In this writing I ask: When will this madness end? When will we wake up from this fascination with cryptocurrencies (chief amongst which Bitcoin) that is turning technological orthodoxy on it’s head: It used to be that technological progress was measured on making things cheaper, faster, more secure or more scalable. But it seems that Bitcoin does not follow these.

Bitcoin

Over the last 12 years, it is hard to have lived and not notice the poster child of blockchains: Bitcoin. First emerging in 2009, it promised a revolutionary way to think about currency. Instead of trusting a central bank, you could just record all transactions in a distributed ledger. Everything would be public, open transparent to all. Surely it was only a matter of time before governments would have to recognise that they would lose the monopoly of controlling money, democratising finance and making the world a better place.

What became of those lofty goals. What happened since 2009? Remember, 13 years is an age in the tech sector. 2009 would have been when Twitter and Facebook took off, smartphones became ubiquitous (iphone 3GS was released in 2009).

Bitcoins would be created by mining them. This is to solve ever more complex hashing functions to process transactions and to create new coins. Initially this kind of work could be done on a home computer, but soon it needed specialised hardware or the latest GPUs in bitcoin mining farms. Nowadays I guess stealing power from the grid is no longer sole preserve of running cannabis farms. This concept is called Proof-of-Work (PoW) whereby in order to add to the blockchain, work in form of computing the hashing functions has to be carried out.

How much energy does it actually take? The Digiconomist has a calculator - at the time of writing it was using more than all of Thailand (in 22nd most energy used worldwide) whereas only a few months back it had just overtaken Argentina (30th place).
The numbers are mind-boggling! According to the Digiconomist, a single transaction uses about 2 MWh. According to this the average home in the UK uses 2.9 MWh of electricity. So a single transaction could power my house for about 36 weeks. In contrast, 100,000 visa transactions cost 150 KWh which means that Bitcoin transactions are actually 1.3 million times worse in terms of energy efficiency.

But mining and transactions are conflated here!

Looking at this piece in Harvard Business Review it is argued that the methodology is flawed. Just taking the number of coins mined and dividing it by transaction is not right, apparently. But considering this piece was written by a “general partner at a venture firm investing in blockchain startups”, I would think Bitcoin to be viewed in a favourable light there.

It’s the economy/planet, stupid

But even the HBR piece is interesting for the following assertion:

Today, miners receive small fees for the transactions that they verify while mining […] However, the protocol is built to halve the issuance-driven component of miner revenue every four years […], that share of miner revenue will eventually decay to zero. And as far as transaction fees, Bitcoin’s natural constraints on the number of transactions it can process (fewer than a million per day) combined with users' finite tolerance for paying fees limit the growth potential of this as a revenue source.

Bitcoin has a natural limit on the number of transactions, fewer than a million per day. How does that stack up against the existing (and in terms of energy cheaper by orders of magnitude) card networks. According to this piece on cardrates.com there are about 1 billion transactions a day. Hey, progress there - Bitcoin is only worse by a factor of a thousand.

Bollocks to Democratising

This difference in scale can only really mean one thing - the vaunted ambition of democratising currency is a con. If the global bitcoin network is not designed to cope with a miniscule fraction of the global payment volumes and doing so at massively higher energy costs, how could it ever scale to take over from centralised currencies? And if it cannot do that, then it’s only purpose is speculation and - based on its volatility - gambling. And that is going to ruin the lives of millions of people that invest their life savings. True enough there will be lots of people making lots of money from speculating. Typically those people that got in early, will get rich. Sounds like a Ponzi/Pyramid scheme to me. And those are illegal…

Besides, looking at democratising, the concentration of Bitcoin wealth is anything but democratic, where the majority of coins and mining capacity is in the hands of a few.

Security

My other criticism about Bitcoin is that for all the claims of security in decentralisation - there seem to be a lot of centralised players. Because of the size of the blockchain, it is not feasible to have your own node (and as Moxie Marlinspike wrote - people don’t want to run their own servers) so you most likely go via a provider. In case of Bitcoin this would be centralised wallets, services that interact with the blockchain for you. The problem with those wallets is that because they are very appealing to “threat actors”, there’s a lot of theft going on. Starting with the liquidation of Mt Gox, or North Korean ways of acquiring currency there’s never a shortage of stories about crypto wallets going missing. And when the money is gone, there’s no government financial authority people can ask for help in getting their money back.

And then there’s ransomware. Would it still be as popular without cryptocurrencies as a means of getting paid?

But why are you worried about the energy usage, it’s all green energy!

I’ve seen arguments made that we shouldn’t worry about the energy impact, because Bitcoin can utilise energy that would otherwise get wasted, and it’s all clean green energy anyway! Nope it’s definitely not all green, and when blackouts in the mainly coal-driven energy system of Kazakhstan reveal that 18% of Bitcoin is mined there, it should set alarm bells off.

Against the background of the global climate crisis, where our reliance on cheap fuels means we’re still thinking about building new coal mines, someone should make the connection that the only scalable way of saving the planet is to reduce our per-capita energy consumption. With populations rising and natural resources becoming scarcer, the only responsible way of leaving something habitable behind for our children is to become more efficient and use our resources wisely.

I’m not suggesting that we should all stop using computers, modern appliances or anything that uses electricity. But when we’re designing new forms of currencies systems, we should at least look at the existing ones to ensure that we’re not making something that is slower, more expensive, less scalable, more wasteful. Certainly in all other aspects of life, we’re looking at making it better, not clamoring for something worse…

A House Divided?

Before I continue, I’d just like to say how annoyed I am that the word crypto seemingly has lost the association with cryptography and has been taken over by cryptocurrency and NFTs. Personally, I think Alan Turing would be horrified to think that crypto is now less Enigma and more badly drawn apes.

I know that there are a lot of people out there that have played with cryptocurrencies, invested in coins and tokens and probably some that have done quite well out of it. Personally, I find it ethically and morally questionable to support this great waste of energy and perpetuate a few people at the top getting richer and richer. But I realise that many people don’t share my opinion, and I have to put my hand up, I’m certainly now expert on blockchains and maybe there is a technology out there that doesn’t have the same downsides. Certainly different blockchain technologies are attempting to stop the energy waste (Proof-of-Stake - PoS) yet often these solutions take us back to centralised approaches and I wonder why we don’t just stick with a well understood database.

I think this question of support or not support of cryptocurrencies or NFTs will split a lot of people working in tech - certainly I can see plenty of excitement on Twitter of about engineers getting into blockchain as well as plenty of expressions of distaste about web3, but I hope that as software professionals we can avoid getting into the kind of divisions brought on by Trump or Brexit. Note, this is not an attack on blockchain the technology, but the concern about the ridiculous energy consumption.

Call to Arms! -ish

Nevertheless, I think that software engineers and tech companies should ask themselves whether they would want to be working with tech that is harming the planet?
Isn’t it just as unethical as working with the fossil fuel sector, weapons manufacturers or gambling companies?
Go check with your employer or clients, I know I will…

EDITs

After feedback and reflecting that this writing read as a pretty indiscriminatory attack on anything blockchain, which wasn’t my intention, I focused on Bitcoin.

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