A common criticism often thrown at Bitcoin is its heavy use of computing power, which in turn requires a large amount of energy. Some critics of the system believe that power is being wasted on useless computations that don’t contribute much at all to society, but this line of thinking misses the point of why Bitcoin works in the first place. Mastering Bitcoin author Andreas Antonopoulos gave a talk on consensus algorithms and Bitcoin at University College London (UCL) over the summer, where he argued against this common misconception about Bitcoin’s supposed wastefulness.
Electricity Underpins Bitcoin’s Security Model
The key point that some individuals miss when it comes to the electricity used to mine bitcoin is that the electricity is what provides the security for Bitcoin’s decentralized ledger. Without it, the miners who audit the ledger and create new blocks would be far less trustworthy. The loss of trust would come from the low barrier of entry to bitcoin mining. Antonopoulos was able to explain this point during his talk at UCL:
“You will hear people say that Bitcoin wastes electricity. Bitcoin does not waste electricity. Bitcoin uses electricity to underpin the security function because it creates an economic system whereby in order to participate you have to incur cost. And by incurring cost -- the only reason you would incur cost is for the possibility of reward, and the possibility of reward is determined by whether your block meets the consensus rules.”
The cost of electricity essentially acts as a CAPTCHA on steroids for anyone who wishes to create new blocks on the Bitcoin blockchain.
Bitcoin’s Game-Theoretical Equilibrium
Many people view Bitcoin as a strictly technical innovation based on code, but the reality is the game-theoretical attributes of the system are what hold everything together. Antonopoulos explained how the cost of hashing power on the network is a vital part of Bitcoin’s incentive structure that keeps everything running smoothly:
“You spend money, and if you play fair by the rules, you get money back. If you spend money and you try to cheat, you don’t get money back, which means you lose money, so therefore, it doesn’t pay to cheat. And that simple, game-theoretical equilibrium is the core of the Bitcoin consensus algorithm.”
Later in the talk, the author of
Mastering Bitcoin
added a more direct explanation of how the electricity used to mine bitcoin aligns incentives and is not wasteful:
“You align the interest of the miner, who is ‘wasting’ electricity or using electricity, with validating the consensus rules.”
Bitcoin’s Hashing Computations are Not Useless
The key point to take away from this excerpt of Antonopoulos’s presentation is that all of the hashing power pointed at the Bitcoin network is not useless. All of that processing power and electricity is, essentially, being used to create a new public good -- the blockchain. Until there is an alternative to proof-of-work that is proved to be secure enough to power a global, decentralized ledger, it would not be correct to call bitcoin mining useless or wasteful -- unless, of course, you don’t think Bitcoin provides any value to the world.