Illiteracy is a danger for anyone working in the technology sector. New technologies tend to resist until they are widely understood, and unfortunately, policymakers and regulators are often guilty of the most egregious technical illiteracy – halting innovation while they catch up.
Each month there is another facepalm-inducing moment. In January it was Erik Thedéen’s turn, Vice-Chairman of the European Securities and Markets Authority, who used an interview with The Financial Times Call for an EU ban on all proof-of-work mining (the method by which new bitcoins are issued).
It’s the latest in a series of attacks on Bitcoin mining by adversaries who didn’t do their homework. Once you understand the role Bitcoin mining plays in our current energy system, banning the practice sounds like a truly terrible idea.
It is not the government’s job to dictate energy use
Energy use is synonymous with people’s prosperity, so it’s right that it’s a prime concern for policymakers like Thedéen, who seek to improve the lot of those they govern. However, in recent years, the policy agenda has gradually shifted from finding ways to increase energy affordability and reliability to reducing energy consumption. This latter position is fundamentally anti-humanist and goes hand in hand with improving human well-being by driving energy prices up and down.
Additionally, regulators and governments are short-sighted in attempting to dictate the exact terms by which people and businesses consume energy, and overlook the value that innovative new technologies can offer. In fact, Bitcoin is playing a critical role in enabling the transition to renewable energy by mitigating many of the challenges that transition poses.
The transition to renewable energy is not easy
There are three main metrics for evaluating the usefulness of different energy sources: reliability, abundance, and cost. Although renewable energy could be the preferred option globally from an environmental perspective, it does not score particularly well on any of these criteria.
First, while renewable energy is plentiful, its distribution varies around the world and is much easier to use in some places than others.
Second, it’s intermittent. Power grids require a base load and a power source to provide it continually Energy. Power systems that rely too heavily on renewable energy go from underperforming to overperforming. The latter causes problematic overvoltages in the network; The former is forcing nations to reintroduce fossil fuels into the mix, and in the short term.
After all, renewable energy receives massive government subsidies for its operation. Over time, production costs are likely to decrease as technological innovation continues. But for the foreseeable future, renewable energy only increases energy costs for the population, both in terms of higher energy bills and higher taxes.
Bitcoin mitigates many of the problems with renewable energy
As the world’s energy grids attempt to transition to renewable energy, bitcoin mining plays a crucial role in making such an effort profitable. Renewable energies like sun and wind are unreliable, expensive sources of energy, but as the sun shines and the wind blows intermittently, bitcoin mining improves the resilience of the power grid by being able to absorb excess electricity generated when it is too excessive production of renewable energy. It also encourages the additional production of renewable energy, thus lowering their overall manufacturing costs.
Bitcoin mining is energy intensive. There is no discussion about that. But it is misleading to claim that it is diverting energy from other more meaningful uses when in reality it is acting as an energy buyer of last resort, an on-demand solution to harnessing energy when there is overproduction. Without bitcoin mining, the excess energy is wasted and unprofitable projects remain.
Additionally, in the scenario of insufficient energy being produced by the grid overall, or renewable projects in general, bitcoin miners are one of the few demand generators able to quickly shut down operations to allow the grid to cope support, as they recently did in Texas, when winter storms put additional pressure on the system. This allows bitcoin mining to act as a built-in buffer. What policymakers in the EU fail to grasp is that bitcoin mining is essential, provided we want to have a power grid that is not prone to blackouts or surges from renewable energy sources.
Not only that, but because bitcoin mining is a revenue stream, it has the potential to turn previously unviable renewable energy projects into viable ones. For example, there are thousands of geothermal energy sources in remote locations, far from the nearest metropolitan area and therefore untapped by energy companies. Bitcoin mining creates a clear financial justification for investing in these energy sources by monetizing operations from the moment energy is first generated. Such an incentive to invest in and develop renewable energy products and reduce their long-term costs has never existed outside of direct government intervention.
Reverse an unhelpful narrative
It’s high time we changed policymakers’ perceptions of the value Bitcoin brings to the table. Most states continue to view it with suspicion or open contempt, with the exception of El Salvador. And while it’s understandable why a state or an economic bloc like the EU might be afraid of a technology controlled by nobody, influential regulators – whose job it should be to ensure the proper functioning of markets – see a misunderstanding of their market and bitcoin – is deeply worrying.
Bitcoin is a perfect and poetic illustration of why energy consumption and human thriving go hand in hand. Yes, bitcoin mining requires a lot of energy, but it also protects our energy system and encourages investments in renewable energy. It’s also a great example of how intelligently designed technology can perfectly balance profitability with positive societal change – a point policymakers should understand.
This is a guest post by Alex Mann. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.