We discussed the adjustments Twitter may make to develop its crypto business in our first newsletter last week. At the time, I — like many others — believed that a Musk Twitter deal would ultimately fail, but lo and behold, we have reached an agreement. Everything has been authorised up to this point, but I have a sneaking suspicion that something will go wrong at the last minute. If that happens, the board of directors of Twitter or Musk will be liable for a $1 billion penalty for walking away from the contract, but we will have to wait and see.
This week, I am taking a look at a contentious Bitcoin mining ban that is making its way through New York regulators, as well as what measures it may imply for Bitcoin’s political reputation.
The industry’s most vocal critics see lots of reasons to condemn it, but the perception that crypto contributes relatively little to society while using vast quantities of energy is at the heart of most concerns.
While crypto enthusiasts may argue about the former until they are blue in the face, the latter is a little more difficult to dismiss. According to the oft-cited tracker constructed by Digiconomist, Bitcoin uses an estimated 204.50 terawatt-hours (TWh) of electricity each year at present rates, which is equivalent to Thailand’s power usage.
Ethereum’s energy footprint is half that of Bitcoin, yet it is still similar to Kazakhstan’s electricity use. In 2018, the United States reported a total power consumption of 4,222.5 TWh.
Those figures are difficult to take for some politicians. The New York State Assembly approved a law last week that enraged the crypto community. The measure prohibits the development of crypto mining companies in the state that use non-renewable energy sources. It is worth noting that it does not apply to existing facilities. A measure to that effect is presently being debated in the state senate, which is controlled by Democrats.
For one thing, cryptocurrency is becoming increasingly polarising. Republicans are usually leery of regulating uncontrolled sectors, thus several prominent Republicans have thrown their complete support behind cryptocurrency with minimal compromises. This includes potential future party leaders such as Texas and Florida governors. Meanwhile, the majority of crypto’s most vocal opponents tend to be Democrats, but it does not mean it is a partisan issue. Industry sources praised President Biden’s latest bitcoin executive order as “extremely supportive” of the space. For many agencies considering blanket bans, energy use appears to be the most significant sticking point.
Another reason this is intriguing is that this measure only affects a few significant crypto networks, including the two most important ones — Bitcoin and Ethereum.
To protect their networks, these networks employ a proof-of-work approach. In this case, the work is mining, which entails computers working around the clock to essentially solve math problems that protect the blockchain’s integrity, making it extremely costly and technically difficult for hackers to overwhelm the network and make unauthorised transactions and steal tokens.
The overall trend in crypto appears to be away from proof-of-work, and Ethereum is converting its network to a less energy-intensive consensus technique. However, Bitcoin is unlikely to make its shift, implying that regulatory manoeuvrings like New York’s proposals would become increasingly hostile to Bitcoin (and a few smaller networks) in particular.