Introduction

Bitcoin (BTC-USD) (COIN) (OTCQX:GBTC) has been attacked from every side recently, and this last month was no exception. This time the fear-mongering went straight to the jugular, claiming that the critical threshold of 2 degrees Celsius can and will be breached by Bitcoin miners alone. Not only this, but it will happen in the next 16-30 years. Yes, that’s right; Bitcoin will destroy the ice caps, wipe out the polar bears and destroy all coral reefs, which will lead to the end of life as we know it.

Unfortunately, it’s all a bunch of bunk and I’m going to explain why.

#1 Bitcoin mining machines are getting more efficient

This may come as a huge surprise, but computers are getting faster. Bitcoin mining machines are no exception. In the early days, everyone just mined with their CPUs. In fact, every user was a miner because mining was built into the Bitcoin wallet software.

But, then came the age of FPGAs, GPUs, and finally ASICS. However, as more miners join, we don’t get more Bitcoins because the issuance schedule is fixed. Instead, the difficulty has to increase (or decrease) to keep the block reward as close to ten minutes as possible.

This is accomplished with what’s called the difficulty, essentially how hard it is to solve the puzzle. Difficulty started off at 1, and today it’s over 7.184 Trillion. In other words, it’s become 7.184 Trillion times harder to mine today than it was in 2009.

Why does this matter?

It matters for two reasons:

  1. There are enough miners of Bitcoin already. We actually don’t need anymore. Bitcoin is just as happy with ten miners as ten million. The only thing gained from more miners is more security. But, at a certain point, when there’s no free profit to be gained, miners have to compete with each other over the scarce rewards issued by the network. This competition may take the form of new Bitcoin mining companies, but it can also take the form of an existing company just updating their hardware.
  2. It’s possible for the hash power of the Bitcoin network to go up by a factor of 10, or even 100 over time simply due to new equipment being installed in existing facilities (no more power needed than they already have deployed).

Translation: It’s incorrect to assume that if Bitcoin’s network grew 10x or 100x larger, that we’d be using 10x or 100x more power.

#2 Bitcoin miners are the energy purchasers of last resort

From the most remote parts of Canada, to abandoned smelting factories in New York, all the way to the mountains of Kazakhstan, Bitcoin miners will go wherever there’s power that’s cheap. They do this because it’s necessary when the market is in a downturn.

Anyone can be a Bitcoin mining wizard during a bull run. Paying $0.25/KwH for power? Doesn’t matter, you’re a miner! For contrast, break-even is around $0.06/KwH today (depending on your equipment).

Bitcoin mining is a competitive industry and having cheap power is the biggest advantage you can possibly have.

#3 Many bitcoin mining operations use green energy

Iceland

If you ever travel to Iceland, you will discover that they are a country that uses 100% renewable energy. This is accomplished using geothermal energy, which taps into the unlimited supply of water near boiling temperatures that just comes right out of the ground. This hot water is also how they heat their houses in Iceland. Cool, huh?

Do you know who else is in Iceland? Genesis Mining, one of the largest cloud mining providers (or the largest, depending on who you ask).

genesis hiveSource: Hiveblockchain (OTCPK:HVBTF)

There are exactly zero carbon emissions from this operation.

Pacific Northwest – USA

If you ever travel to Wenatchee, Washington, you will find many Bitcoin mining companies, such as the failing enterprise GigaWatt (WTT-USD) and others that have fared better, such as Salcido Enterprises. Why are they there? The cheap green power provided by the Columbia River and its dams.

You see, the world’s energy consumption is changing. More and more energy is green from the start. That means using it for computing adds nothing to our carbon footprint.

Iceland and Washington state have become Meccas for Bitcoin mining. This is hardly the kind of thing you might expect if you’re reading the shock and awe reports from the media. But, that’s reality for you.

#4 All economic growth requires energy consumption

Dan Held did a wonderful job of explaining this in his Medium post. If you’ve got the time, I recommend reading the whole article.

We have an economy based not on money, but on work and energy.

Let’s look at energy consumption and GDP, first in aggregate and then per capita.

power and gdpSource: Medium – Dan Held

Here’s the per capita view.

gdp and powerSource: Medium – Dan Held

Our energy needs are increasing all the time. Leading this charge are solar and wind, which are now cheaper than ever.

Solar power for example has the potential to give us nearly unlimited energy, and it’s getting more price performant every year. Solar and wind power are the future, and there’s plenty of each.

solar powerSource: Business Insider

#5 The Lightning Network does not have miners

Bitcoin is scaling in a way that confuses many people. I wrote about this in my recent article about the Lightning Network. But, to sum it up, we’re going to have near-infinite throughput with the Lightning Network and its peer-to-peer state channel routing.

The way it works is this.

  1. People send Bitcoin to the Lightning Network and their funds get “locked up.”
  2. People route payments to and from each other using the routing layer that operates behind the scenes, running on TOR.
  3. Each wallet can have many payment channels.
  4. People use each other’s channels automatically.
  5. Micro-fees are paid to participants (fractions of a Satoshi).
  6. When you want to sync with the main chain, you just close out your channels.

This network can grow bigger and bigger without the need for any additional miners. In fact, in a few years, this will become the primary way of interacting with Bitcoin; using automatically routed TOR state channels. The implications of this are huge.

The Lightning Network was launched this year and it’s growing exponentially, in case you didn’t know.

lightning network channelsSource: P2sh.info

In case you haven’t read my article on the Lightning Network, I want to also mention that the Lightning Network includes a “Stealth Mode,” which is being activated. This will make the network seem like its growth is stagnant or going negative, but it’s actually just because of the privacy features being turned on.

Source: Twitter @lopp

Again, if you have the time, please go read my article on the Lightning Network to understand the full implications.

Conclusion

If I didn’t know any better, I might assume that someone was trying to spread fear, uncertainty and doubt about Bitcoin. I’m not saying that’s the case, but if it were, let me ask you one question. Who would benefit?

While the reports about Bitcoin causing a planetary extinction are a bunch of rubbish, there is a remote possibility this could cause pressure on Bitcoin companies. This could, in theory, result in downward pressure on the price. If that did happen, there might be some buying opportunities in the near future.

This article was published first in Crypto Blue Chips.

Disclosure: I am/we are long BTC-USD.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.





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