The proposal, while shot down, is an example of growing misdirection in regulatory stances.
In February 2022 the Markets in Crypto Assets (MiCA) legislation proposed a ban of proof-of-work (PoW) currencies within the European Union which would include bitcoin. During the process of me writing this letter the proposal has been scrapped indefinitely due to a strong backlash. I do however believe that this is not the last time a potential ban will be discussed, so I decided to finish the letter anyway.
First things first: I’m not a supporter of the German parties that put forward the suggestion of banning PoW currencies (Social Democratic Party, Greens, Left). But neither am I a supporter of any other party. I try to stay as far away from politics as I possibly can. However with the knowledge I obtained through the many hundreds of hours of researching Bitcoin I feel it’s unethical to stay silent in regards to this proposal. I guess sometimes you have a moral obligation to get involved.
Without making any allegations: it’s hard to tell if you are ill-informed or ill-intentioned. If you feel pressured to make decisions without adequate knowledge of the matter or if you follow other incentives and just use the politicized climate change cover to hide your true goals.
This is an open letter that attends both cases. If you are ill-informed this letter will at the very least give you the counterargument to a (so far) one-sided discussion. If you are ill-intentioned at the very least the audience of this letter will realize this sooner rather than later – again by the arguments provided and your actions without taking the arguments into consideration.
You might not trust me, because Bitcoiners are all far-right drug-dealing gamblers that are environmentally bankrupting the planet as a hobby, according to the media. Let me tell you that I’m opposed to all of these things and yet spend the majority of my time educating others about the positive impact Bitcoin can have (and already has had) on the world. The good part is that you don’t have to trust me. I’ll guide you through what I’ve learned, but since Bitcoin is open, public and transparent you can “do your own research” as we always advise in the community. If you are intellectually honest (which is a hopeful presupposition), you’ll come up with very different conclusions than you have arrived at so far.
There are two primary reasons for the demand for a Bitcoin ban. First and foremost Bitcoin’s energy consumption and environmental impact, which has been stressed by the parties suggesting the ban. Secondly, Bitcoin as a tool for criminals, and an option to avoid sanctions in the case of Russia, which is an argument mostly driven by Christine Lagarde and the European Central Bank.
I will argue against both of these proclaimed rationales in the order of their observed relevance and end with an analysis of the EU’s options as well as strategic suggestions. Therefore this letter has three chapters:
Bitcoin: Waste Of Energy Or Renewable Transition?Bitcoin: Criminality Or Humanitarianism?European Union: Decline Or Ascend?
Before demonizing the use of energy, there are a few key questions that deserve an answer.
Why does Bitcoin consume so much electricity?How much energy does Bitcoin consume exactly?What type of energy does Bitcoin use and what is the impact on the climate?Are there alternative “more efficient” ways that achieve the same goal?Is it worth it?
Without going into too much detail, virtually all of Bitcoin’s energy consumption is attributed to Bitcoin mining. The process of creating new bitcoin secures the Bitcoin system and enables the emergence of network-wide consensus without a central authority while simultaneously implementing the monetary supply.
Bitcoin mining uses a proof-of-work (PoW) mechanism, which is what some in the EU want to ban. Proof-of-work is accountable for establishing an indisputable, clearly-ordered history of events witnessed: the list of transactions recorded in the blockchain. PoW makes changing the history of events extremely costly. This is Bitcoin’s security model. To reverse or change a transaction you need 51% of all the electricity that flows into the network – which again – is extremely costly.
The more electricity the Bitcoin network consumes -> the more expensive is an attack -> the more secure is the network.
The attentive reader or experienced Bitcoiner also realizes how this information makes the popular comparison between Bitcoin’s and Visa’s energy usage per transaction desperately pointless. The metric is found in every news article that condemns Bitcoin’s energy usage. It was created by Alex de Vries (Digiconomist), a data scientist at the Dutch Central Bank. This is what the metric states:
1 Bitcoin transaction: 2264 kWh100,000 Visa transactions: 148 kWh
This of course looks absolutely shocking and unsustainable. But the matter is more complex than that. There are two different reasons for why this comparison doesn’t make any sense:
1. Visa is a payment processing network, while Bitcoin is a complete monetary network including final settlement, monetary policy, payment applications on secondary layers and more. The Bitcoin base layer is designed to have very few transactions.
“Bitcoin is a complete, self-contained monetary settlement system; Visa transactions are non-final credit transactions that rely on external underlying settlement rails. Visa relies on Automatic Clearing House, Fedwire, SWIFT, the global correspondent banking system, the Federal Reserve Board and, of course, the military and diplomatic strength of the U.S. government to ensure all of the above are working smoothly.” – Nic Carter
A better comparison to Visa is the Lightning Network which is built on top of Bitcoin and allows for millions of transactions per second without any considerable energy consumption. The average value per transaction illustrates why comparing the Bitcoin base layer to Visa is foolish:
1 Visa transaction: $801 Bitcoin transaction: $81,197
Bitcoin’s average transaction size is 1000x that of Visa.
2. Bitcoin’s energy consumption has absolutely no correlation with the amount of transactions or users in the network, therefore it’s ridiculous to calculate the energy usage per transaction. Mining and Bitcoin’s rise in price are responsible for the energy consumption. The higher the price, the larger the margin for mining, the more mining power enters the network to capture and thereby reduce the margin again. This makes sense if you think about it: the more value is stored by the network, the stronger its security needs to be.
As of this writing the Cambridge Centre for Alternative Finance (CCAF) estimates that Bitcoin consumes 130 TWh per year. Very few people have an idea what this actually means. To put this into perspective: that’s more than some countries’ annual electricity consumption (e.g. Norway’s) and about the same amount as gold mining worldwide (131 TWh). The comparison to other countries is a popular one, because it sounds really distressing. But as a matter of fact these countries don’t use a lot of energy to begin with. Every major industry, whichever one you want to look at, consumes more energy than many countries.
Christmas lights around the world consume more electricity than Bitcoin. Clothes dryers around the world consume much more electricity than Bitcoin. According to CCAF Bitcoin is responsible for 0.58% of the world’s electricity consumption.
More importantly than the mere consumption of electricity is where it comes from (energy mix) and what Bitcoin’s carbon dioxide (CO2) footprint looks like. After all there is a craze around electric cars, and they use a lot of electricity, so why are they not considered bad?
In contrast to the general belief: Bitcoin mining is not a dirty industry. In fact it’s one of the greenest industries. The energy mix is largely driven by renewables.
Bitcoin mining is only profitable if you have access to cheap electricity. That’s why bitcoin uses a lot of energy that would otherwise be wasted. Renewable energy production is not constant. At times you actually have too much energy that you can’t properly store. This type of energy is waste energy. In Germany it sometimes has even been sold for a negative return, just to get rid of it, because the other option would be to turn off some facilities, which creates costs of turning them back on and increases maintenance, wear and tear.
Bitcoin acts as a buyer of last resort for this type of energy. We will get back to this point as it is crucial for the strategy the EU should pursue. For now, just keep in mind that Bitcoin mining is a competitive market in which you are only profitable with very cheap energy.
Bitcoin mining being uneconomical with higher energy prices also shows how it doesn’t take away the energy from other use cases. The electricity used in mining is energy that no one else wants and no one is willing to pay higher prices for.
Next up: let’s clarify some details about Bitcoin’s CO2 footprint. Unfortunately some sensationalistic statements stick. In October 2018 a paper titled “Bitcoin Emissions Alone Could Push Global Warming Above 2?C” (Camilo Mora, et al.) was published in Nature. This 2?C number caused by Bitcoin is still in the minds of politicians and climate activists although it has been refuted multiple times even in articles by the same publication. The authors had no clue how Bitcoin works, took completely wrong assumptions and extrapolated data to infinity.
First of all, unlike gold mining, Bitcoin mining itself does not produce any CO2. The CO2 emittance associated with Bitcoin mining comes purely from the production of electricity.
CO2 emittance of Bitcoin was at 36 million metric tonnes (Mt) of CO2 in 2020 and 41 Mt in 2021.
“In a global context this is an insignificant addition to total emissions, amounting to less than 0.08%, or less than 1/1,000th, of the global total (49,360 Mt CO2e).” CoinShares Mining Report, Jan 2022
0.08% of the global CO2 emission comes from Bitcoin. Is this really the number one enemy? Is this the foe that boils the oceans? No, clearly not. And what’s even more counterintuitive: Bitcoin is a friend and supporter of making energy greener. More on that in the energy end section. There is more to it than what meets the eye.
A third component next to energy consumption and CO2 emittance is e-waste.
“The average service life of an ASIC used in blockchain mining is a mere 16 months – whereupon it is turned into e-waste, retiring its embodied materials and energy.” – Cory Doctorow
This statement has made the news even though it is far from the truth.
“This is literal, verifiable, blatant fake news. Completely fraudulent academia. The de Vries paper this is based on comes up with this estimate out of pure thin air. Any miner would tell you different.” – Nic Carter
ASICs are the specific computing hardware used in mining. They are recyclable and don’t contain toxic elements or batteries. The average service life is much longer than 16 months. A conservative, reasonable estimate would be three years before the equipment gets sold to second-hand, lower-power producers and finally gets recycled when they become uneconomical.
Next to proof-of-work there are other consensus mechanisms like proof-of-stake (PoS) which claim to be more energy efficient (although the term “efficient” is misguided in this case). Yes, PoS needs less electricity to function, but that doesn’t make it more efficient than PoW, because it simply doesn’t achieve the same level of security, censorship-resistance and unforgeable costliness that PoW delivers.
Let me be clear: There is no alternative to proof-of-work. All of them compromise on what makes Bitcoin valuable in the first place.
There is no doubt that Bitcoin consumes a lot of electricity (albeit less than some people claim), and produces CO2 (albeit a lot less than some people claim). But using electricity per se is not bad: We are fine with a computer using more energy than an abacus fine with a car using more energy than horse carriage, and fine with a washing machine using more energy than hand washing. So the only valid question is: is it worth it – is Bitcoin valuable enough to justify its energy usage?
Well, that’s not for you to decide, because it’s subjective. To me Bitcoin has more value than Christmas lights. To me Bitcoin has more value than clothes dryers which perform an action time would do on its own. Yet we are not talking about banning any of these. Maybe to you, the reader, Bitcoin has no value; that’s fine, don’t use it. However your assessment of value doesn’t justify a ban, because you can only answer “Is it worth it?” for yourself and not for the rest of the world.
“Bitcoin is many things to many people: some consider it a new store of value in the form of a synthetic, counterparty-free commodity; others prize the underlying value transfer system that enables both payment and settlement functions in a permissionless and censorship-resistant fashion; and still others are primarily drawn to the incorruptible notary function enabled by its tamper-resistant public ledger. As a result, direct comparisons to other activities that appear similar on the surface can only provide a partial – and thus necessarily incomplete – picture.” – Cambridge Center for Alternative Finance
Parts of this section might seem far-fetched at first, but I urge you to think them through. The Bitcoin energy discussion is complex and some parts are actually counterintuitive. Let’s start with the following thesis: Bitcoin can support the transition to renewable energy.
Renewable energy production is not constant, but fluctuates a lot and so does the demand for energy. Hydro energy is not the same throughout the seasons, because the sun doesn’t shine 24/7 and wind doesn’t blow non-stop. The peaks and troughs of energy production and demand are not even close to each other.
This has a crucial implication. If you want to rely on renewables, you need to build enough renewable infrastructure to provide energy to everyone during the peaks even when the wind is not blowing and the sun is behind dark clouds. The International Energy Agency declares in its “Net Zero by 2050” report that “Solar PV capacity increases 20-fold between now and 2050, and wind power 11-fold.”
This has two consequences:
You need a lot of capital to build that much infrastructureThe infrastructure you build is almost never used to its full potential (only during peaks)
The impact that Bitcoin can have here changes the energy dynamics completely. The Bitcoin network is – as stated before – an energy buyer of last resort. If you have access to cheap electricity you can plug in a Bitcoin miner and turn that energy into bitcoin. You secure the network and get rewarded financially for the electricity expended. On top of that you can build energy infrastructure that meets future demand and not just today’s demand. The excess energy you produce until that demand is reached can be monetized through bitcoin and therefore refinances your whole infrastructure much faster. At the same time it’s a free market force that drives efficiency. If you are inefficient with your energy production, mining will become uneconomical.
This use case of Bitcoin aiding as a tool for load management and making renewable energy more valuable is already playing out. Aker, a Norwegian energy giant, intends to use Bitcoin as a “load-balancing economic battery.” West Texas is making use of it too.
“Bitcoin miners can buy energy from energy providers when energy is abundant (as in West Texas with an excess of wind and solar), drawing from the grid the rest of the time. In so doing, the miners monetize a renewable asset that would otherwise be dumped into the ground, while maintaining generally high uptime. During periods of energy scarcity, the miners can be turned off. The net effect is that renewables become more economical, as they can monetize their asset even when the grid has no demand for it.” – Nic Carter
The World Economic Forum, a three letter agency I’m usually not too fond of, started acknowledging this positive impact in 2018 [11].
The second counterintuitive thesis is: if the EU cares about reducing Bitcoin’s CO2 emission, instead of banning Bitcoin, it should mine Bitcoin – with green energy.
“Ever-cheaper renewable energy technologies give electricity the edge in the race to zero.” – IEA, “Net Zero By 2050 Report”
Bitcoin mining is a competitive market. If your source of energy is cheaper you put others – who might not use green energy – out of business in the long run. The amount of bitcoin that is mined by the whole network does not change with more or less electricity within the network. It just becomes more competitive. This also makes Bitcoin the only asset in the world that has a production which is independent from its demand. Whether there is one miner or a million: every 10 minutes new bitcoin gets created at the set inflation rate, which gets cut in half every 4 years. Every 10 minutes one miner gets lucky to receive those newly-created bitcoin. If you join with green energy you make it harder for everyone else to be economical, including those who don’t use green energy.
The halving of the inflation rate which occurs every four years raises another question: is Bitcoin mining a structurally shrinking industry? After all 90% of the Bitcoin that will ever exist has already been mined.
I believe that this question is too complex to be answered in this letter. There are too many unknown variables to account for to answer with certainty, including Bitcoin’s future price and future transaction fees. The possibility that the Bitcoin energy consumption will peak within the next few years before regressing exists, but that’s just one potential outcome. The future is uncertain and I don’t claim that I can foresee it.
The last impact that Bitcoin’s continuous monetization could have in regards to the environment is that it could reduce the monetary premium of gold. If more people accept Bitcoin as the new digital gold, the shiny rock will lose some of its marketshare as a store of value,perhaps reducing gold’s value more strictly to its industrial and ornamental use. The consequence is a lower gold price which leads to less gold mining which leads to less of an environmental burden. Compared to Bitcoin, gold’s inflation rate is not independent from gold’s demand.
There are further ongoing efforts to further the cause of green Bitcoin mining, like https://netpositive.money/ and https://www.resistance.money/green/.
Bitcoin uses energy that no one else needs. Its carbon footprint is negligible and gets dwarfed by Bitcoin’s usefulness as a censorship-resistant, permissionless, neutral, open, counterparty-free money that acts as store of value and incorruptible settlement and payment network. While it sounds far-fetched, if the incentives provided by Bitcoin mining and green energy get aligned, Bitcoin might even have a positive effect on the environment due to the replacement of gold as a store of value and the economisation of renewables which accelerates the electrification of the EU.
In its early days Bitcoin made headlines as the perfect money for drug dealers and money launderers. Silk Road was a darknet market for drugs and legal goods and services. All transactions were conducted in bitcoin. Silk Road was shut down in 2013, but Bitcoin never got rid of the criminal label completely. Like with many breakthrough technologies, the bad or destructive use cases often arrive before the good ones. The internet is sometimes (wrongly) said to have started with drug dealers and pornographers, the atomic bomb was ready before nuclear power plants were, etc.
It seems like Christine Lagarde, the governor of the European Central Bank, is still stuck in 2013 blaming Bitcoin for conducting “funny business” and connecting it to money laundering activities. In 2021 transactions involving illicit addresses were at an all time low at just 0.15% of all Bitcoin transactions according to Chainanalysis.
When you dig deeper into how Bitcoin works this drop in illegal activities on the Bitcoin network will make sense to you. If you are money laundering or pursuing other criminal actions, it’s not the best idea to place your transactions on a public and transparent record that saves your undertaking forever – the Bitcoin blockchain.
It is possible to somewhat hide your transactions through various privacy-enhancing technologies, but it’s much harder than with cash. Cash transactions are settled instantly and if no one saw the transaction happening the world doesn’t know it ever occurred. And let’s not forget about the money laundering that’s happening within the banking system itself.
Maybe the 0.15% number still sounds high to you. What is the comparable number for the global reserve currency – the U.S. dollar?
The estimated amount of money laundered globally in one year is 2-5% of global Gross Domestic Product, roughly $800 billion – $2 trillion.
Bitcoin is used for less illicit activities than the U.S. dollar in absolute and relative terms. Legal use of Bitcoin outpaces illegal use of Bitcoin and it’s not even close.
Making Bitcoin illegal because of criminals using it is an inherently illogical action. Criminals are doing illegal things by definition. Why would they care about Bitcoin being illegal? Instead this step would suddenly turn every non-criminal actor into a criminal without changing the underlying problem of preventing the criminal’s activity. Banning Bitcoin has the exact opposite effect than what you want to achieve.
“…You won’t be able to ban bad actors from sending and receiving cryptocurrencies because (a) at the human level, bad actors won’t comply with the law and (b) at the technical level, a ban would mean banning the internet and destroying all hard drives. Instead what a ban would do is shut down all legal cryptocurrency exchanges and push cryptocurrency technologies into the underground, expanding the space for bad actors to operate rather than contracting it.” – Balaji Srinivasan
Stopping a Bitcoin transaction from happening is not possible. Stopping people from creating Bitcoin addresses is not possible either, since they are just random numbers. Flip a coin 256 times, do some math on pen and paper and you will have a valid Bitcoin address. You can keep your Bitcoin in your head with a 12-word mnemonic phrase. No matter what legalese constructs you agree on, you won’t be able to ban math, random numbers and thought itself. (This of course is a good thing.))
After Russia invaded Ukraine the EU & U.S. reacted by imposing sanctions on Russia including a deplatforming from the SWIFT system. Out of this sprung a story that Russia can and will use Bitcoin to bypass these sanctions. To discuss if that’s a possibility some groundwork about the functionality of sanctions and the Bitcoin network needs to be presented. The Office of Foreign Assets Control (OFAC) keeps a list of people, companies and nations called “Specially Designated Nationals And Blocked Persons” (SDN). The point of the list is that it is illegal for any entity to transact with someone on the list. You can already see why Bitcoin doesn’t come to the rescue here.
“Russia’s access to a global payment network has nothing to do with the goal of primary sanctions, cutting Russia off from the US economy. It’s illegal for US persons to transact with SDNs, period. It doesn’t matter if they use dollars, gold, sea shells, or bitcoin.” – Jake Chervinsky
It’s not technically feasible to prevent someone from the EU from sending funds to a Bitcoin address in Russia. Bitcoin or crypto in general can theoretically act as an alternative global settlement, but that doesn’t change the fact that there is nobody in the West who deals with Russia in the first place (since that’s illegal). A “ban” of Bitcoin within the EU wouldn’t change anything. The conclusion is the same one we reached before. A ban expands the space for bad actors to operate rather than contracts it.
“If Russia wants an alternative, they’re far more likely to use China’s CIPS than a public network they can’t control.” – Jake Chervinsky
A dictator is not interested in using a public, transparent ledger like Bitcoin. Instead the Chinese yuan and gold become part of the plan.
Bitcoin does however play a role here. Not for Putin, but for the people of Ukraine and Russia.
“It’s important to understand that current sanctions are targeted, not comprehensive. The goal is not to injure ordinary Russian citizens. We’re very happy to see them dump their rubles for non-Russian digital assets. There’s enough liquidity for these citizens, but not oligarchs.” – Jake Chervinsky
Times like these really illustrate why Bitcoin is one of the greatest humanitarian tools ever invented. With banks shutting down, ATMs failing and the ruble collapsing, Bitcoin is wealth protection even in times of war. Its digital nature allows refugees to flee their country with just 12 words in their head to access their bitcoin on the other side.
“[A Ukrainian refugee] was able to take some of the bitcoin he had been saving from his salary and sell it to people he knew for cash to acquire around $600 worth of Polish zloty to be able to get by after crossing the border into Poland. Bitcoin was literally the difference between being able to get out of Ukraine with enough money to get by in the immediate term, versus getting out with nothing, condemning himself to a state of total destitution. To paraphrase his own words during my time talking to him, “Without Bitcoin, I probably would not be here talking to you.'” – Shinobi
It is no surprise that the Human Rights Foundation and their Chief Strategy Officer Alex Gladstein are extremely strong advocates of Bitcoin.
There are countless examples outside of Europe that display the positive humanitarian impact of Bitcoin. Whether its freedom protestors turning to Bitcoin in Belarus, Nigeria and Hong Kong who had their bank accounts frozen and their funds seized, Afghan women, who are not permitted to possess bank accounts, achieving financial freedom through Bitcoin or the 4.3 billion people living under authoritarianism, the many people living under double- or triple-digit inflation and the many people outside the banking system. Bitcoin can help many of them and already does help many of them.
“The EU is collectively the biggest donor for international aid in the world, providing over EUR50 billion a year to help overcome poverty and advance global development.” – European Commission
This foreign aid is commendable, but often without optimal results.
“When aid is given today, it passes through a string of third parties. According to scholars, ‘the history of foreign aid has been inextricably linked with corruption.’ Reports suggest a ‘leakage rate’ of 15% for aid heading to the most poverty-stricken nations, and that ‘a large fraction of aid money never reaches a developing country.’ A recent study found that ‘as much as a sixth of foreign aid intended for the world’s poorest countries has flowed into bank accounts in tax havens owned by elites.’ In 2012, then-U.N. Secretary General Ban Ki-moon said that ‘corruption prevented 30% of all development assistance from reaching its final destination.’ As an example, in one Oxfam study, researchers could only verify that 7% of $28 million in U.S. aid meant for Ghana made it to its destination between 2013 and 2015.” – Alex Gladstein, CSO Human Rights Foundation
Humanitarianism can have a more direct path through Bitcoin. Anyone can easily accept a donation without the need for middlemen. Fewer third parties translates to fewer barriers and fewer possibilities of corruption.
“Bitcoin is like a knife to a surgeon or a knife to a criminal. Like any valuable technology throughout time, its value comes from the intention behind its use.” – Preston Pysh
It is always about how we use tools, not the tools themselves. Hal Finney, the first recipient of a Bitcoin transaction in the networks history put it nicely:
“The computer can be used as a tool to liberate and protect people, rather than to control them. Unlike the world today.” – Hal Finney
A bitcoin ban turns Bitcoin into an underground market and expands the space for bad actors, increasing the relative amount of illicit activities while suppressing the humanitarian possibilities.
Balaji Srinivasan, a founder, investor and essayist came up with the terms of “the ascending world” and “the declining world” as replacements for saying the “developed” or “developing” world. I prefer these terms as they capture a rate of change. A “developed” world sounds like a world that has completed its period of change and is now sitting at a constant state. This of course is not true. Throughout history empires have been built and they have collapsed. “Change is the only constant” as the Greek philosopher Heraclitus said. The question is: what shall it be? A decline or ascension? What does the future for the European Union look like?
Jerome Powell, chair of the Federal Reserve, recently stated that it is “possible to have more than one large reserve currency.” It’s very unlikely that he had bitcoin in mind when making the comment, but he should. In 2021 El Salvador became the first nation state that made Bitcoin legal tender in its country and it probably won’t be the last one. This is of utter importance, because you always have to transact internationally for imports and exports. You can use your own currency locally, but globally it might not be accepted. Moving forward there will be three options for international trade: US dollar, digital yuan, bitcoin.
Put another way:
“Every nation besides the U.S. or China has the following preference ranking when it comes to the financial system:
1. Our country should be in charge (domestic national digital currency)
2. No one should be in charge (international cryptocurrency)
3. Others should be in charge, like the U.S. or China (dollar or digital yuan)”
– Balaji Srinivasan
A global, decentralized and most importantly neutral form of money is a good idea for almost any country on earth. Bitcoin will become the native currency of the internet and the ever-growing remote economy. People still get laughed out of the room for statements like these. But there is no denying that Bitcoin expanded from absolutely zero to a $1 trillion industry within just 12 years and there is no end in sight.
Bitcoin’s growth is inevitable and is outpacing the adoption of the internet. Embrace it or get left behind. Germany specifically slept on digitalization resulting in adverse effects to this day. Don’t make the same mistake again.
When bitcoin hits $200k, half of the world’s billionaires will come from cryptocurreny-generated wealth. Think about what that means and what your options are: attract that wealth or keep it out of the EU with a BTC ban? The latter would create capital flight for those who are already heavily invested into Bitcoin as a cherry on top.
Bitcoin is digital gold. It’s actually much more than that, but the store of value and unstoppable global settlement capabilities are the most interesting part to the EU. Instead of banning Bitcoin it should become part of the European Central Bank’s or the nation’s balance sheets. On top of that, building Bitcoin mining infrastructure for energy grid management should be supported, not scrutinized.
I don’t expect the EU to do a 180? turn and start buying and mining bitcoin, because these actions are drastically different from the status quo of the discussion. However if that’s not part of the strategy, at least get out of the way for the sake of your people who will benefit from Bitcoin.
You cannot ban Bitcoin. You can only ban yourself from the Bitcoin network. This is the inescapable truth of the discussion.
Your best case of banning Bitcoin is that there is no effect. Your worst case outcome is equivalent to blundering the queen on the geopolitical, game-theoretical chessboard.
This letter is inspired by the incredible work of many individuals including: Nic Carter, Alex Gladstein, Roman Reher, stefanwouldgo, Jake Chervinsky and Balaji Srinivasan. Thank you!
On Monday, March 14, The Committee on Economic and Monetary Affairs (ECON) of the EU parliament took a vote regarding the ban of PoW consensus mechanisms in the European Union. The vote ended with 32 opposed to the ban, 24 voting in favor of the ban. It’s a short relief but not really a cause for celebration. Honestly, it’s unbelievable how close the gap really is. I’m sure this is not the last time someone proposes a Bitcoin ban. Use this essay to educate those who believe that banning Bitcoin is a good idea. It’s absolutely not.
This is a guest post by Till Musshoff. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
In February 2022 the Markets in Crypto Assets (MiCA) legislation proposed a ban of proof-of-work (PoW) currencies within the European Union which would include bitcoin. During the process of me writing this letter the proposal has been scrapped indefinitely due to a strong backlash. I do however believe that this is not the last time a potential ban will be discussed, so I decided to finish the letter anyway.
First things first: I’m not a supporter of the German parties that put forward the suggestion of banning PoW currencies (Social Democratic Party, Greens, Left). But neither am I a supporter of any other party. I try to stay as far away from politics as I possibly can. However with the knowledge I obtained through the many hundreds of hours of researching Bitcoin I feel it’s unethical to stay silent in regards to this proposal. I guess sometimes you have a moral obligation to get involved.
Without making any allegations: it’s hard to tell if you are ill-informed or ill-intentioned. If you feel pressured to make decisions without adequate knowledge of the matter or if you follow other incentives and just use the politicized climate change cover to hide your true goals.
This is an open letter that attends both cases. If you are ill-informed this letter will at the very least give you the counterargument to a (so far) one-sided discussion. If you are ill-intentioned at the very least the audience of this letter will realize this sooner rather than later – again by the arguments provided and your actions without taking the arguments into consideration.
You might not trust me, because Bitcoiners are all far-right drug-dealing gamblers that are environmentally bankrupting the planet as a hobby, according to the media. Let me tell you that I’m opposed to all of these things and yet spend the majority of my time educating others about the positive impact Bitcoin can have (and already has had) on the world. The good part is that you don’t have to trust me. I’ll guide you through what I’ve learned, but since Bitcoin is open, public and transparent you can “do your own research” as we always advise in the community. If you are intellectually honest (which is a hopeful presupposition), you’ll come up with very different conclusions than you have arrived at so far.
There are two primary reasons for the demand for a Bitcoin ban. First and foremost Bitcoin’s energy consumption and environmental impact, which has been stressed by the parties suggesting the ban. Secondly, Bitcoin as a tool for criminals, and an option to avoid sanctions in the case of Russia, which is an argument mostly driven by Christine Lagarde and the European Central Bank.
I will argue against both of these proclaimed rationales in the order of their observed relevance and end with an analysis of the EU’s options as well as strategic suggestions. Therefore this letter has three chapters:
Bitcoin: Waste Of Energy Or Renewable Transition?Bitcoin: Criminality Or Humanitarianism?European Union: Decline Or Ascend?
Before demonizing the use of energy, there are a few key questions that deserve an answer.
Why does Bitcoin consume so much electricity?How much energy does Bitcoin consume exactly?What type of energy does Bitcoin use and what is the impact on the climate?Are there alternative “more efficient” ways that achieve the same goal?Is it worth it?
Without going into too much detail, virtually all of Bitcoin’s energy consumption is attributed to Bitcoin mining. The process of creating new bitcoin secures the Bitcoin system and enables the emergence of network-wide consensus without a central authority while simultaneously implementing the monetary supply.
Bitcoin mining uses a proof-of-work (PoW) mechanism, which is what some in the EU want to ban. Proof-of-work is accountable for establishing an indisputable, clearly-ordered history of events witnessed: the list of transactions recorded in the blockchain. PoW makes changing the history of events extremely costly. This is Bitcoin’s security model. To reverse or change a transaction you need 51% of all the electricity that flows into the network – which again – is extremely costly.
The more electricity the Bitcoin network consumes -> the more expensive is an attack -> the more secure is the network.
The attentive reader or experienced Bitcoiner also realizes how this information makes the popular comparison between Bitcoin’s and Visa’s energy usage per transaction desperately pointless. The metric is found in every news article that condemns Bitcoin’s energy usage. It was created by Alex de Vries (Digiconomist), a data scientist at the Dutch Central Bank. This is what the metric states:
1 Bitcoin transaction: 2264 kWh100,000 Visa transactions: 148 kWh
This of course looks absolutely shocking and unsustainable. But the matter is more complex than that. There are two different reasons for why this comparison doesn’t make any sense:
1. Visa is a payment processing network, while Bitcoin is a complete monetary network including final settlement, monetary policy, payment applications on secondary layers and more. The Bitcoin base layer is designed to have very few transactions.
“Bitcoin is a complete, self-contained monetary settlement system; Visa transactions are non-final credit transactions that rely on external underlying settlement rails. Visa relies on Automatic Clearing House, Fedwire, SWIFT, the global correspondent banking system, the Federal Reserve Board and, of course, the military and diplomatic strength of the U.S. government to ensure all of the above are working smoothly.” – Nic Carter
A better comparison to Visa is the Lightning Network which is built on top of Bitcoin and allows for millions of transactions per second without any considerable energy consumption. The average value per transaction illustrates why comparing the Bitcoin base layer to Visa is foolish:
1 Visa transaction: $801 Bitcoin transaction: $81,197
Bitcoin’s average transaction size is 1000x that of Visa.
2. Bitcoin’s energy consumption has absolutely no correlation with the amount of transactions or users in the network, therefore it’s ridiculous to calculate the energy usage per transaction. Mining and Bitcoin’s rise in price are responsible for the energy consumption. The higher the price, the larger the margin for mining, the more mining power enters the network to capture and thereby reduce the margin again. This makes sense if you think about it: the more value is stored by the network, the stronger its security needs to be.
As of this writing the Cambridge Centre for Alternative Finance (CCAF) estimates that Bitcoin consumes 130 TWh per year. Very few people have an idea what this actually means. To put this into perspective: that’s more than some countries’ annual electricity consumption (e.g. Norway’s) and about the same amount as gold mining worldwide (131 TWh). The comparison to other countries is a popular one, because it sounds really distressing. But as a matter of fact these countries don’t use a lot of energy to begin with. Every major industry, whichever one you want to look at, consumes more energy than many countries.
Christmas lights around the world consume more electricity than Bitcoin. Clothes dryers around the world consume much more electricity than Bitcoin. According to CCAF Bitcoin is responsible for 0.58% of the world’s electricity consumption.
More importantly than the mere consumption of electricity is where it comes from (energy mix) and what Bitcoin’s carbon dioxide (CO2) footprint looks like. After all there is a craze around electric cars, and they use a lot of electricity, so why are they not considered bad?
In contrast to the general belief: Bitcoin mining is not a dirty industry. In fact it’s one of the greenest industries. The energy mix is largely driven by renewables.
Bitcoin mining is only profitable if you have access to cheap electricity. That’s why bitcoin uses a lot of energy that would otherwise be wasted. Renewable energy production is not constant. At times you actually have too much energy that you can’t properly store. This type of energy is waste energy. In Germany it sometimes has even been sold for a negative return, just to get rid of it, because the other option would be to turn off some facilities, which creates costs of turning them back on and increases maintenance, wear and tear.
Bitcoin acts as a buyer of last resort for this type of energy. We will get back to this point as it is crucial for the strategy the EU should pursue. For now, just keep in mind that Bitcoin mining is a competitive market in which you are only profitable with very cheap energy.
Bitcoin mining being uneconomical with higher energy prices also shows how it doesn’t take away the energy from other use cases. The electricity used in mining is energy that no one else wants and no one is willing to pay higher prices for.
Next up: let’s clarify some details about Bitcoin’s CO2 footprint. Unfortunately some sensationalistic statements stick. In October 2018 a paper titled “Bitcoin Emissions Alone Could Push Global Warming Above 2?C” (Camilo Mora, et al.) was published in Nature. This 2?C number caused by Bitcoin is still in the minds of politicians and climate activists although it has been refuted multiple times even in articles by the same publication. The authors had no clue how Bitcoin works, took completely wrong assumptions and extrapolated data to infinity.
First of all, unlike gold mining, Bitcoin mining itself does not produce any CO2. The CO2 emittance associated with Bitcoin mining comes purely from the production of electricity.
CO2 emittance of Bitcoin was at 36 million metric tonnes (Mt) of CO2 in 2020 and 41 Mt in 2021.
“In a global context this is an insignificant addition to total emissions, amounting to less than 0.08%, or less than 1/1,000th, of the global total (49,360 Mt CO2e).” CoinShares Mining Report, Jan 2022
0.08% of the global CO2 emission comes from Bitcoin. Is this really the number one enemy? Is this the foe that boils the oceans? No, clearly not. And what’s even more counterintuitive: Bitcoin is a friend and supporter of making energy greener. More on that in the energy end section. There is more to it than what meets the eye.
A third component next to energy consumption and CO2 emittance is e-waste.
“The average service life of an ASIC used in blockchain mining is a mere 16 months – whereupon it is turned into e-waste, retiring its embodied materials and energy.” – Cory Doctorow
This statement has made the news even though it is far from the truth.
“This is literal, verifiable, blatant fake news. Completely fraudulent academia. The de Vries paper this is based on comes up with this estimate out of pure thin air. Any miner would tell you different.” – Nic Carter
ASICs are the specific computing hardware used in mining. They are recyclable and don’t contain toxic elements or batteries. The average service life is much longer than 16 months. A conservative, reasonable estimate would be three years before the equipment gets sold to second-hand, lower-power producers and finally gets recycled when they become uneconomical.
Next to proof-of-work there are other consensus mechanisms like proof-of-stake (PoS) which claim to be more energy efficient (although the term “efficient” is misguided in this case). Yes, PoS needs less electricity to function, but that doesn’t make it more efficient than PoW, because it simply doesn’t achieve the same level of security, censorship-resistance and unforgeable costliness that PoW delivers.
Let me be clear: There is no alternative to proof-of-work. All of them compromise on what makes Bitcoin valuable in the first place.
There is no doubt that Bitcoin consumes a lot of electricity (albeit less than some people claim), and produces CO2 (albeit a lot less than some people claim). But using electricity per se is not bad: We are fine with a computer using more energy than an abacus fine with a car using more energy than horse carriage, and fine with a washing machine using more energy than hand washing. So the only valid question is: is it worth it – is Bitcoin valuable enough to justify its energy usage?
Well, that’s not for you to decide, because it’s subjective. To me Bitcoin has more value than Christmas lights. To me Bitcoin has more value than clothes dryers which perform an action time would do on its own. Yet we are not talking about banning any of these. Maybe to you, the reader, Bitcoin has no value; that’s fine, don’t use it. However your assessment of value doesn’t justify a ban, because you can only answer “Is it worth it?” for yourself and not for the rest of the world.
“Bitcoin is many things to many people: some consider it a new store of value in the form of a synthetic, counterparty-free commodity; others prize the underlying value transfer system that enables both payment and settlement functions in a permissionless and censorship-resistant fashion; and still others are primarily drawn to the incorruptible notary function enabled by its tamper-resistant public ledger. As a result, direct comparisons to other activities that appear similar on the surface can only provide a partial – and thus necessarily incomplete – picture.” – Cambridge Center for Alternative Finance
Parts of this section might seem far-fetched at first, but I urge you to think them through. The Bitcoin energy discussion is complex and some parts are actually counterintuitive. Let’s start with the following thesis: Bitcoin can support the transition to renewable energy.
Renewable energy production is not constant, but fluctuates a lot and so does the demand for energy. Hydro energy is not the same throughout the seasons, because the sun doesn’t shine 24/7 and wind doesn’t blow non-stop. The peaks and troughs of energy production and demand are not even close to each other.
This has a crucial implication. If you want to rely on renewables, you need to build enough renewable infrastructure to provide energy to everyone during the peaks even when the wind is not blowing and the sun is behind dark clouds. The International Energy Agency declares in its “Net Zero by 2050” report that “Solar PV capacity increases 20-fold between now and 2050, and wind power 11-fold.”
This has two consequences:
You need a lot of capital to build that much infrastructureThe infrastructure you build is almost never used to its full potential (only during peaks)
The impact that Bitcoin can have here changes the energy dynamics completely. The Bitcoin network is – as stated before – an energy buyer of last resort. If you have access to cheap electricity you can plug in a Bitcoin miner and turn that energy into bitcoin. You secure the network and get rewarded financially for the electricity expended. On top of that you can build energy infrastructure that meets future demand and not just today’s demand. The excess energy you produce until that demand is reached can be monetized through bitcoin and therefore refinances your whole infrastructure much faster. At the same time it’s a free market force that drives efficiency. If you are inefficient with your energy production, mining will become uneconomical.
This use case of Bitcoin aiding as a tool for load management and making renewable energy more valuable is already playing out. Aker, a Norwegian energy giant, intends to use Bitcoin as a “load-balancing economic battery.” West Texas is making use of it too.
“Bitcoin miners can buy energy from energy providers when energy is abundant (as in West Texas with an excess of wind and solar), drawing from the grid the rest of the time. In so doing, the miners monetize a renewable asset that would otherwise be dumped into the ground, while maintaining generally high uptime. During periods of energy scarcity, the miners can be turned off. The net effect is that renewables become more economical, as they can monetize their asset even when the grid has no demand for it.” – Nic Carter
The World Economic Forum, a three letter agency I’m usually not too fond of, started acknowledging this positive impact in 2018 [11].
The second counterintuitive thesis is: if the EU cares about reducing Bitcoin’s CO2 emission, instead of banning Bitcoin, it should mine Bitcoin – with green energy.
“Ever-cheaper renewable energy technologies give electricity the edge in the race to zero.” – IEA, “Net Zero By 2050 Report”
Bitcoin mining is a competitive market. If your source of energy is cheaper you put others – who might not use green energy – out of business in the long run. The amount of bitcoin that is mined by the whole network does not change with more or less electricity within the network. It just becomes more competitive. This also makes Bitcoin the only asset in the world that has a production which is independent from its demand. Whether there is one miner or a million: every 10 minutes new bitcoin gets created at the set inflation rate, which gets cut in half every 4 years. Every 10 minutes one miner gets lucky to receive those newly-created bitcoin. If you join with green energy you make it harder for everyone else to be economical, including those who don’t use green energy.
The halving of the inflation rate which occurs every four years raises another question: is Bitcoin mining a structurally shrinking industry? After all 90% of the Bitcoin that will ever exist has already been mined.
I believe that this question is too complex to be answered in this letter. There are too many unknown variables to account for to answer with certainty, including Bitcoin’s future price and future transaction fees. The possibility that the Bitcoin energy consumption will peak within the next few years before regressing exists, but that’s just one potential outcome. The future is uncertain and I don’t claim that I can foresee it.
The last impact that Bitcoin’s continuous monetization could have in regards to the environment is that it could reduce the monetary premium of gold. If more people accept Bitcoin as the new digital gold, the shiny rock will lose some of its marketshare as a store of value,perhaps reducing gold’s value more strictly to its industrial and ornamental use. The consequence is a lower gold price which leads to less gold mining which leads to less of an environmental burden. Compared to Bitcoin, gold’s inflation rate is not independent from gold’s demand.
There are further ongoing efforts to further the cause of green Bitcoin mining, like https://netpositive.money/ and https://www.resistance.money/green/.
Bitcoin uses energy that no one else needs. Its carbon footprint is negligible and gets dwarfed by Bitcoin’s usefulness as a censorship-resistant, permissionless, neutral, open, counterparty-free money that acts as store of value and incorruptible settlement and payment network. While it sounds far-fetched, if the incentives provided by Bitcoin mining and green energy get aligned, Bitcoin might even have a positive effect on the environment due to the replacement of gold as a store of value and the economisation of renewables which accelerates the electrification of the EU.
In its early days Bitcoin made headlines as the perfect money for drug dealers and money launderers. Silk Road was a darknet market for drugs and legal goods and services. All transactions were conducted in bitcoin. Silk Road was shut down in 2013, but Bitcoin never got rid of the criminal label completely. Like with many breakthrough technologies, the bad or destructive use cases often arrive before the good ones. The internet is sometimes (wrongly) said to have started with drug dealers and pornographers, the atomic bomb was ready before nuclear power plants were, etc.
It seems like Christine Lagarde, the governor of the European Central Bank, is still stuck in 2013 blaming Bitcoin for conducting “funny business” and connecting it to money laundering activities. In 2021 transactions involving illicit addresses were at an all time low at just 0.15% of all Bitcoin transactions according to Chainanalysis.
When you dig deeper into how Bitcoin works this drop in illegal activities on the Bitcoin network will make sense to you. If you are money laundering or pursuing other criminal actions, it’s not the best idea to place your transactions on a public and transparent record that saves your undertaking forever – the Bitcoin blockchain.
It is possible to somewhat hide your transactions through various privacy-enhancing technologies, but it’s much harder than with cash. Cash transactions are settled instantly and if no one saw the transaction happening the world doesn’t know it ever occurred. And let’s not forget about the money laundering that’s happening within the banking system itself.
Maybe the 0.15% number still sounds high to you. What is the comparable number for the global reserve currency – the U.S. dollar?
The estimated amount of money laundered globally in one year is 2-5% of global Gross Domestic Product, roughly $800 billion – $2 trillion.
Bitcoin is used for less illicit activities than the U.S. dollar in absolute and relative terms. Legal use of Bitcoin outpaces illegal use of Bitcoin and it’s not even close.
Making Bitcoin illegal because of criminals using it is an inherently illogical action. Criminals are doing illegal things by definition. Why would they care about Bitcoin being illegal? Instead this step would suddenly turn every non-criminal actor into a criminal without changing the underlying problem of preventing the criminal’s activity. Banning Bitcoin has the exact opposite effect than what you want to achieve.
“…You won’t be able to ban bad actors from sending and receiving cryptocurrencies because (a) at the human level, bad actors won’t comply with the law and (b) at the technical level, a ban would mean banning the internet and destroying all hard drives. Instead what a ban would do is shut down all legal cryptocurrency exchanges and push cryptocurrency technologies into the underground, expanding the space for bad actors to operate rather than contracting it.” – Balaji Srinivasan
Stopping a Bitcoin transaction from happening is not possible. Stopping people from creating Bitcoin addresses is not possible either, since they are just random numbers. Flip a coin 256 times, do some math on pen and paper and you will have a valid Bitcoin address. You can keep your Bitcoin in your head with a 12-word mnemonic phrase. No matter what legalese constructs you agree on, you won’t be able to ban math, random numbers and thought itself. (This of course is a good thing.))
After Russia invaded Ukraine the EU & U.S. reacted by imposing sanctions on Russia including a deplatforming from the SWIFT system. Out of this sprung a story that Russia can and will use Bitcoin to bypass these sanctions. To discuss if that’s a possibility some groundwork about the functionality of sanctions and the Bitcoin network needs to be presented. The Office of Foreign Assets Control (OFAC) keeps a list of people, companies and nations called “Specially Designated Nationals And Blocked Persons” (SDN). The point of the list is that it is illegal for any entity to transact with someone on the list. You can already see why Bitcoin doesn’t come to the rescue here.
“Russia’s access to a global payment network has nothing to do with the goal of primary sanctions, cutting Russia off from the US economy. It’s illegal for US persons to transact with SDNs, period. It doesn’t matter if they use dollars, gold, sea shells, or bitcoin.” – Jake Chervinsky
It’s not technically feasible to prevent someone from the EU from sending funds to a Bitcoin address in Russia. Bitcoin or crypto in general can theoretically act as an alternative global settlement, but that doesn’t change the fact that there is nobody in the West who deals with Russia in the first place (since that’s illegal). A “ban” of Bitcoin within the EU wouldn’t change anything. The conclusion is the same one we reached before. A ban expands the space for bad actors to operate rather than contracts it.
“If Russia wants an alternative, they’re far more likely to use China’s CIPS than a public network they can’t control.” – Jake Chervinsky
A dictator is not interested in using a public, transparent ledger like Bitcoin. Instead the Chinese yuan and gold become part of the plan.
Bitcoin does however play a role here. Not for Putin, but for the people of Ukraine and Russia.
“It’s important to understand that current sanctions are targeted, not comprehensive. The goal is not to injure ordinary Russian citizens. We’re very happy to see them dump their rubles for non-Russian digital assets. There’s enough liquidity for these citizens, but not oligarchs.” – Jake Chervinsky
Times like these really illustrate why Bitcoin is one of the greatest humanitarian tools ever invented. With banks shutting down, ATMs failing and the ruble collapsing, Bitcoin is wealth protection even in times of war. Its digital nature allows refugees to flee their country with just 12 words in their head to access their bitcoin on the other side.
“[A Ukrainian refugee] was able to take some of the bitcoin he had been saving from his salary and sell it to people he knew for cash to acquire around $600 worth of Polish zloty to be able to get by after crossing the border into Poland. Bitcoin was literally the difference between being able to get out of Ukraine with enough money to get by in the immediate term, versus getting out with nothing, condemning himself to a state of total destitution. To paraphrase his own words during my time talking to him, “Without Bitcoin, I probably would not be here talking to you.'” – Shinobi
It is no surprise that the Human Rights Foundation and their Chief Strategy Officer Alex Gladstein are extremely strong advocates of Bitcoin.
There are countless examples outside of Europe that display the positive humanitarian impact of Bitcoin. Whether its freedom protestors turning to Bitcoin in Belarus, Nigeria and Hong Kong who had their bank accounts frozen and their funds seized, Afghan women, who are not permitted to possess bank accounts, achieving financial freedom through Bitcoin or the 4.3 billion people living under authoritarianism, the many people living under double- or triple-digit inflation and the many people outside the banking system. Bitcoin can help many of them and already does help many of them.
“The EU is collectively the biggest donor for international aid in the world, providing over EUR50 billion a year to help overcome poverty and advance global development.” – European Commission
This foreign aid is commendable, but often without optimal results.
“When aid is given today, it passes through a string of third parties. According to scholars, ‘the history of foreign aid has been inextricably linked with corruption.’ Reports suggest a ‘leakage rate’ of 15% for aid heading to the most poverty-stricken nations, and that ‘a large fraction of aid money never reaches a developing country.’ A recent study found that ‘as much as a sixth of foreign aid intended for the world’s poorest countries has flowed into bank accounts in tax havens owned by elites.’ In 2012, then-U.N. Secretary General Ban Ki-moon said that ‘corruption prevented 30% of all development assistance from reaching its final destination.’ As an example, in one Oxfam study, researchers could only verify that 7% of $28 million in U.S. aid meant for Ghana made it to its destination between 2013 and 2015.” – Alex Gladstein, CSO Human Rights Foundation
Humanitarianism can have a more direct path through Bitcoin. Anyone can easily accept a donation without the need for middlemen. Fewer third parties translates to fewer barriers and fewer possibilities of corruption.
“Bitcoin is like a knife to a surgeon or a knife to a criminal. Like any valuable technology throughout time, its value comes from the intention behind its use.” – Preston Pysh
It is always about how we use tools, not the tools themselves. Hal Finney, the first recipient of a Bitcoin transaction in the networks history put it nicely:
“The computer can be used as a tool to liberate and protect people, rather than to control them. Unlike the world today.” – Hal Finney
A bitcoin ban turns Bitcoin into an underground market and expands the space for bad actors, increasing the relative amount of illicit activities while suppressing the humanitarian possibilities.
Balaji Srinivasan, a founder, investor and essayist came up with the terms of “the ascending world” and “the declining world” as replacements for saying the “developed” or “developing” world. I prefer these terms as they capture a rate of change. A “developed” world sounds like a world that has completed its period of change and is now sitting at a constant state. This of course is not true. Throughout history empires have been built and they have collapsed. “Change is the only constant” as the Greek philosopher Heraclitus said. The question is: what shall it be? A decline or ascension? What does the future for the European Union look like?
Jerome Powell, chair of the Federal Reserve, recently stated that it is “possible to have more than one large reserve currency.” It’s very unlikely that he had bitcoin in mind when making the comment, but he should. In 2021 El Salvador became the first nation state that made Bitcoin legal tender in its country and it probably won’t be the last one. This is of utter importance, because you always have to transact internationally for imports and exports. You can use your own currency locally, but globally it might not be accepted. Moving forward there will be three options for international trade: US dollar, digital yuan, bitcoin.
Put another way:
“Every nation besides the U.S. or China has the following preference ranking when it comes to the financial system:
1. Our country should be in charge (domestic national digital currency)
2. No one should be in charge (international cryptocurrency)
3. Others should be in charge, like the U.S. or China (dollar or digital yuan)”
– Balaji Srinivasan
A global, decentralized and most importantly neutral form of money is a good idea for almost any country on earth. Bitcoin will become the native currency of the internet and the ever-growing remote economy. People still get laughed out of the room for statements like these. But there is no denying that Bitcoin expanded from absolutely zero to a $1 trillion industry within just 12 years and there is no end in sight.
Bitcoin’s growth is inevitable and is outpacing the adoption of the internet. Embrace it or get left behind. Germany specifically slept on digitalization resulting in adverse effects to this day. Don’t make the same mistake again.
When bitcoin hits $200k, half of the world’s billionaires will come from cryptocurreny-generated wealth. Think about what that means and what your options are: attract that wealth or keep it out of the EU with a BTC ban? The latter would create capital flight for those who are already heavily invested into Bitcoin as a cherry on top.
Bitcoin is digital gold. It’s actually much more than that, but the store of value and unstoppable global settlement capabilities are the most interesting part to the EU. Instead of banning Bitcoin it should become part of the European Central Bank’s or the nation’s balance sheets. On top of that, building Bitcoin mining infrastructure for energy grid management should be supported, not scrutinized.
I don’t expect the EU to do a 180? turn and start buying and mining bitcoin, because these actions are drastically different from the status quo of the discussion. However if that’s not part of the strategy, at least get out of the way for the sake of your people who will benefit from Bitcoin.
You cannot ban Bitcoin. You can only ban yourself from the Bitcoin network. This is the inescapable truth of the discussion.
Your best case of banning Bitcoin is that there is no effect. Your worst case outcome is equivalent to blundering the queen on the geopolitical, game-theoretical chessboard.
This letter is inspired by the incredible work of many individuals including: Nic Carter, Alex Gladstein, Roman Reher, stefanwouldgo, Jake Chervinsky and Balaji Srinivasan. Thank you!
On Monday, March 14, The Committee on Economic and Monetary Affairs (ECON) of the EU parliament took a vote regarding the ban of PoW consensus mechanisms in the European Union. The vote ended with 32 opposed to the ban, 24 voting in favor of the ban. It’s a short relief but not really a cause for celebration. Honestly, it’s unbelievable how close the gap really is. I’m sure this is not the last time someone proposes a Bitcoin ban. Use this essay to educate those who believe that banning Bitcoin is a good idea. It’s absolutely not.
This is a guest post by Till Musshoff. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
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