‘…Bitcoin is the best ESG investment on the planet…nothing else comes close…’
Why is Bitcoin Important for Society
This is about the S in the ESG moniker.
Alex Gladstein, Chief Strategy Officer at the Human Rights Foundation is one of the world’s leading educators and advocates for Bitcoin as a freedom technology. His book, ‘Check Your Financial Privilege’ takes the reader from the hidden costs of the petrodollar system and monetary colonialism to Bitcoin as a Trojan Horse for freedom and the end of Super Imperialism.
Here in Perth, thanks to Ron Manners and the team at the Mannkal Economic Education Foundation, we have tremendous thought leadership on the topic of blockchain and freedom. Published by Mannkal and authored by scholars from the Royal Melbourne Institute of Technology Blockchain Innovation Hub the book ‘The New Technologies of Freedom’ takes the reader through issues such as the legal aspects of smart contracts, privacy and freedom of speech.
The third book which is important here deals not with technology but with tangible assets such as real estate and land title. I refer to the work of Peruvian economist Hernando De Soto and his ideas captured in the book titled ‘The Mystery of Capital’. In short his idea is that providing communities with good land title systems enables the individuals in those societies to flourish. Of course this concept of private property is something we take for granted in the developed world, but in the developing world there often is no such concept. People are at risk of having the land they have occupied for generations taken away by authoritarian governments and this undermines development of the individual and the state.
These books in particular have helped me appreciate the importance of Bitcoin for the future of freedom. Bitcoin is the world’s first digital private property, it is not controlled by any government and no permission is needed to participate in the network. I don’t know what could be more important for a society than having freedom. We in the developed world tend to put preservation of freedom at the bottom of our priority list. Advocates for freedom are even sometimes derided as wacky conspiracy theorists…Yet it is individual freedom which gives rise to our civilisation. As Ron Manners states :
‘…most of our problems would not have occurred had we been as concerned about preserving liberty as we were about earning a living and paying taxes. Most of us are so busy and preoccupied that we have neglected to preserve the freedom that protects our rights to keep what we have earned…’. (The Lonely Libertarian’ page 159)
The opposite of freedom money as represented by Bitcoin is controlled fiat currency in the form of CBDC’s, for example like China’s Digital Yuan project.
Other Societal benefits of Bitcoin including increased financial inclusion, reduction of wealth inequality and providing identity for the over 1 billion people with no formal identity documents but I hope by now readers will have sufficient appreciation of the point I am trying to make and at the very least readers have some further material to refer to if of interest.
Why is Bitcoin (Proof-ofWork) Mining Important for Bitcoin
Energy use just for the sake of it doesn’t make any sense. So it is important to understand at the outset the case for using energy consumption as the security system for the Bitcoin network.
By security I refer to the properties of the system that prevent a nation state or other actor attacking the Bitcoin network with the view to destroying it’s operation. Such an attack is referred to as a 51% attack. The consequences of such an attack are : undoing earlier transactions ; and doing a ‘double spend’ (using the same money twice).
The cost of mounting and sustaining a 51% attack are made up of hardware costs and electricity costs. An attacker needs to control 51% or more of the the network to make a successful attack. This cost would run into many billions of dollars and even then the attack would be short lived because the ‘good’ miners would simply mine a fork of the attacked chain as they are incentivised to ensure the continuation of the network. The Bitcoin security system of Proof-of-Work has stood the test of time and is now past any point where an attack could be meaningfully successful (see here a 5min video by Andreus Antonopouos explaining).
Why is Bitcoin Mining Important for the Environment
In this part of the article I summarise an excellent paper by Arcane Research (see here). I also refer readers to a May 2022 letter from the Bitcoin Mining Council to the United States Environmental Protection Agency (see here).
Energy consumption is not evil, it has powered the development of humanity for many decades. There is a recognition however that the transition from a fossil fuel based energy system to a renewable energy system makes sense and there is evidence that Bitcoin mining can help with this transition in 4 main ways.
- Strengthen electricity grids.
- Improve the economics of renewable energy projects.
- Reduce natural gas flaring.
- Repurposing waste heat from Bitcoin mining.
Strengthening Electricity Grids
Strength in an electricity grid refers to the balance between supply and demand. If there is good equilibrium the grid is strong, if the supply falls away at peak times it is considered a weak grid.
A valid criticism of renewable energy use in grids is the non-controllable nature of renewables in terms of when sources such as sun and wind are available. As the mix of renewable energy sources in the grid increases the strength of the grid weakens as the ‘base load’ (provided by fossil fuels) is not sufficient in peak periods.
Of course one way to restore equilibrium is to reduce demand, either by increasing prices or by outright limits in energy usage. Both are not desirable and both are limited to the degree they can help the system.
What is needed is a demand side industry that can dial up or down demand (to zero) at the flick of a switch and an industry that does not care what time of the day they use the electricity. This type of industry could free up grid capacity during peak times for those who are not able to be flexible in their use timing. Bingo! Bitcoin mining.
This flexible demand response theory is a reality in use by ERCOT, the State of Texas electricity system.
Significantly the ERCOT system has designated crypto miners as ‘Controllable Load Resources’ which means they can minutely adjust their demands on the grid system at the push of a button. Bitcoin miners can do this without significantly impacting their profitability which indeed can be built around the system. Of course specialist service companies have emerged to provide miners with just such a monitoring system. See here the company Lancium which has a patented Smart Response system which it sells as a service to Bitcoin miners.
Providing this flexibility on the demand side facilitates the introduction of a higher mix of renewables to a grid without weakening the grid because demand can be switched off at peak time or at times when renewables are not supplying the system.
Improve the Economics of Renewable Energy Projects
Because of the yet unsolved problems of electricity storage and transport, there is significant wasted energy in the renewables sector. The problems of waste and curtailment of energy production at renewable energy projects can lead them to be closed down or not built in the first place.
What is needed is a customer that can use the excess energy in the location it is generated at the time it is generated so that otherwise wasted energy can be sold. Bingo! Bitcoin mining.
Again this is not just theory. See here an example where a hydroelectric power station was saved from decommissioning because of their new client, a Bitcoin miner.
The collaboration between the energy intensive Bitcoin mining industry and power producers is a natural fit as they solve each other’s problems. See here a story about a Winsconsin hydropower station and a Bitcoin miner. It really is happening everywhere at an increasing rate.
Reduce Natural Gas Flaring
Burning gas 24/7/365 at an oil well is incredibly wasteful at so many levels, yet it happens all the time. Estimates are that annual emissions from gas flaring is the equivalent of more than 100 million cars. In comparison electricity used by Bitcoin mining emits only 8% of that of gas flaring.
What we need is an industry that can utilise stranded energy resources, one that can easily move from site to site in a sea container. Bingo Bitcoin mining!
And again here we have a specialist industry developing. The company Crusoe Energy signs gas purchase agreements with oil producers, installs its flare mitigation systems close to the oil wells and uses the energy to mine Bitcoin. See here.
Repurposing waste heat from Bitcoin mining
Fossil fuels are the most common source of energy for heating homes and this accounts for about three-quarters of the energy mix.
What we need is an industry which produces a lot of heat that can be repurposed for heating our homes. Bingo! Bitcoin mining.
In Canada a company called Mintgreen is pioneering the repurposing of waste heat from Bitcoin mining. Again a new industry and a new company is leading the way.
Bitcoin Miners are Unique Energy Customers
There is so much opportunity for new industries to develop with the growth of renewable energy. I have given a few examples above. Bitcoin mining as an industry has some unusual characteristics that make it an enabler for the renewable energy evolution that we need.
- Bitcoin mining can be interrupted or even stopped at time of peak grid usage or for other reasons.
- Bitcoin mining is location agnostic as there is no physical product produced that requires transport.
- Bitcoin mining is modular which means operations can be scaled up or down easily.
- Bitcoin mining is portable. Mining rigs can be housed in shipping containers and moved anywhere quite easily.
These characteristics give rise to the four possibilities and examples above, but that is just the start. One other example is the tyre recycling company (see here) that takes whole tyres and breaks them down to several commodities and uses some for energy, which is used to mine Bitcoin (see interview with the founder here).
What about the ‘G’ aspects of Bitcoin
The specific Corporate Governance aspects of ESG are obviously less relevant to an assessment of Bitcoin’s governance. But Governance is nevertheless a very important consideration when considering a crypto project.
In the crypto world the nirvana is to achieve the most decentralised form of governance possible. Bitcoin has done a good job of this and is arguably the most decentralised of all crypto projects.
At a high level, it is very clear that the more decentralised a governance structure is the better it is for humanity. Take for example the evolution from Pharaohs, to Emperors, to Kings, to Presidents, to Prime Ministers. With each stepped reduction in centralised control humans have flourished. It is possible to have order without centralised control and this is another thing the Bitcoin experiment has proved.
We do not know who founded Bitcoin, there is no CEO or marketing department or office premises or indeed any legal entity or structure. It is an incredible money network which today, at just 13 years of age, is worth just USD 350 billion.
There are of course some governance practices around the code and there is some centralisation around the mining pools and equipment manufacturing, but nothing like we would expect to see if a centralised corporation had tried to create Bitcoin.
Governance models are evolving generally and decentralised models like Bitcoin the DAO’s, Ethereum and Hedera Hashgraph are probably amongst the most significant innovations we have seen for many decades.
I do not see how Bitcoin’s governance could not be rated anything other than very highly.
My deliberately provocative statement at the top of this newsletter is a push back to much of main street media and environmental lobby groups who constantly and ignorantly attack Bitcoin’s environmental footprint.
I am not a fan of the ESG investment thesis in general. For me the ESG narrative is a marketing tactic for fund managers and a virtual signalling opportunity for big corporates who simply hive off the less ESG friendly (but perhaps more profitable) parts of their business so the executives can achieve the ESG aspects of their KPI driven bonuses.
This said, if we are going to look at ESG there needs to be some honesty and integrity. Bitcoin mining is one of the most unfairly maligned industries on earth. It’s two main ideas : that a global sound money system is possible; and that the consumption of energy is not morally reprehensible are anathema to globalist technocrats who seek to politicise energy consumption and control demand by regulation and market manipulation.
It is lazy pseudo-intellectualism to choose Proof-of-Stake over Proof-of-Work because of environmental reasons. Environmental groups ignorantly lobbying for Proof-of-Stake are setting back the movement to a renewable energy future.
It is not for nothing that Michael Saylor chose the domain hope.com as his Bitcoin information and resources site. By considering the Environment, Social and Governance aspects of Bitcoin it can be seen why many people feel that it holds enormous hope for the betterment of humanity.