Bitcoin Uses Lots Of Energy And That’s What Makes It Great

Posted in   Bitcoin   on  March 16, 2024 by  Money Bren0

Nothing in this article is financial advice. The writer is not your financial advisor. Investing contains risk and you can lose money. Consult your own professionals before making investment decisions. This article may contain affiliate links. 

Recently, Bitcoin’s energy usage came under fire.

The media reported it “wastes” more energy than most countries – if it were a country, it would rank 29/201 for energy usage.

This isn’t new, they’ve been saying it for years.

Surely we should shut Bitcoin down if it wastes so much energy!

It’s bad for the environment!

We could use that energy to feed starving children!

It all sounds great.

On paper.

Just like communism.

Here’s the reality:

Bitcoin uses a lot of energy. But this energy isn’t wasted.

When you build a house – the energy used to build that house isn’t wasted, is it? Because you ended up with a house.

The applies to Bitcoin.

In fact, Bitcoin’s high energy usage is not a bug. It’s a feature. High energy usage is the thing that makes it valuable.

Let’s elaborate.

Can you think of anything of (monetary) value that doesn’t use energy?

How much energy was used in the sandwich you had for lunch today?

First, the wheat needed to be grown on a farm. Energy.

It needed to be transported to a mill and milled into flour. Energy.

It needed to be packaged and delivered to a bakery. Energy.

It needed to be mixed with other ingredients and baked into a loaf. Energy.

It needed to be sliced and prepared with human labour, and finally offered to you for sale. Energy.

Think of all the electricity, petrol, gas, human labour that would have been spent transporting and processing all these stages.

And that’s just the bread!

We haven’t even talked about the ham, salad, sauces, packaging, not to mention the building itself where you bought it.

Now you might be thinking, that’s energy for food. Food is important. So this energy isn’t wasted.

I would agree with you.

Mining for Bitcoin is energy for money. And money is also important.

Money serves as a means of civilized exchange – it’s the reason we don’t have to raid each other’s villages and kill each other for eggs and milk.

Without money that works, the world would recede into chaos, like in The Walking Dead.

One could argue there are few things more important than sound money for a functioning society.

And if you understand economics, finance, and money, you understand why this is.

Let’s go back to basics.

In economics, we learn what money needs to be to function properly.

One – scarcity.

We can’t use leaves as money because they are abundant.

In the past, societies have used things like specific seashells or gems as money.

But again, the scarcity is not reliable.

Any time someone could come across a huge deposit of gems or shells, and suddenly the money becomes worthless.

There is a famous story of Mansa Musa, the ancient emperor from the Kingdom of Mali, who gave away so much gold during his pilgrimage to Mecca that he completely crashed the gold market in Egypt.

For years, anything gold was worthless, because it wasn’t scarce anymore. Even the poorest families had gold jewellery and vases, to the point that rich people didn’t want anymore.

So if scarcity is so important, what makes things scarce?

Energy.

The value of a commodity, or currency, is directly correlated to how much energy is required to acquire it.

Here’s an example.

Say I want to create my own digital currency.

I’m going to call it SuperBitcoin.

A SuperBitcoin is just a jpeg image on your computer, nice and easy so you don’t need to bother with wallets and passwords and such.

Here it is:

Any time you want to buy something, just attached a bunch of these SuperBitcoin jpegs to an email and send it to the seller.

How much are they worth?

Since I’m the creator, I’m going to say each SuperBitcoin is worth $100.

So if any of you want to buy some, just send me $100, and I’ll email you a copy!

Do you think anyone will be interested in buying some?

Of course not!

The obvious reason being these jpegs can just be downloaded and copied with a single click of your mouse. You don’t need to buy them from me, you can just right click and save the one above and nobody will know the difference. It costs no energy to create them, which means they can be created for free, which means anybody can just create 100 million of them, which means they are worthless.

Okay, now I want you to try and do the same with Bitcoin.

Go and “create” 100 million Bitcoin right now for free with a click of your mouse.

You can’t.

Why not?

Because to “create” a Bitcoin it needs to be created on the Bitcoin blockchain, so you would need to manipulate the Bitcoin blockchain, and you can’t. So to create a Bitcoin, you need to buy a Bitcoin miner for $30,000, run it 24 hours a day while zapping up thousands of dollars in electricity, and wait until you successfully mine a Bitcoin.

In other words, a lot of energy needs to be spent to acquire one Bitcoin.

That’s the reason one Bitcoin can be sold for a large sum of money. The price represents the value offered by that large expenditure of energy. Since a Bitcoin is so hard to create/acquire, it is priced accordingly.

Now, here’s the other side of the equation.

Because Bitcoin costs so much energy to create, it also costs a large amount of energy to destroy.

For someone to try and “hack” the Bitcoin blockchain, they would need to take control of 50% of the mining power of Bitcoin (known as a 50% attack). This would require such an enormous amount of electricity and mining equipment that it’s impossible for any one party to successfully do it.

And why does it require so much energy? Because so much energy has been spent building blocks in the Bitcoin blockchain over the last decade, that an equivalent amount of energy would be required to destroy those blocks.

Think of a skyscraper building. Because so much energy has been spent building it, much energy is also required to destroy it, compared to something like a sandcastle, which is simply destroyed by a few kicks, or one high tide.

This explains why the energy Bitcoin uses and continues to use is not “wasted”.

It is precisely this large amount of energy usage that makes it hard to destroy, and makes it valuable.

In fact, things like gold, silver and diamonds are all valuable for the same reason.

They cannot just be made with a click of your fingers. They must first be searched for, then mined, then refined and processed, and all of this requires – millions of dollars of energy.

People inherently understand this – it’s why they pay good money for bars of gold, but won’t pay anything for a bag of leaves.

One requires energy to acquire, the other doesn’t.

Since human nature doesn’t change, the world will eventually treat and value Bitcoin the same way, once they understand it.

And I’m willing to bet that will happen a lot faster than you think.

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