Illiteracy is an occupational hazard for anyone working in the tech sector. New technologies tend to meet resistance until they are widely understood, and sadly, policymakers and regulators are often guilty of the most egregious technological illiteracy: stopping innovation dead in its tracks while trying to catch up.
Every month there is another palm-inducing moment. In January, it was the turn of Erik Thedéen, Vice President of the European Securities and Markets Authority, who took advantage of an interview with financial time call for an EU ban in all proof-of-work mining (the method by which a new bitcoin is issued).
It is the latest in a series of attacks on bitcoin mining by opponents who have failed to do their homework. Once you understand the role bitcoin mining plays in our current energy system, banning the practice starts to sound like a really terrible idea.
It is not the state’s job to dictate energy use
Energy use is synonymous with human prosperity, so it’s right that it’s a key focus for policymakers, like Thedéen, seeking to improve the lot of those they rule. However, in recent years, the political agenda has gradually moved away from finding ways to increase energy affordability and reliability, towards mitigating energy use. This latter position is fundamentally anti-humanist and comes at the price of improving human welfare by driving energy prices up and down.
Furthermore, in attempting to dictate the precise terms of how people and businesses should use energy, regulators and governments are shortsighted and overlook the value that innovative new technologies can deliver. In fact, Bitcoin has a crucial role to play in enabling the transition to renewable energy by mitigating many of the challenges that this transition presents.
The transition to renewable energy is not easy
There are three main measures to assess the usefulness of different energy sources: reliability, abundance, and cost. While renewable energy might be the world’s preferred option from an environmental perspective, it doesn’t perform particularly well against any of these criteria.
First, while renewable energy is abundant, it is variably distributed around the world and much easier to harness in some places than others.
Second, it is intermittent. Electrical networks require a base load and a power source that provides continuous Energy. Power systems that rely heavily on renewables go from underpowered to overpowered. The latter causes problematic power surges in the network; the former forces nations to reintroduce fossil fuels into the mix, and at short notice.
Finally, renewable energy receives massive government subsidies to operate. Over time, with continuous technological innovation, the cost of production will probably decrease. But, for the foreseeable future, renewable energy only drives up the cost of energy 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 has a crucial role to play in making that effort viable. Renewable energies, such as solar and wind, are unreliable and expensive sources of energy, but as the sun shines and the wind blows intermittently, bitcoin mining improves the resilience of the electrical grid by being able to absorb the excess energy caused when there is an excess of renewable production. It also incentivizes the additional production of renewable energy, which reduces its total manufacturing cost.
Bitcoin mining consumes a lot of energy. There is no debate on this. But it is a mistake to claim that it is diverting energy from other, more valuable uses, when in fact it is acting as the energy buyer of last resort, an on-demand solution to harness energy when there is excess production. Without bitcoin mining, excess energy is wasted and unprofitable projects remain unprofitable.
Furthermore, in the scenario where the grid in general or renewable projects in general produce very little energy, bitcoin miners are one of the few demand generators capable of quickly shutting down operations to help the grid cope, like they did recently. made in Texas when winter storms put additional pressure on the system. In this way, bitcoin mining can act as a built-in buffer. What EU policymakers fail to understand is that assuming we want to have an electricity grid that is not prone to blackouts or surges caused by renewables, mining bitcoin is essential.
Not only that, but because bitcoin mining is a revenue generator, it has the potential to make previously unviable renewable energy projects profitable. For example, there are thousands of geothermal energy sources in remote places, far from the nearest population center and therefore not urbanized by energy companies. Bitcoin mining creates a clear financial rationale for investing in these energy sources, monetizing the operation from the moment the energy is first generated. Such an incentive to invest, develop and reduce the long-term cost of renewable energy products has never before existed outside of direct government intervention.
Reverse a useless narrative
It is high time we changed policymakers’ perceptions of the value that Bitcoin is bringing. Most states continue to view it with suspicion or outright disdain, with El Salvador being the exception. And while it is understandable why a state or an economic bloc like the EU might be afraid of a technology controlled by no one, seeing influential regulators, whose role should be to ensure the proper functioning of markets, perpetuating a misunderstanding of their market and Bitcoin: It is deeply concerning.
Bitcoin is a perfect and poetic illustration of why energy use and human development go hand in hand. Yes, bitcoin mining requires a lot of energy, but it also protects our energy system and encourages investment in renewable energy. Plus, it’s a great example of how cleverly designed technology can seamlessly align profitability with positive social change, a point policymakers would do well to understand.
This is a guest post by Alex Mann. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.
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