"Nobody understands Bitcoin (and that's ok)" - reads a 2017 article by Jameson Lopp, Cypherpunk and software developer. He argues that the complexity and constantly evolving nature of Bitcoin make a complete understanding almost impossible. This is because Bitcoin combines various disciplines: game theory, cryptography, computer networks, data transmission as well as economic and monetary theory. At its core, Bitcoin is not just a technology, but a cultural paradigm shift.
In ₿itcoin Insights, Bitcoin is examined from different perspectives, as it is one of the most revolutionary inventions of the last decades. Bitcoin affects numerous dimensions: The technological dimension (decentralization, cryptography, blockchain), economic (monetary functions), societal (inclusion, education, privacy and freedom), regulatory (government and laws), sociocultural (community and culture) and environmental (energy and sustainability).
Andreas M. Antonopoulos - one of the leading Bitcoin experts - commented on the explanation of Bitcoin: "I wrote a book that answers the question 'What is Bitcoin? It's 300 pages long, was out of date the moment it was printed and has to be corrected and updated every three months just to keep up with the changes." This shows how comprehensive and dynamic Bitcoin is.
What is Bitcoin?
Bitcoin is a decentralized digital currency that works without a central controlling authority such as a bank or government. Transactions are conducted directly between users via a peer-to-peer (P2P) network and recorded in a public, immutable database called a blockchain. This blockchain consists of blocks that contain transaction data and are linked together by cryptographic hashes, making manipulation virtually impossible. New bitcoins are created through mining, where computers solve complex mathematical problems to verify transactions and add new blocks to the blockchain.
Controversies surrounding Bitcoin mining
Bitcoin mining now consumes a lot of energy. According to estimates, electricity consumption in 2023 was around 121 terawatt hours (TWh). This means that Bitcoin was responsible for more electricity consumption than the Netherlands. Nevertheless, this is far less than predicted in the article "In 2020 Bitcoin will consume more power than the world does today" published by the World Economic Forum (WEF). At that time, Bitcoin's annual electricity consumption of 33 TWh was equivalent to that of Denmark, and an increase of 25% per month was predicted. Consequently, the question arose as to whether the world could afford Bitcoin mining if so many resources were used for it.
If consumption were actually that high, then even the biggest Bitcoin maximalists would say no. It is concluded that the cost benefits of Bitcoin need to be considered not just for users, but for the rest of the world. And since - according to the author - “most of the world still relies on coal, gas and oil to produce electricity, the use of energy-consuming algorithms to drive the Bitcoin mining process means we are burning fossil fuels just so transactions can happen. And this is not good for the planet or our health.” You could follow the argument if electricity consumption were actually that high and the majority of electricity was produced by coal, gas and oil.
In fact, however, consumption has not risen as much as predicted, which is mainly due to difficulty adjustment, halving and the further development of miners [more on this in a later issue]. In addition, a large part of Bitcoin mining is powered by renewable energy. Miners (for-profit companies) try to use the cheapest energy sources, such as wind, solar, hydro or volcanic power, to minimize their costs.
False correlation between Bitcoin and crime
The WEF report also drew false conclusions about Bitcoin and crime. While Bitcoin's transparent blockchain theoretically reduces the risk of fraud and theft, losses are often caused by insecure exchanges such as Mt. Gox. These cases of fraud do not affect Bitcoin directly, but access to Bitcoin. Nevertheless, collapses of Mt. Gox or FTX are portrayed as if Bitcoin were criminal. A criminal break-in at a bank does not make the fiat money system criminal, nor does fraud at exchanges make Bitcoin criminal.
In conclusion, the views in the article reflect those of the author and not the World Economic Forum. Nevertheless, the WEF published the article with a critical stance and has not removed it to date despite obvious errors.
What is your opinion on Bitcoin mining?
I look forward to your feedback in the comments!
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