 So I know I know many of you have probably heard about Bitcoin mining and it sounds really confusing You've got these computer equipment that prints bitcoins and it's kind of weird how it all works It uses a lot of electricity and so we're going to dive into the very very very very basic elements. Oh Nice. Thank you so good and So we're going to dive into the basic elements and cover why Bitcoin using energy is actually a good thing That doesn't sound very intuitive at first, but we're going to go into that So let's start with the basics around energy Per the first law of thermodynamics the law of conservation of energy Energy cannot be created or destroyed so when you create electricity that electricity is created from something else another energy source Everything in the universe is energy and it's merely transferred. Nothing's destroyed. Nothing's created and And Gaspard Gustav de Coriolis came up with the idea that energy is the work being done So Bitcoin's proof of work is proving that energy was spent and that's why it's called the proof of work Everything in this life requires energy Purifying water requires energy Transportation transporting items requires energy cooking requires energy There is no way to get around having to use energy to create something or to use something And in a free market the cost of any good Largely reflects the energy and time spent in producing the good whether that be an automobile a train a plane or a cup or a bowl And because free markets encourage The lowest price goods or people are trying to be efficient with their spend Energy usage in producing goods is typically the lowest cost energy When we first started out a long time ago work was done in the economy entirely by human beings and that work was powered by food Then we were able to domesticate animals Those animals could labor on our behalf, but they required more energy as well and Finally, we built machines and those machines are fueled by gasoline atomic or other energy sources and they require massive amounts of energy our economy isn't just an economy of money It's an economy of energy This chart shows GDP to Energy consumption it's extremely correlated with the our GDP is extremely correlated with our energy consumption as We become more and more efficient with the energy that we use we use more of it. It's called Jevons paradox Energy is also a closely correlated with standard of living as The more prosperous nations consume more energy this consumption and what I'm trying to highlight here is that consumption of energy is not a bad thing We've done more and more of it as we progressed from humans to animal laborers to to mechanized labor And it's closely correlated with how well people live their lives Money which is the representation of the work required to generate goods and services can also be viewed as stored energy a Dollar iron today required my labor and my time or my work and my energy and That is stored energy that I can unlock at a future date to pay for an individual or a company To then use that dollar to go produce something for me. So I can pay someone to go dig a ditch So you're probably wondering okay. Well, this is cool to talk about energy and whatnot But how about how does this really correlate with what Bitcoin is doing with proof of work? So Bitcoin mining is actually to it has a two-fold purpose Bitcoin mining prints or mints the new bit coins and that's called the block subsidy and It protects the network and that protects the network Essentially through the block reward so the block reward consists of the block subsidy and the transaction fees and that's what the miners are given in compensation to protect the Bitcoin network So how Bitcoin works is that it takes electricity? It pumps that into an ASIC or called a Bitcoin miner That's the hardware that you guys have seen those pictures online of all those computer all at a computer equipment lined up Those are called ASICs and what those ASICs do is they validate that the proof of work or that the energy has been used And so that's their sole purpose and when they do that they're then given Bitcoin And so that's the very primitive version of how Bitcoin works. It takes electricity It goes through the Bitcoin miner ASICs and then out comes Bitcoin on the other side and these machines are only useful for Mining Bitcoin and that's a good thing and we can we'll dive into that a little bit later So a common common criticism of Bitcoin is that Bitcoin mining doesn't do anything useful You've got all this computing power and all it does is protect the network Well, it sounds like a good idea to do something else with Bitcoin's mining power, right? Like maybe we find prime numbers or a full protein or do some other computation However, that messes with Bitcoin's incentive model If Bitcoin's incentive model has dual purpose both to generate Bitcoin or the miners are rewarded with Bitcoin and and prime numbers That skews the incentives to where if at a future date finding prime numbers is more profitable than mining Bitcoin Then it might have a dual incentive and then those ASICs could be used for something else As I mentioned before we're going to dive into a little bit of why it's important that Bitcoin's ASICs could only do Bitcoin work And why this covers why you would want to have a dual-fold purpose You know the kind of an easy way to think about Bitcoin in terms of a commodity money is that Bitcoin is a super commodity minted from energy the fundamental commodity of the entire universe and so Bitcoin is predicated more about on physics rather than code All of these incentives have been aligned properly and it uses physics to align those incentives properly Bitcoin via proof of work. There is no other way to Show that you've done the work other than to expend energy and that's a that's a beautiful thing So essentially what miners are given is that they're given a financial reward to expend energy And so the miners have to acquire very expensive ASICs So they acquire capex which is the physical mining equipment and then they buy electricity and they're rewarded with Bitcoin and Their one sole purpose is to validate Bitcoin transactions Essentially pretty you know essentially validating those Bitcoin blocks That's important because in a future attack on Bitcoin say if you wanted to attack the Bitcoin network The miners have only one purpose with the machines that they have So if the miners acted in a bad way like a 51% attack, they would be willing to burn their machines Or forego all their future cash flows Because they've already incurred the cost to acquire the equipment and that's Bitcoin security model is essentially miners are given They given a choice between taking the money So they've they've spent money to acquire the ASICs and electricity They have the choice of either receiving Bitcoin rewards or burning that all in messing with the network And that's how Bitcoin is secured and a lot of people go. Well, you know Could we secure bitcoins network for cheaper or I think spending five billion dollars a year? Which is the current estimated cost to secure the Bitcoin network. I believe that is expensive in The real world No one would ever criticize building walls or vaults or defensive mechanisms around things that we care about valuable things So why would anyone criticize building a digital wall around a digital ledger? Using electricity and that's what Bitcoin does and that's why it's costly Is it that cost is the measure of how thick that wall is how much protection the Bitcoin network has And so we're gonna dive a little bit into Bitcoin's energy consumption Because this is I think kind of the hottest topic of like where does how much energy does Bitcoin use and where does it come from? So this map highlights the area the geographic areas where primarily Bitcoin is mined which is in China Like the Nordics and North America and a little bit in Australia and in South America What's really interesting about Bitcoin is that miners buy the machines and then they try to acquire electricity To make to run through the machines to print Bitcoin They're incentivized to find the cheapest electricity anywhere in the world Essentially Bitcoin miners are on a hunt to find cheap electricity anywhere that electricity could that electricity could be in the middle of Antarctica or on the moon Anywhere there's cheap electricity they will try to find it So Bitcoin doesn't compete with anyone other like it did Bitcoin doesn't compete with Munich's energy consumption for Restaurants or bars or anything like that Bitcoin wants to find the cheapest electricity that no one cares about but that's valued the least And that electricity is not very valued because it is either trapped so for example in the Nordics it might be a Hydroelectric dam in the middle of nowhere and they have excess electrical capacity And so Bitcoin harnesses all that excess electricity in the world that's being generated and essentially provides a floor To buy all electricity across the world at the most minimum price Otherwise that electricity would go wasted. It doesn't necessarily that electricity necessary. It doesn't necessarily Be used for anything else if Bitcoin didn't use it And this is actually a common thing Bitcoin wasn't the first commodity to be essentially Printed or minted with electricity Aluminum smelting Requires a very high amount of electricity in order to finish the aluminum smelting process in Iceland Iceland has a lot of trapped electricity and the Prime Minister of Iceland said hey We've got all this trapped electricity What we really do is we import bauxite the raw aluminum ore and we export that electricity electricity via aluminum and So that's what Bitcoin does is Bitcoin takes excess electricity across the world and exports that via Bitcoin So it takes the electricity puts it through a Bitcoin miner and it turns it into digital gold recent research report by By coin shares went and they tried to identify how much of Bitcoin's energy production is from renewables versus fossil fuels And they found that Bitcoin has a very high concentration in renewables and the reason why is that Bitcoin through renewables? that renewables have essentially trapped electricity sources, so most renewables are you know hydroelectric dams that Bitcoin taps into or Areas where they've over they've essentially have an oversupply And so Bitcoin taps into that and so it's estimated that 78% of Bitcoin's electricity usage is from renewables You know finally if Bitcoin mining gets big enough right now Bitcoin mining is only about five billion dollars a year If Bitcoin mining gets big enough, let's say a fifty billion dollar or a hundred billion dollar industry It might actually incentivize the production of even lower-cost electricity sources, which could be fusion So some criticisms that you've probably heard about Bitcoin is the electricity I want to touch on a few here, and I call this the Bitcoin double standard. It's a little play on the Bitcoin standard written by Saifadeen Electricity per transaction is not the right metric for many reasons one the energy is spent per block Which includes the newly minted coins and Transactions also, there's a varying number of transactions per block Finally with lightning lightning is a layer two technology. There can be hundreds of thousands or tens of thousands of transactions per a certain number of transactions on layer one so a block at Bitcoin block for layer one might only have 1,000 transactions, but the aggregate number of all the layer two transactions compressed until layer one could be hundreds of thousands or tens of thousands and then finally Mining not only creates new coin and not only money not only validates current transactions It prints new coins and secures the entire ledger So you're not spending this electricity just for the transaction You're spending this electric you're spending this electricity to secure the entire protocol in all previous transactions So that's why that's not an appropriate metric and then the common technique of most critics is to move the goalposts Like in football It's essentially moving the objective. So at first Bitcoin doesn't do anything useful Well, definitely does because a lot of people believe in the Bitcoin network and people are willing to spend transaction fees in order to validate their transaction and Bitcoins mining or bitcoins energy usage does something very valuable, which is protecting the network And then they go well, maybe it's not, you know, maybe it's useful, but it's not using renewables Well, we found that Bitcoin does have a lot of renewable consumption And then finally they'll say, okay, it's not using okay. It's using renewables, but it's displacing other uses It's essentially trying to move the goalpost to where you can never win the argument and which other which other You know, there's a kind of a funny You know, let's see. Let's skip to Which other type of industry do we criticize so much such as Bitcoin? So US Christmas lights use more energy than entire countries Where are the electricity police? We should call them We should stop all the way. We should stop Christmas lights. We should stop, you know, any wasteful use of electricity And that's where Claiming one use of electricity or one use of energy is more or less wasteful than another is completely subjective We have a mechanism to already select. What is a useful use of electricity? Via the market. We all pay for the electricity and we use it in whatever fashion we'd like To brew beer to eat a sausage to do this or that No one is the moral police to dictate what you should do with your energy. You already paid for it It's completely ridiculous that we would criticize Bitcoin's energy usage, which was paid for just like everyone else And finally part of my analysis, we looked at the yearly cost of different types of monetary systems and the energy consumed So if we're going to evaluate Bitcoin's energy, we should at least look at other types of monetary systems and look at how much energy they use well Gold mining is very very expensive. It uses a lot of electricity They've got to go dig out that gold ore deep deep in the earth and refine it and smelt it With the banking system, we have huge costs You have physical bank branches where people have to live if people live human beings have homes They drive from their homes to the bank branches They sit in the bank branches the bank branches have been built with construction tech with different construction equipment that requires a lot of energy You have bank server costs You have all sorts of other costs as well Which I include governments in here because the financial system ultimately is enforced by government control At least outside of bitcoins. And so you've got the legal system You've got the military You've got the political system in those require massive amounts of energy and cost So Bitcoin relative to all of those is very tiny and very very efficient And for my favorite part The old system efficiency so you got an aircraft carrier. This is more efficient than Bitcoin because Bitcoin is so wasteful Efficient Efficient Efficient people physical people handing cash out people physical people sitting and manning an office when everything in the world We have now is digital The the federal open market committee efficient Nice nice There's a lot of energy being used right there are lots of energy and Finally the Supreme Court the US Supreme Court lots of energy to build that building lots of energy to maintain it and There's not only this court building But tens of thousands of court buildings just in the US alone to enforce contract law and So Bitcoin when weighed against all other types of monetary systems is extremely efficient in its energy usage And I think it's one of the greatest innovations in human kinds history So I feel like this was a you know, I feel compelled to defend its energy usage and I think it does it very very well So that's it for me