitcoin as useless and any use of power is a waste. Just to help you, if BTC was useless it would be worth $0 traditional banking dollars, as this is not the case your whole premise is a waste.

Yes, Bitcoin uses proof of wasted computation as its security mechanism. That’s why it’s widely recognized as an inefficient design because you can just look at the alternatives which are faster, more secure, or both and do not require the energy equivalent of a fair-sized country to operate a database.

It’s a great software engineering case study: the algorithm is a neat solution to a problem that almost nobody has, so while it’s cool as an intellectual exercise it’s failed to see much adoption even as it passes the middle of its second decade because it’s not cost effective for most people. It’s kind of like the idea of a supersonic airliner: a neat engineering challenge but a failure in the marketplace because 99.9% of people don’t need the problem it solves desperately enough to pay so much more.

BITCOIN ETF

MIC DROP