The US Congress to Investigate Bitcoin’s Energy Consumption

As the price of Bitcoin falls, many investors are leaving the ship. Wallets are getting empty. And this is normal, every time there is a recession, many people get scared. However, the value of Bitcoin has grown at the expense of these investors. If there are winners, then there are losers. With the possible exception of miners who have powerful installations and mine BTC.

But if the price of the digital coin is growing so much, then it is due to its nature. Its mining is inextricably linked with high energy consumption. Despite this, money is invested in mining companies every day. Bitcoin has experienced record growth in recent years. According to Coinmarketrate.com, its growth outpaces many assets, and historical highs follow each other.

China has banned the mining of BTC on its territory, arguing that the BTC has a bad effect on the environment. But, I’m sorry, the impact of digital currency on the environment is not comparable to the banking system. Nevertheless, Bitcoin’s energy consumption is under the scrutiny of the US Congress.

However, in the future, mining of military-technical equipment may become more complex, which means even more energy-consuming. Indeed, Congress seems to want to study the energy consumption of the famous currency. According to The Block, the House Energy and Commerce Committee will schedule a hearing. The purpose of the hearing will be a report on the impact of the military-industrial complex on the environment and its carbon footprint.

The Subcommittee on Oversight and Investigations will conduct a study. This will be done with the help of a list of witnesses who can testify at the hearing later this month. Recall that the Energy and Commerce Committee of the House of Representatives has jurisdiction over a wide range of issues. These include energy, the environment, healthcare and other diverse issues.

This request did not come out of nowhere, as it was initiated as a result of the rapid growth of the mining industry in the United States. This is a direct consequence of the ban on mining cryptocurrencies in China.

Many large companies have moved their operations to the USA. Several states have offered preferential electricity prices for these companies, such as New York, Alabama and Texas. Currently, the country is the largest mining center with the highest hashrate.

However, in October 2021, 70 activist groups issued a joint letter to Congress. In it, they ask Charles Schumer, Nancy Pelosi and other politicians to take measures to mitigate the impact of cryptocurrencies on climate change.

 Bitcoin: A Machine for Environmental Pollution

But it would be nice to explain why Bitcoin is polluting the environment before we proceed. The system by which many cryptocurrencies work is inextricably linked to this phenomenon. The problem lies in the Proof of Work (PoW) consensus algorithm.

It was this system that allowed Bitcoin to become what it is today. After all, this is what makes the network secure. Imagine a very simple scheme. The blockchain consists of a chain of blocks. Each block follows the previous one.

To ensure optimal security, the network is decentralized. Thus, the blockchain is present on many computers. The owners of these computers allocate computing power to ensure network security. The blockchain goes on as usual, and every block, even a very old one, is always present in the blockchain. Thousands of very powerful computers work day and night to ensure the security of the network and the ability to conduct transactions.

At the same time, a lot of electricity is inevitably consumed. Moreover, the required computing power is constantly growing. However, one should not jump to conclusions. In fact, the picture is not as gloomy as you might think. And the US Congress is solving a false problem.

BTC allows you to create a more energy efficient system than the traditional one

To begin with, the obvious can be said about Bitcoin: it consumes more than the average country. In November 2021, its consumption was about 200 TWh. In 2017, it amounted to about 7 TWh. Thus, its consumption has grown in just four years. If Bitcoin were a country, it would be among the top twenty largest energy consumers.

Even worse, calculations show that about 15 nuclear power plants will be needed to provide the energy needed for the Bitcoin network.

Comparison table

Comparative table of energy consumption of the largest countries and Bitcoin. Source: Statista

However, it is important to put this in perspective. Although Bitcoin consumes a lot of energy, the traditional system consumes much more. For example, gold mining requires more than 240 TWh to work. Mining industry, which, in addition to electricity consumption, pollutes the environment in other ways. And this makes no more sense than mining digital currency (except for creating beautiful necklaces for stars).

Banking operations require about 239 TWh, according to data provided for May 2021. But it should be remembered that even if Bitcoin consumption figures are easy to calculate, the banking system is much less transparent. Therefore, it is likely that these energy consumption indices are biased and revised downwards.

The fact remains that BTC has always been conceived as something better than the traditional banking system. Although States are trying by all means to neutralize it, it would be good if its advantages were taken into account.

Instead of criticizing it and seeking its ban, it should be adopted at the international level. This is necessary in order to have a complete, reliable and less energy-consuming system.

Can Bitcoin still be banned?

With the institutionalization of Bitcoin and digital assets, the narrative of regulators is gradually changing. Once rejected as a currency for nerds and criminals, banks and institutions are now embracing decentralized innovation. Recognition of assets reduces the likelihood of a complete ban.

However, investors remain concerned. Regulation of the new asset class has not yet reached consensus. While some countries already tax the trading and ownership of cryptocurrencies, and encourage a new industry, others prohibit their use. China now criminalizes any transactions via blockchain in addition to mining.

A thorn in… the side

Bitcoin as a currency is free, decentralized and neutral assets, with fixed money creation. Thus, in a hypothetical Bitcoin standard, governments and central banks lose their monetary power and monetary control over their populations. Therefore, it is not surprising that some governments strongly oppose it.

But bans often have the opposite effect, as the early days of the Internet have shown. States and governments had to comply because the consequences of the revolutionary technology were too far-reaching to be stopped. In the recent past, this was demonstrated by the Telegram messaging service. When it was banned in Russia, the service gained a huge number of users. Blocking 18 million IP addresses paralyzed most of the Internet in Russia, but Telegram continued to function. After this embarrassment, Russia lifted the ban again.

Independent protocol

The Bitcoin network, like the Internet, is based on an independent open source protocol. Anyone can use the network or even participate in it. It is often called “Internet money”, and, as we see in developing countries, it allows the population to be involved in the global payment system.

The decentralized network has created an opportunity to make censorship-resistant money available to everyone, while preventing centralized attacks. In Bitcoin, no one can be held accountable, transactions are final, and the owners determine their actions independently. The network itself is adaptable and can adapt to new circumstances.

Delayed adoption

The local and national ban will slow down the implementation process in the country, put various banks in need of explanations and lead to criminal liability of citizens. People will lose easy access and will be forced to look for complex ways to use the network. The exchange of the national currency for BTC will have to be carried out abroad or privately, and it will be difficult to find those who are interested in switching to it.

Most people will not want to expose themselves to such difficulties and risks. The fear of prosecution will not allow a significant part of people to participate in the crypto industry. A ban on storage and use would have huge consequences, and would mean a decrease in the level of acceptance. In a democratic country, such exclusion of citizens will lead to further problems. Preventing self-determination undermines the credibility of a just Government.

Streisand Effect

The prohibition of free technologies and censorship in networks, as a rule, refer society to totalitarian states. Concerned citizens should wonder why the government is denying them access. During this process, people will quickly question the current monetary system in which money is created out of nothing. Then central banks and corrupt politicians will quickly be named as obstacles.

“It’s good that the people of the country don’t understand our banking and monetary system, because if they did, I think the revolution would have happened before morning,” Henry Ford once said.

In Venezuela and Lebanon, the national currency has been subject to severe hyperinflation for many years. Over the years, more and more large amounts have been exchanged through LocalBitcoins. When people have nothing to lose in the conditions of demonetization, they are looking for a way out. This is human nature.

Promoting innovation

Bitcoin has become the driving force behind distributed ledger technology – blockchain, which is used today by various companies, banks and governments. Among other things, it stores COVID certificates, medical data or shares. By banning the foundation, not only its descendants are at risk, but also a significant part of the economy. No country can afford to give up responsibility for the development of technology. If innovative companies and programmers look for better conditions abroad, this will lead to a so-called “brain drain”.

The transparency of the network is a good argument in favor of benevolent states. Pseudonymous transactions can be visible to anyone and are stored indefinitely. States have the ability to analyze the blockchain and track payments, which is not so easy with cash.

Tax receipts

Due to legitimization as a digital asset, states can receive multiple benefits. In addition to tax revenues from the asset, the right structure creates a favorable environment for innovative enterprises and service providers. Even some banks will be able to stay afloat and find new ways to work with their customers. If desired, citizens can regain part of the property.

The first US approach to regulating crypto assets at the federal and legislative level can be found in the 2,700-page Infrastructure Law. The bill on digital assets” contains amendments, which, however, will also represent a significant intervention in the crypto industry.

The industry wants uniform regulation, and mostly supports the authorities. However, various federal authorities disagree on who should exercise supervision and taxation and how.