How sustainable is Bitcoin? Should conscientious investors be worried about which Blockchain network they use? Troy Norcross – a regular mentor and advisor at Innovation Warehouse, and an expert on the Blockchain and crypto space – demystifies concerns and tackles that burning question: how concerned should businesses and investors be about the sustainability of cryptocurrency?
What are you seeing in the Blockchain space around the increasing preoccupation with sustainability? How much is the sustainability and energy intensity of Bitcoin on your radar?
My business is focused on Blockchain, and every time I teach a class somebody asks: “How are you going to tackle the sustainability issue?”
One of the biggest misconceptions is that Blockchain is going to use enormous amounts of energy. And one of the first things I have to help people understand is the difference between Bitcoin, which is one application on one version and type of Blockchain, and all the others.
The reason that it uses a lot of energy is a consensus mechanism called Proof-of-Work (PoW), which has been set up to solve a particular cryptographic puzzle. You need lots of processing power for this. If you look at the whole process of mining for Bitcoin, there are thousands of computers competing for a prize that happens once every ten minutes and they’re burning through lots of electricity and resources. But that’s just the Bitcoin blockchain.
The Ethereum blockchain today also uses PoW, but they’re moving to a new consensus mechanism called Proof-of-Stake that won’t require that huge amount of energy. EOS, NEO, IOTA are other flavours of Blockchain that don’t require huge amounts of energy.
So sustainability is something that is relevant and important, but when it comes to the broader concept of Blockchain technologies, energy utilisation isn’t really a “thing”. The media has made it a thing, but it’s all about click bait, headlines and sensationalism these days.
Market and regulatory forces must also be a factor?
Yes, there’s another key consideration: the price of a single Bitcoin versus the cost of mining. There’s a price levelling that has to happen: how much energy does it take to mine Bitcoin, versus how much does it cost – how much is the reward?
Today, the price is around $4,000 for a Bitcoin; the level price for mining is balanced is around $6,000. Now something interesting happens in the Bitcoin blockchain: every four years the reward for mining Bitcoin gets cut in half. That next happens in May 2020. So for mining to still be profitable in 2020, it’s going to have to be at a price of $12,000. And if it’s not, what happens? People start turning computers off because it’s no longer profitable, or they start mining other cryptocurrencies that are profitable.
The expectation is that the value of Bitcoin will continue to go up and up, and what you want to do is ensure that mining stays profitable. So every four years they’re expecting the value of Bitcoin to double in order to continue that trajectory. Now if it doesn’t, then the number of miners goes down. If it goes to $100,000; if it goes to half a million dollars – God help us – everyone with a computer will be trying to mine Bitcoin and the energy utilisation will go through the roof.
So there’s a countervailing force that keeps the price of Bitcoin at a certain level that matches with the energy utilisation. These are the different factors that play into regulating the PoW blockchains. The Blockchain community is moving toward other consensus mechanisms that do not eat up huge amounts of energy.
What do you recommend for investors or businesses keen to enter the space?
Choosing one cryptocurrency over another based on their energy utilisation is a recommendation, but I think that market prices will drive those huge energy-use cryptocurrencies down to low enough values that market forces will handle that. Will governments have to step in and regulate? They may.
I believe that, sometime in the next decade, another cryptocurrency will come along that has much better resource utilisation, lower energy requirements, much better regulatory control and transparency, and lower risk of being used for money laundering and terrorism funding – and when it comes along it will take all the market capitalisation out of Bitcoin, and Bitcoin will go to $0.
Bitcoin will only be running on a handful of servers in the Smithsonian and the Natural History Museum. Evolution will indeed be the way that we naturally move to a far more sustainable cryptocurrency, leaving the Bitcoin network redundant.
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