What is Bitcoin?
At its core, Bitcoin is a digital store of value that enables everyone in the world to coalesce around a singular monetary system. For the first time, anyone in the world can send money to anyone else in the world, instantaneously, regardless of nationality, credit score, or even access to a bank. No government owns it, or sets its policies. This levels the playing field amid a global geopolitical environment prone to corruption, censorship, and currency manipulation. No corporation owns it either. Claws off, Zuckerburg (You too, Sandberg).
Bitcoin is governed by immutable code that is agnostic to human categorical markers and biases. Its network is secured by an estimated 1 million miners and verified by 10,000 nodes throughout the world. Nodes are servers that store all bitcoin transaction history and reinforce Bitcoin’s protocol. Miners rely on nodes to receive data.
Bitcoin mining is essentially the process of computers competing against other computers to solve complicated math problems to authenticate a time based series of transactions called blocks. Known as Proof of Work, miners earn bitcoin in exchange for their work securing the network. This process is what enables Bitcoin to function without central ownership, giving every person across the globe (with a smartphone) equal opportunity for financial inclusion.
Think of Bitcoin as digital scarcity. There will only ever be 21 million bitcoin, by algorithmic design. Bitcoin’s supply is coded to reduce in half every 4 years. Meanwhile, people, companies, institutional investors, and governments are increasing their demand for Bitcoin every day.
Scarcity drives value. This is true anywhere demand exceeds supply: oil, gold, toilet paper, and single family homes on the West Coast. The internet of the 1990’s enabled us to exchange information digitally. Bitcoin enables us to exchange value digitally. As society increasingly shifts online, how we measure value will increasingly move online, too. A digitally connected world will need a digital store of value that is, sovereign, decentralized, censorship resistant, peer-to-peer, runs 24/7, and is secure/ resistant to attack. Bitcoin is money for the digital world.
Central Banks from China to the US are adapting to the digital world by promoting Central Bank Digital Currency (CBDC). Unfortunately, merely transferring the current fiat system to the digital space replicates the same limitations we face now, and exacerbates privacy concerns. For example, a limitation of the current system is that one nation, or a basket of nations, holds the world’s reserve currency. This positions one, or a few allied nations, to enforce monetary policy over the rest of the world, often leading to unsustainable debt and economic dependency. El Savador recently declared Bitcoin legal tender, in an attempt to circumvent this dynamic.
A new problem CBDCs would cause is the complete lack of privacy for all financial transactions. Particularly in places like Russia or Hong Kong, but increasingly in places like Texas, the risk of the government monitoring the purchasing activity of its citizens must be taken seriously. The Chinese government has already experimented with setting expiration dates for money it supplied. CBDC’s also have the potential to restrict what purchases people are authorized to make. This is a form of financial coercion that could play out with catastrophic consequences throughout the world.
Bitcoin enables privacy. Individuals take full ownership of their bitcoin, known as self custody. Identified only through a Public Key, or digital ID, the name of a person transacting on the Bitcoin network is not known. However, every transaction on the bitcoin network is auditable.
You’ve probably heard the term blockchain. A blockchain is a digital ledger that gets distributed to every node in the network. It’s extremely difficult to hack or change. This accounts for a truthful recording of every transaction ever made on the blockchain. While private, Bitcoin is transparent.
You’ve probably also heard a lot about bitcoin being used for illicit activity. Ironically, the rate of illicit activity on the bitcoin network is far less than the US dollar. Research puts the figure at less than 1% of all transactions.
Doesn’t mining harm the environment?
A top area of concern for many progressives is bitcoin mining’s impact on the environment. Bad takes from the NYT, The New Yorker, The Guardian, and elsewhere, have done a disservice to their audience and is what prompted this article. Contrary to popular opinion, the bitcoin mining industry is already ushering in an era of renewable energy.
Here’s the thing: Bitcoin uses energy. The mining rigs that secure the Bitcoin network, enabling its decentralized, sovereign nature, require electricity to run. In fact, electricity is the primary ongoing cost for miners. This incentivizes miners to find the cheapest source of electricity, which is often energy that would otherwise be wasted, due to overproduction, and subsequently flared into the atmosphere. Gas companies are increasingly converting their excess energy into Bitcoin mining operations, or selling it to mining companies that are happy to pay bottom dollar to repurpose it.
Innovation in the mining space has been profound, Hydropower is being leveraged like never before, by entities large and small. Alex Gladstein documents how mining bitcoin with hydroelectric energy in the Congo is funding the preservation of a National park. His corresponding take on how bitcoin transforms international development and humanitarian aide is worth reading in full.
Closer to home, the state of Texas is (among other more rage-inducing activities), leveraging its wind energy for bitcoin mining. Wyoming actively courts bitcoin miners, noting the State’s abundant natural resources and lower energy costs. Given its enormous potential for economic development, specifically for underserved communities located outside populated city centers, there’s ample incentive for all states to pursue bitcoin mining. It is short-sighted for States with abundant natural resources to restrict bitcoin mining, in the name of environmental virtue signaling.
It’s true that bitcoin has historically had a heavier climate footprint. In the geopolitical gift of the century, China (after countless empty threats) cracked down on its miners this year. The crackdown shut off about half of bitcoin’s mining operations, many of which have already, or are in the process of, relocating to North America. Coal heavy Chinese mining operations are increasingly replaced with renewable alternatives, as more mining infrastructure gets developed.
The Bitcoin Mining Counsel estimates about half of all bitcoin mining is powered by renewable energy. For comparison, the banking industry uses only about 25% renewable energy. Over time, mining is anticipated to become increasingly powered by renewals. If anything, the more pressing concern for Progressives Bitcoiners is the corporatization of the mining industry. However, that corportization also scales the use of renewable energy beyond any other industry.
Additionally, it’s important to put Bitcoin’s energy usage in context. Pundits constantly note that bitcoin’s annual energy use exceeds the energy use of a small country. This is true. But so do the US’s use of Christmas lights, and they are only used a fraction of the year.
Importantly, Bitcoin’s Lightning Network, a layer 2 technology, enables exponentially more transactions without adding to the network’s energy usage This was not taken into account in Dutch Central Banker Alex de Vries and MIT researcher Christian Stoll’s widely cited calculation of Bitcoin’s energy use. Click bait headlines using pianos as a unit of measurement for Bitcoin’s waste must be disregarded accordingly (Google it, if you must).
So, like a holiday tradition for some, Bitcoin does use energy. However, energy is being harvested in increasingly sustainable ways, and on larger and larger scales. The innovation coming out of the bitcoin mining industry is astonishing. Current metrics on bitcoin’s energy usage are a lagging indicator.
What Social problems does Bitcoin solve?
In the US, we are relatively fortunate to (officially) lose “only” a few percent of our purchasing power to inflation each year. The lowest wage earners among us are hurt the most from a financial system dependent on costs increasing every year. However, the more well off are only marginally impacted (or benefit from rising assets).
In other parts of the world, where currency is less stable, or collapses, people can lose most or nearly all of their purchasing power overnight. Venezuela has the worst inflation rate in the world, at nearly 10,000%. Bitcoin provides an alternative store of value, a lifeline for anyone facing hyperinflation.
It’s also particularly useful for people living under unstable regimes, or unstable regime changes. Alex Gladstein writes eloquently about Bitcoin’s efficacy in Cuba, Palestine, and Afghanistan. Bitcoin’s utility as borderless, globally recognized money cannot be under-stated.
Crucially, Bitcoin, is also an economic empowerment tool for victims/survivors of domestic violence. It’s widely cited that 98% of domestic violence victims experience economic abuse. Most cite financial dependence as a primary barrier to escaping. Bitcoin empowers Survivors to buy, sell, and store value without their abuser knowing or requiring permission. It’s not an exaggeration to say that access to money that cannot be monitored or confiscated may save some Survivor’s lives.
Bitcoin also enables financial inclusion. It addresses an important access issue for the hundreds of millions of people who are unbanked, including 7 million in the US. It’s also a much fairer system, because it’s completely divorced from credit. Bradley Rettler explains how exclusionary policies like redlining contributed to poorer credit within African American communities. Bitcoin is uniquely beneficial for anyone who faces increased barriers to wealth and housing due to a low credit score. Since the credit system disproportionately harms people of color, Bitcoin’s pivot out of a credit based system may promote more racially just outcomes.
This is not an exhaustive list of what Progressives should know about Bitcoin. A comprehensive understanding of Bitcoin admittedly requires a significant time commitment. For example, this article barely touched upon Bitcoin’s layer 2 technology, or why it’s likely to revolutize online gaming. There was virtually no technical content, leaving readers to dig into other sources to learn about block sizes or hash rates.
What was hopefully made clear is that Bitcoin is not a niche “shadowy super coder” cyber world, as Senator Elizabeth Warren hopefully no longer believes. Nor is it a prominent threat to our planet. Bitcoin is humanity’s first opportunity to unify under a singular, global, peer to peer form of money. It cannot be debased. It is never closed for holidays. And it’s going to change the world.