After arguing at length that Bitcoin was a bubble, a worthless digital trinket destined to fall to zero, observers will notice a recent shift in criticism.
A former skeptic of Bitcoin myself, I can sympathize with the sentiment.
If you’re new to Bitcoin, you might not be aware that Bitcoin uses energy to both fairly distribute the money within its economy, and secure its history of transactions.
After all, we must accept that Satoshi Nakamoto did not succeed in creating a new money when he launched Bitcoin.
Users who wanted to compete for new Bitcoin issuance were instead required to use electricity and computing resources to acquire bitcoins.
This is exactly how Nakamoto received his bitcoins, by running computers and paying for the electricity needed to create them.
It is because of this spontaneous monetization that Bitcoin can be viewed as a major invention, and why it can be argued the free market deemed Bitcoin money.
However, in practice, alternative cryptocurrencies do not do this.
By using energy, Bitcoin was also able to keep two important aspects of this process outside of the code itself.
Indeed, we have observed great changes in the market for Bitcoin issuance over time.
Today, to compete for newly issued bitcoins, specialty hardware is needed, as is a reliable source of cheap power and abundant energy.
As more people began dedicating energy to compete for new bitcoins, the competition forced efficiencies and forced out those who were unable to compete.
However, because they do not use energy, these cryptocurrencies need some other way to distribute the currency they issue.
For example, to compete for new money issuance on proof-of-stake networks, users often need to first own or lock up a certain amount of the currency.
After Ethereum’s planned transition to proof-of-stake, the protocol will indeed use less energy.
By contrast, Bitcoin users don’t need to buy Bitcoin at all to compete for its money issuance.
dollars are in circulation, and trust politicians to maintain these aspects of the economy in a way that promotes their personal or commercial welfare.
Likewise, when new money is issued in the fiat ecosystem, it always occurs at the request of policymakers who work with financial institutions to lend out the new money, entering it into circulation.
By contrast again, because Bitcoin uses energy, anyone who can produce energy can compete for the new money issued by the protocol.
Because money plays no direct role in this competition, large institutions do not and cannot benefit over small entities.
Bitcoin’s energy use does provide an important function for transactions, the cumulative computation they conduct making it prohibitively costly to rewrite the ledger itself.
Bitcoin is a complex distributed system seeking to achieve an ambitious goal, and energy use is and will remain fundamental to this system.