Will Bitcoin Save the Planet?
On Wednesday, Square and ARK Investment Management released an analysis with an audacious title: Bitcoin is Key to an Abundant, Clean Energy Future. Cathie Wood from ARK framed it as a debunking of the myth that Bitcoin is damaging the environment:
The response from Bitcoin fans was enthusiastic. From a guy at Square:
From the guy behind Square:
To which Elon replied:
Does the analysis make a useful contribution to the discussion about Bitcoin’s energy usage? Yes.
Will it convince you that Bitcoin is going to save the planet? No.
The argument goes something like this:
The supply of renewable energy is uneven (e.g., solar can only power the grid during the day), and it doesn’t always align with demand.
We don’t yet have efficient ways to store excess supply, meaning that some portion of renewable energy is typically wasted.
Prospective investors in renewable projects take this into account when deciding to green-light renewables projects.
If there were more reliable buyers of excess energy (Bitcoin miners!), more renewables projects would be greenlit.
As we scale up renewables projects, we’ll drive down costs via learning effects, leading to a virtuous cycle where renewables are increasingly cost-advantaged relative to non-renewables.
It will then make good business sense for everyone to switch to renewables. Voila, the planet will be saved.
Heavy-hitters commissioned this analysis and are showing their work by sharing their model. But this is not a new argument. It’s been circulating in crypto circles for a while now. What are its weaknesses? There are two that are particularly damning when viewed through the eyes of Bitcoin haters, who don’t see Bitcoin creating any significant societal value:
Crowding Out Other Buyers of Renewables — If Bitcoin consumes the lion’s share of renewables, it will likely make it harder / more expensive for other industries to decarbonize. Unclear whether this upward pressure on prices will be more significant than the downward pressure that comes from the learning effects described in point #5 above.
Carbon Footprint of Hardware — Even if renewables power the mining process itself, the continuous production of mining hardware (that almost instantly becomes obsolete) results in significant carbon emissions. Theoretically, these production processes could also be powered by renewables, but that’s not the case today.
There’s a final critique from the energy community that I find compelling because it explains why we haven’t heard more about renewables projects being greenlit thanks to Bitcoin. Bitcoin miners aren’t yet viewed as credible, long-term customers that investors can count on to consume energy over the lifetime of new renewables projects. This goes right to the heart of point #4 above — and implies that potential demand from Bitcoin mining won’t lead to the greenlighting of new, incremental renewables projects. A good thread if you want to go deeper:
Are investors being too conservative in their assessment of the dependability of mining-driven demand? Maybe, but remember that the typical customer for a new renewables project is a regulated utility, which is going to look more dependable than just about any other potential customer. Also, we’ve all seen how volatile Bitcoin is, and it’s reasonable to worry that this volatility could undermine the economics of a mining operation that may have been spun up under different market conditions.
The authors of the Square/ARK analysis appear to take this final critique seriously because they flag “solving the current creditworthiness threshold requirements for existing miners” as a “key challenge” in their next steps section.
But, from my perspective, the worst part of this analysis is that it lacks urgency. The next steps are so vague as to suggest that no action is actually necessary. Instead, they seem to suggest that market forces are going to naturally move Bitcoin in the direction of renewables. This feels far from certain and, importantly, doesn’t address the question of how quickly this will happen. If we’re going to avoid the worst of climate change, it’s pretty clear that we have to move extraordinarily quickly to reduce emissions across the board.
The best part of this analysis is what it, perhaps unintentionally, reveals. Bitcoin whales are showing us that they know Bitcoin has a carbon emissions problem. What’s more, they know that this problem, if unaddressed, represents an existential threat to Bitcoin itself.
They’re not trying to save the planet; they’re trying to save Bitcoin.