Cryptocurrency: Energy and E-Waste Memes Are FUD Propaganda Spread by Dying GovBankCorp

[grarpamp]

Alts are shilling its Actors all over TV, seeded by Anti-Crypto GovBankCorp's,
in huge GreenPeace goes Greta meme war against PoW's now that
Vitalik's ETH has just gone into fully PoS scam mode...

https://www.youtube.com/watch?v=iJ85fyWx-Ck PoW = Free Energy

https://medium.com/@nic__carter/comments-on-the-white-house-report-on-the-climate-implications-of-crypto-mining-8d65d30ec942
https://niccarter.info/wp-content/uploads/09-2022-Crypto-Assets-and-Climate-Report_nc_annotated_091522.pdf
https://onthebrink-podcast.com/mining/
https://niccarter.info/topics/#energy

https://coinshares.com/research/bitcoin-mining-network-2022
https://nydig.com/bitcoin-net-zero
https://arcane.no/research/how-bitcoin-mining-can-transform-the-energy-industry-new-report
https://bitcoinminingcouncil.com/
https://bitcoinmagazine.com/business/not-science-digiconomist-bitcoin

https://www.michael.com/en/resources/bitcoin-mining-and-the-environment
https://bitcoinminingcouncil.com/wp-content/uploads/2022/07/2022.07.19-BMC-Presentation-Q2-22-Presentation.pdf
https://batcoinz.com/
https://twitter.com/DSBatten



https://medium.com/@nic__carter/comments-on-the-white-house-report-on-the-climate-implications-of-crypto-mining-8d65d30ec942
https://twitter.com/nic__carter/status/1570602136974786560

Comments on the White House report on the climate implications of crypto mining

As part of President Biden’s executive order, the White House Office
of Science and Technology Policy (OSTP) conducted a study into the
climate impacts of crypto mining. You can find it here.

I have annotated the study in full. You can find my annotated version
by clicking the image below or the link here [pdf]:

Note: I’ve highlighted in yellow text that I am responding to in the
margins. I have highlighted in purple claims that I consider to be
untrue or misleading. I have also implemented a Pinocchio system
(🤥🤥🤥) to qualify the egregiousness of these claims with five being
the worst.

I wasn’t able to fully elaborate on my points in the margins, so I’m
including some companion notes here. Note: I am not laying out a
positive case for Bitcoin mining here. By this I mean a discussion of
sustainable power models used by miners, or the propensity of miners
to induce new renewables, stabilize the grid, and support
location-agnostic energy infrastructure. I have done that in plenty of
other places. See an index of my prior work on Bitcoin mining on my
website, or the On The Brink mining miniseries. I am just responding
to the most egregious parts of the OSTP report.

In the study, there are a few bright spots:

    The OSTP acknowledges that PoW and PoS may not grant identical
assurances, and there remains uncertainty as to whether PoS might be a
perfect substitute for PoW
    The OSTP acknowledges the interesting developments in mining with
otherwise-flared or stranded natural gas (often released as an
unsaleable byproduct of oil extraction)
    The report meaningfully acknowledges the contributions to grid
flexibility miners can offer via participation in demand response
programs
    The report notes the potential to mine with stranded renewables
    And importantly, the report offers only lukewarm recommendations

However, the overall effort is weak. The paper is effectively an
extended literature review with very little in the way of new data or
analysis presented. It relies on a mélange of academia, anti-PoW
consultancies like the Crypto Carbon Ratings Institute, and
quasi-academic bloggers like the infamous De Vries. Many of the
academics cited are conflicted. Virtually no sources from the mining
space itself are included. Citing the non-peer reviewed work of
(highly conflicted) amateur hobbyists just doesn’t cut it for a
purportedly scientific paper. Remember that this report was nominally
authored by the “White House Office of Science and Technology Policy.”
The report should therefore adhere to a high scientific and academic
standard. Relying on non-peer reviewed, non-scientific estimates,
especially by individuals with known conflicts of interest, should be
an absolute dealbreaker. Unfortunately, this paper does so with gusto.

Virtually no case studies are presented in the report, even though
there are many examples of miners operating sustainably, adding power
to the grid, taking zero-carbon approaches, and engaging in grid
stabilization. There are a number of outright falsehoods in the
report, which I’ve highlighted in purple. The report takes an
extremely harsh stance on miners utilizing renewable sources,
chastising miners for using renewables and laying out an extremely
narrow set of conditions where their use would be acceptable. The
section on demand response concludes that it’s mostly irrelevant,
because miners, in the eyes of the government, are raising aggregate
power demand without inducing any additional supply. The section on
flared gas mining is a brief olive branch, but the report then
concludes that because all oil and gas extraction must be shuttered to
meet climate goals, no gas flaring can exist under Net Zero™.

Generally, the subtext is that because mining is a “bad” usage of
power, it doesn’t matter if you promote grid stability, or use
renewables, or even mine off-grid with stranded resources — you’re not
welcome here, and you should buzz off.

Some of the chief issues are as follows:

    Presenting virtually no new data
    Ignoring contributions of industry subject matter experts
    Relying on the partisan De Vries / Digiconomist
    Relying on the conflicted Gallersdorfer, Klaassen, and Stoll
    Citing the absurd Mora et al 2018
    Urging caution on data while using it recklessly
    Pushing a “can’t win” approach to miners using renewables
    Refusing to project Bitcoin’s energy consumption trajectory
    Making stupid and counter-productive recommendations

I’ll tackle these main issues in turn.
The White House presents virtually no novel data

This report is mainly regurgitation of data presented (and in some
cases dreamed up) by academia and bloggers. I can tell that the
authors have very limited experience with the debates around PoW, or
are being lazy in their approach and citing folks willy-nilly, because
they cite Mora et al 2018 (genuinely unforgivable) and have an
extremely heavy reliance on De Vries/Digiconomist, as well as Stoll,
Klaassen, and Gallersdorfer. The Mora reference is shocking. It’s a
bit like reading a scientific government report on the history of the
moon landing and finding a reference to a conspiracy website claiming
that the entire thing was faked.

To get to the bottom of Bitcoin’s (we can ignore everything else,
since post-merge, only Bitcoin will remain as a meaningful PoW
blockchain) energy consumption, likely future trajectory, and
emissions profile, you will need to do some original work. This report
contains very little.
The White House totally ignores any contributions from industry
subject matter experts

So this is to be expected. The OSTP doesn’t cite any of the great work
on mining done by Coinshares. They don’t cite Bitcoin Net Zero by Ross
Stevens/NYDIG and myself — even though they ask for help modeling
Bitcoin’s future energy and emissions profile. They don’t cite Arcane
Research, even though the OSTP covers many of the topics where Arcane
demonstrates helpful expertise. They don’t cite any of the data
aggregated by the Bitcoin Mining Council, which aggregates
sustainability data for half of the Bitcoin mining network.

Now you might say “well the OSTP can’t just rely on partisan data and
commentary written by industry participants. They adhere to a higher
standard of academia and rigor.”

That is where you’d be wrong.

As I will further demonstrate below, the OSTP is relying on the
following in this report:

    The personal blogs of a Dutch Central Bank employee with a widely
documented antipathy to the subject matter and a clear anti-crypto
motive
    Non-peer-reviewed content published in the “commentary” sections
of journals like Joule and Nature Climate Change
    Non-peer-reviewed journal content published by authors with a
serious, commercial conflicts of interest
    Non-peer-reviewed journal content written by undergraduates,
thrice-debunked in its own journal, widely considered junk science
    Reports published by a for-profit ‘carbon ratings institute’
listing numerous Proof of Stake cryptocurrencies as clients —
indicating a clear anti-PoW bias

These aren’t just one or two stray citations. These questionable
sources (which I will elaborate on below) constitute dozens and dozens
of citations, and in some cases constitute sole support for claims
made in the paper. The OSTP is perfectly willing to rely on estimates
published by conflicted individuals with clear commercial interests
that incentivize them not to pursue the truth. They are also willing
to publish non-academic and non-peer reviewed, vaguely academic
content. So if their reasoning to the total stonewalling of crypto
industry-derived content is “it’s not sufficiently academic,” or “they
have competing, commercial motives,” this applies to the
crypto-critical sources they’ve relied on in this report too. Ignoring
the industry leaves the report starved of current data and analysis
from subject matter experts. It is ultimately individuals and firms
that are direct participants in or adjacent to mining that best
understand the reality on the ground. Including these perspectives
would have saved the authors many blunders (enumerated in the
annotated version).

Additionally, the total exclusion of industry sources reinforces the
fact that this report is almost completely one sided; that is, it is
deeply hostile to Proof of Work.
Reliance on De Vries / Digiconomist

The De Vries body of work is neither academic, scientific, nor
unbiased. He is a blogger who works for the Dutch Central Bank (an
anti-crypto institution), an affiliation he routinely fails to
disclose on his papers. He maintains an extremely antagonistic
outwards stance towards his subject, Proof of Work cryptocurrencies,
evident in his tweets. His Digiconomist website is just that — a
personal website. It’s a hobbyist project run by an obviously
conflicted individual. It’s not academia tier, not even close. His
motive and mission is to exaggerate Bitcoin’s climate impact, whether
it’s energy consumption, emissions, or e-waste (the White House paper
cites him heavily on all three topics), which he does with gusto.

Quite simply, citing him at all is completely inappropriate for a
purportedly scientific study. He is not a climate expert; he is not an
authority on mining; he is a data scientist who works for the Dutch
Central Bank. Most of his papers are published as “Commentary,” often
in the journal Joule. These “Commentary” articles are not subject to
peer review. They are basically glorified blog posts that happen to be
hosted on the journal website. The Joule editorial team freely admits
that Commentary articles are Opinion. Science, they are not. Let’s
investigate a few of De Vries’ citations in the White House document:

    Bitcoin Energy Consumption Index: personal blog, not peer reviewed
(cited over a dozen times)
    Revisiting Bitcoin’s Carbon Footprint, with Gallersdorfer,
Klaassen and Stoll (2022) — commentary in Joule, no required peer
review
    Renewable Energy Will Not Solve Bitcoin’s Sustainability Problem
(2019) — commentary in Joule, no required peer review

These look to the uninitiated observer like peer reviewed scientific
papers. In fact, they are non-reviewed blog posts in scientific garb.
You’d think the White House Office of Science Policy might be
exercising more caution and perform a cursory review of the resources
they are citing. Maybe they don’t care.

This “commentary” trick is also done by De Vries collaborators
Gallersdorfer, Klaassen, and Stoll, for instance in their 2020 article
(of course cited in the OSTP report). It’s a common way to launder
sciency claims into the scientific literature and press without
actually facing any scrutiny for those claims. Journalists almost
never verify that the articles aren’t actual scientific journal
articles.

As for Digiconomist, it’s even more straightforward. It’s just not
science. It was even rejected as a valid citation by Wikipedia for the
energy section of the Bitcoin page (thanks to Level39 for pointing
this out). As a hobby website/blog it is not rigorous. When fact
checked by industry experts it is frequently shown to be erroneous.
Its estimates are consistently far, far above those issued by more
rigorous academics. But the White House Office of Science is much more
permissive and is willing to accept De Vries’ amateur assertions as
fact.

De Vries is cited 16 times in the document. Digiconomist is cited 23
times. Collectively, this makes De Vries the #1 source for the White
House report. The far more authoritative, less exaggerated, and
genuinely academic and neutral (taking no industry financing)
Cambridge Center for Alternative Finance is cited 10 times.

Take table A4 in the appendix, which purports to compile GHG emissions
for a number of cryptocurrencies from an array of academics. Of the 24
datapoints cited, fully 58% are De Vries/Digiconomist, one is Mora et
al 2018 (basically tinfoil hat climate trutherism — more on that
later), and one derives from the questionable Stoll, Klaassen, and
Gallesdorfer. So that’s 16/24 cited datapoints in the table that are
extremely questionable or completely meritless (I can’t overstate the
absurdity of Mora’s paper in particular).

To address the substance of De Vries would take an entire
dissertation, because his strategy is to generate a huge volume of
material and claims, all of which take far more energy to rebut than
they do to dream up. There’s three broad claims the White House relies
on for De Vries/Digiconomist. Energy consumption estimates, emissions
estimates, and e-waste estimates. Each has been dealt with elsewhere
capably, but I’ll address them briefly.

1) Energy consumption

De Vries’s guesses come in way, way higher than his more credible
peers. Look at the table A1 in the appendix: De Vries comes in at 144
TWh/y for Bitcoin versus Cambridge’s 88 TWh/y. For ETH, De Vries
guesses 93.9 TWh/y versus Kyle McDonald’s 22.9 for the same time
period. His estimates are consistently far, far higher than competing
ones by other researchers. (He biases the estimate upwards for Bitcoin
by assuming that the average ASIC hardware on the network is very old
and hence inefficient, requiring more electricity per unit of hash
than a newer fleet would.)

More generally, the energy consumption model De Vries relies on (that
the White House is citing here) has been heavily, and in my opinion
fatally, criticized by Ben Gagnon, the Chief Mining Officer at
Bitfarms. The De Vries model doesn’t actually follow its own stated
methodology. It didn’t reflect changes in the actual Bitcoin network
in 2021, indicating that De Vries was manually tuning the model to
make it show a higher energy consumption figure than even the model
would have outputted. There’s additional issues with De Vries’
assumptions around hardware too: he contradicts himself, claiming at
once the hardware turns over extremely quickly with his e-waste
estimates, yet claiming Bitcoin has a very old fleet with his energy
estimates.

2) E-waste

The e-waste claim, which relies entirely on a De Vries paper, is just
absurd. De Vries flips from thinking the Bitcoin ASIC fleet is
extremely old with his energy consumption estimates, to thinking that
it turns over very quickly — falsely assuming in the e-waste paper
that Bitcoin ASICs are fully depreciated and junked every 1.3 years.
This 1.3 year estimate comes from a misapplication of Koomey’s law, a
completely irrelevant observation about the historical growth in the
efficiency of computers. This obviously has nothing to do with ASICs
specifically, and cannot be used as the basis for a top-down estimate
of e-waste. We have plenty of real, actual data on how long ASICs
last. Certain vintages, like the s9, were still chugging away 5 years
into their lives in 2021. These are machines that you turn on and spit
out money. Someone will always run them, if they are producing above
breakeven given electricity costs. This is why — contra de Vries —
there is a vibrant secondary market for ASICs. Older models get
“retired” from initial buyers to operators who have low electricity
costs and who can still run them profitably.

This 1.3 full depreciation — and trashing of ASICs! — assumed by De
Vries is a premise completely out of step with reality, easily
determined if you to talk to miners or read their public disclosures
or look at the secondary market. ASICs aren’t thrown away when they
are old, they are sold on in the secondary market. They contain
virtually no toxic parts and can be recycled (they are mostly aluminum
by weight). I address the e-waste paper from De Vries and Stoll more
fully in this letter to the EPA — signed by the CEOs of many large
financial institutions active in the Bitcoin space. (Skip to section 7
in the letter)

3) Emissions

De Vries makes many estimates regarding cryptocurrency emissions,
rather than just energy use. This is extremely questionable, and
there’s a reason few academics do this: because we don’t have energy
mix data which would be necessary to derive an emissions estimate. The
Bitcoin Mining Council publishes some data on miner sustainability via
voluntary disclosures covering about half the network — this is
ignored in the White House report — but this alone isn’t sufficient.
To estimate emissions, you’d need to know what power source miners are
actually using. Many miners are foreign and run by private entities.
Unlike the subset of the network that is run by publicly traded
companies in the US, these private firms don’t disclose much about
their energy inputs. So emissions estimates are extremely vague, to
the point where presenting that data without extreme caveats is
irresponsible. Generally, they are based on average energy mixes in
regions where miners are located. But this is questionable, because
miners often use highly idiosyncratic local energy sources (eg,
collocating with a hydro dam), and they disguise their locations, so
IP-based tracing is not reliable.

Cambridge, an authority on Bitcoin energy consumption, has so far held
off on making any kind of emissions estimate for Bitcoin mining
because that would require distinct bottom-up knowledge regarding
miners’ energy mixes. So emissions estimates that the White House
cites are from the most aggressive and least rigorous sources, like De
Vries, who are happy to interpolate (always in favor of higher,
scarier numbers) and make wild estimates. Most actual academics mostly
shy away from making these guesses. You can’t “debunk” this with real
data, because the data doesn’t exist. The correct attitude would be to
admit you don’t know and wait for more data, rather than relying on
some wild, inappropriate energy mix assumption.

So what should the White House have done? The better approach would
have been to rely on credible, non-conflicted actual scientists and
academics. For instance, Cambridge’s estimates are academic,
nonpartisan, and widely cited. Of course, they don’t make fantastical
claims about GHG emissions associated with Bitcoin, because it really
isn’t possible to make any estimates like that with any confidence.
Naturally, the OSTP sought to amplify the most exaggerated,
sensational claims about Bitcoin’s climate impact. Merely academic
ones are of little interest to them.

The OSTP may not care that the #1 source they are relying on is the
non-academic, largely non-peer reviewed work of a Dutch Central Bank
employee (who appears to have no practical knowledge of Bitcoin
mining). But they should, because this fact alone discredits their
paper. Many sections of the report rely entirely on De Vries’ wild
guesses.
Reliance on Gallersdorfer, Klaassen, and Stoll

These three academics (who also collaborate at times with De Vries),
also rely on this same trick of getting blog posts published in
journals under the “comment” section. Their tactic is actually more
insidious, because rather being motivated by an anti-PoW ideological
crusade like De Vries, they actually do cash in on their academic
efforts with a consultancy called the Crypto Carbon Ratings Institute
(CCRI). The basic model appears to be the following: obtain
credibility by publishing quasi-academic work lambasting the emissions
associated with PoW, and use that to sell ESG-focused reports to help
Proof of Stake blockchains [pdf] launder their reputations. These
blockchains can then proudly proclaim themselves green (even if a
financial consortium happily claiming to be green because it’s NOT
Bitcoin is an absurdity), armed with a report from verified academics™
with a track record of publishing on PoW (never mind that many of the
articles aren’t peer reviewed).

GKS are cited in the White House report as well as the CCRI directly.
Shockingly, the CCRI Report [pdf] referenced in the OSTP paper, Energy
Efficiency and Carbon Footprint of Proof of Stake Blockchain
Protocols, was actually commissioned by the PoS blockchain Avalanche.
Avalanche was founded by longtime PoW antagonist Emin Gun Sirer, and
the protocol aggressively markets itself on the basis of its supposed
sustainability. Commissioning reports from the likes of GKS to
greenwash Avalanche is part of the normal playbook for PoS
blockchains. It is remarkable that the White House would cite such a
clearly conflicted report though.

I am not ultimately that concerned about GKS’ rather transparent
grift. What does trouble me is the OSTP ignoring all data originating
with the crypto industry, as if it’s tainted by capitalism, yet
embracing data that is clearly biased in the opposite direction — in
this case, by consultants selling anti-PoW, pro-PoS reports to PoS
blockchain clients.

As for the rigor of their work, it’s questionable. It goes without
saying that the CCRI reports cited in the OSTP report (footnotes 40
and 67, as well as repeatedly in the Appendix table A1) are completely
non-academic. Stoll collaborates with De Vries on the infamous e-waste
article (addressed earlier). The report cites the 2022 Revisiting
Bitcoin’s Carbon Footprint, featuring De Vries and each of GKS, which
is published as Commentary in Joule (non-peer reviewed). Energy
Consumption of Cryptocurrencies Beyond Bitcoin, cited in the report,
also appears in Joule as Commentary.
Citing Mora et al

There’s not a lot of things that can shock me here, but the inclusion
of Mora et al as a citation really did surprise me. It’s well-known as
probably the worst paper ever written on the topic of Bitcoin’s
emissions impact. Entitled “Bitcoin emissions alone could push global
warming above 2°C,” Mora et al is a running joke in the mining space.

Mora et al 2018 is part academic fraud, part performance art. It was
written by undergraduates (Mora himself reportedly didn’t actually
contribute to the paper, just lent his name to it so it would get
published) as a class exercise in “how to get a paper published”. The
paper itself, if you care to read it, is completely ludicrous. It
supposes a model of Bitcoin that bears no relation to Bitcoin at all,
and gets an obviously erroneous result (Bitcoin will increase the
earth’s temperature by 2 degrees). I discuss it in this video and in
greater detail in this blog post.

It’s worth noting that the Mora et al paper also appears as a
probably-not-peer-reviewed ‘Comment’ in the journal ‘Nature Climate
Change’. And if you actually read the paper, it’s hard to miss the
three rebuttals included right there on the journal page. I’ve
helpfully pointed them out so the OSTP can find them.
If only there was a sign that something might be amiss

Easy to miss, I know.

If you read them, the rebuttals completely discredit the paper. The
fact that this paper is still up, unredacted, is quite remarkable.
Maybe because Nature Climate Change doesn’t really care that a blog
post written by some undergraduates turned out to be unscientific
garbage. Again, the problem is really that the OSTP figured this would
be worthy of inclusion in their study. I’m sure they didn’t read the
paper, because any sane person would realize how completely ludicrous
it is. The problem is that they are further validating it by citing it
and using it to bolster their arguments. I hope this is a case of
ignorance rather than malice on the part of OSTP, but either way, it
isn’t encouraging.
Deeply conflicted approach to data

The report stresses in many places the uncertainties involved in these
estimates. That’s a step forward from the old model of governments
simply rebroadcasting lunatic estimates or projections around
Bitcoin’s climate impact and using that to set policy.

But the report fluctuates wildly between characterizing wild guesses
from the likes of De Vries as fact, and then saying the estimates are
uncertain and data is lacking. In places where we could have
reasonably good models, like estimate Bitcoin’s future energy
consumption (see the next section), they refuse to make an estimate.

Even though the report does emphasize data gaps and stresses the
epistemic limitations of this topic, the authors are generally
undeterred and plow ahead with naked assertions. Consider their
assertion on page 6 around the emissions of major cryptoassets.
There’s no footnote. It’s just a statement of apparent fact. Turns out
it’s a Digiconomist estimate (which you have to do a fair amount of
detective work to figure out, given the odd lack of footnote). So on
the one hand, the OSTP is saying that the data is complicated and
nuanced. And on the other, they’re making naked assertions regarding
the most complex and nuanced piece of the entire debate (emissions
estimates), and ones that are based on the Digiconomist, no less!

Another example of this is the report’s coverage of Texas. Texas
represents a narrative violation when it comes to crypto mining;
Bitcoin miners in Texas are aggressively going after cheap energy in
West Texas particularly, which is a consequence of a massive renewable
buildout (driven by federal subsidies) paired with a lack of local
demand and insufficient long-distance transmission to load centers.
Bitcoin miners in Texas are scooping up negatively or 0-priced energy,
and opting into demand response programs such that they are offline
during grid scarcity events. In short, they pay for cheap power that
no one else will pay for (thus improving the economic profile of new
renewables), and they don’t compete with households when energy is
scarce. There isn’t a better energy buyer you could hope for.

The report however opts to cite erroneous figures in order to imply
that miners are imminently taking over the Texas grid. They do this in
multiple places. Here’s one such passage:

    Texas, and has a peak summer electricity demand of about 76
gigawatts (GW), and current crypto-asset mining activity of about 2
GW. ERCOT has about 17 GW of crypto-asset facilities that are in the
process of connecting to the grid, with an expected 5 to 6 GW of new
demand in the next 12 to 15 months (equivalent to the power demand of
the city of Houston). ERCOT may also see an additional 25 GW over the
next decade. While many of these projects may not be completed, the
prospect of up to 25 GW of new electricity demand from crypto-asset
mining equivalent to a third of existing peak electricity demand in
Texas raises potential challenges for maintaining electricity
reliability, especially with rising power demands and extreme
temperatures over recent years.

These numbers are huge. Seventeen gigawatts of power is an enormous
quantity. As they helpfully point out, 25 GW would be equivalent to
five Houstons. The only problem with this section is that the data is
completely false.

ERCOT does not have 17 GW of crypto data centers that are in the
process of connecting to the grid. There will most likely not be 5–6
GW of Bitcoin mining data centers connected in ERCOT in the next 12–15
months. ERCOT will not see 25GW (1.7 current Bitcoin’s worth)
connected over the next decade. This 17 GW number in particular refers
to non-binding, non-secured requests made speculatively to ERCOT.
Nowhere near that amount of power actually stands to come online.

Every TX-based miner I connected with told me that the OSTP report
numbers as described are erroneous, and the quoted 17 GW figure from
ERCOT is deeply misleading. To confirm, I reached out to Lee Bratcher
at the Texas Blockchain Council, arguably the organization with the
most complete birds-eye view of mining in Texas. Lee related me the
following:

    Yes, we’ve asked the ERCOT Comms team to stop giving out that
number without any context. There is currently between 1.5 GW and 2 GW
of bitcoin mining in Texas. Another 2- 3 GWs could come on in the next
few years. The 17 GW and 25 GW numbers are simply interconnection
applications. Those do not require security to be posted. We are
working with the utilities like Oncor and AEP to see if they would be
willing to give an aggregated and anonymized number of who has posted
security for their site. My guess is it would be around 1 GW of that
17–25 GWs that has actually posted any kind of collateral.
Unfortunately the White House and the media are not interested in that
nuance though.

Shaun Connell, EVP power at Lancium, a Texas-based data center company
focusing on renewables, echoed Bratcher’s points. He told me that
there was no financial cost for large putative loads to make requests
to ERCOT to review new projects. Only once ERCOT greenlights the
project does the applicant have to decide whether to move ahead and
make the investment. So you had miners applying for the same massive
project several times over with different utilities, hoping ERCOT
would approve one.

Getting a request in the interconnection queue is a matter of
submitting an Excel spreadsheet. There’s no meaningful filter or cost
to doing this. Of the 8 GW in the territory of the utility Texas-New
Mexico Power (these requests are evaluated jointly by ERCOT and the
local utilities), 1 GW has been evaluated and only 50 MW have been
approved so far. So that 2% yield should be understood as indicative
of what you might expect in terms of energization.

So basically anyone — a miner, or broker trying to tout these
contracts or relationships, could make a connection request to ERCOT
at virtually no cost. During the bull market froth of 2021, there was
a huge incentive to demonstrate confirmed capacity with ERCOT, even if
it was just a trivial request for which no collateral had been posted.

>From a more conceptual perspective, believing that 17 GW of new
Bitcoin hashrate is imminent doesn’t make sense for other reasons. All
of Bitcoin uses around 15 GW globally. If you more than double that,
with new hardware, hashrate would increase by 3–4x. That massively
compresses miner margins, and would lower the electricity price at
which miners are breaking even. Adding this 17 GW would push miner
breakevens to levels below average power prices in Texas. So the OSTP
is basically positing that miners would expand their business well
into the territory where they are guaranteed to lose money. This
simply makes no sense.

The OSTP forgets that bitcoin mining is a business, and miners need to
make money, or they will close up shop. The market size is bounded by
the value of the Bitcoin rewards available to miners. This is a very
real constraint on the amount of investment miners are willing to
make.

The reality on the ground couldn’t be more different from the apparent
apocalypse the OSTP is forecasting. The current status quo in ERCOT is
a much slowed deployment pace, given worsened miner economics, a
weaker capital markets environment and higher energy prices that
further reduce the appetite of miners to build.

It’s also worth noting that the report assumes that energy is
geographically fungible, as if a miner active in West Texas is
depriving a household in Dallas of electricity. This isn’t the case;
there is limited transmission from renewable-rich West Texas to the
DFW triangle, explaining why power prices so frequently diverge
between the two regions. Electricity decays with distance. Absent
further high voltage transmission (and ERCOT’s CREZ, capable of
carrying 15 GW, is already at full capacity ), you will inevitably
develop local pockets of energy that simply go unused. Texas is a
perfect case study showing how Bitcoin miners can surgically target
these low-priced energy pockets. This is a category of energy I have
dubbed ‘nonrival,’ because it doesn’t compete with other load centers
at all; it’s only accretive, increasing the economic incentive to
build more.

The debate really does suffer from a shortage of data, that is true.
But the government isn’t exactly taking a welcome stance and inviting
miners to collaborate with them in data sharing initiatives. Instead,
they’re lambasting the sector, using junk data from fake academics or
data that is simply erroneous, and threatening to ban the entire
industry. If they had bothered to engage with actual miners with a
knowledge of the Texas grid, they wouldn’t be making such mistakes.
“Can’t win” approach to miners using renewables

Probably the most frustration portion of the report concerns miners
utilizing stranded natural gas or mining with renewables. Basically,
the report dismisses all the efforts of miners to decarbonize their
operations, laying out extremely narrow conditions in which mining
with renewables might be considered acceptable. Suffice to say, I’ve
never encountered the government insisting on conditions this
stringent to any other buyer of grid electricity. Given that the
report considers a full ban on mining in the US, the dismissal of
miners’ genuine efforts to decarbonize should be deeply alarming. The
OSTP sets them up to fail with a “can’t win” approach.

1) Dismisses flare gas mitigation

Despite a token admission of its usefulness, the report generally
dismisses the merits of mining with otherwise flared or vented natural
gas. First, the authors betray ignorance of how flared gas mitigation
actually works. On page 24 they claim that mining with
otherwise-flared gas doesn’t affect emissions one way or another. This
is false: miners incorporating flared gas are able to combust the
methane with a near perfect combustion efficiency, whereas generic
flaring is low efficiency, especially in windy conditions. This is
well documented in the literature. Thus, with flaring methane (a far
more potent greenhouse gas) ends up vented anyway. Bitcoin miners are
able fully combust the methane and convert it to energy and CO2. This
is a direct improvement from an emissions perspective; it’s not merely
emissions neutral like the report maintains.

The report also claims that the methane ought to be used for other
uses, like hydrogen production, or that it should be exported via
pipeline. This is a completely markets-blind claim. If the methane
were market relevant, it would have been piped out. Many of these
installations — the ones most suitable for flared gas mitigation — are
off grid and have no pipeline infrastructure. Methane is a byproduct
of oil extraction and it is not always the case that there are
pipelines ready to go near a wellpad, nor is it necessarily economical
to construct them. “If I were you,” the government is saying, “I would
simply pipe out and sell the gas.” I am sure miners reading the report
will appreciate the helpful tip.

Regarding grey/blue hydrogen (or other location-agnostic use cases)
the OSTP should rejoice. Several Bitcoin miners have already announced
their plans to build repurposable energy infrastructure that could be
used for hydrogen product, if that market further develops. The fact
is, the hydrogen market is generally not cost competitive with Bitcoin
mining, especially as it requires additional physical infrastructure
(you can just mine the Bitcoin into the cloud and sell it immediately.
Getting the extremely flammable hydrogen to market is a bit more
challenging). Bitcoin is just more location agnostic. OSTP again
misses the mark by ignoring the insights of actual practitioners on
this topic.

Third, the report goes on to dismiss the flared gas mitigation use
case entirely by flatly asserting that “climate policy aligned with
achieving net-zero emissions would have zero methane venting and zero
methane flaring.” How convenient! According to the Net Zero Trajectory
that we are all apparently on, the world will magically have no
flaring, so mitigating the emissions associated with flaring or
venting isn’t commendable.

Notwithstanding the Malthusian lunacy of a climate policy that
purports to eliminate all oil extraction (of which waste natural gas
is a byproduct), this statement is both myopic and utopian.

First, there’s no way to enforce a global ban on O&G, no matter how
much the OSTP bleats about net zero. If the US bans all oil domestic
and gas extraction, then competitor groups like OPEC would simply reap
a massive windfall. (This would also put the US into the unenviable
position of losing all energy sovereignty, a truly disastrous state to
be in as our European allies are just learning.) In that scenario,
mining with otherwise-flared gas would still be relevant, just
overseas.

If the US bans flaring entirely, and, say, insists that all waste
natgas is piped out from oil wells and brought to market, it will
effectively be a subsidy to foreign oil producers that don’t share
America’s flaring qualms. Foreigners will be able to mine more
cheaply, because they will not be burdened with this additional step
of building gas pipelines whenever they want to drill a new oil well.
So the US will just be effectively imposing an artificial tariff on
its on oil production and obliquely funding Russia, the Saudis, etc.

Maybe this is what the administration wants — the US disempowered,
dependent on foreigners for essential petroleum (we aren’t deprecating
this any time soon, all heavy industry depends on diesel, and planes
still require jet fuel), and uncompetitive on the global markets. So
if that’s their objective, by all means, illegalize flaring. But
flaring will occur as long as oil is extracted from the earth, and
miners will still be there to improve the emissions profile of that
waste gas, and put it to use economically. And if the government
thinks that miners should be producing grey hydrogen with that flared
gas instead of Bitcoin, they are basically saying that the market is
wrong.

2) Claims that using stranded renewables inhibits transmission

This is a wild one. The report claims that, basically, miners using
stranded energy (as they famously do in Texas and other places with
abundant renewables, which is well-documented at this point) means
that there won’t be enough price signals for grid operators to know
where to build transmission.

    Using curtailed electricity can provide additional revenue to
renewables developers and incentivize the construction of additional
renewable energy capacity. However, it can also reduce the financial
incentives to construct transmission from these renewables to existing
users, or reduce the incentives to store excess renewable electricity
to use when demand is higher. In addition, crypto-asset miners would
not be likely to operate only during periods of curtailment, requiring
consumption of grid electricity at all other times.

This is quite the claim. Basically, the government is saying that
miners buying renewable energy — even if curtailed or undermonetized —
isn’t praiseworthy, because that inhibits the signal to build more
transmission.

Right. If only we had some kind of a sign that areas with lots of
renewables (typically far from load centers) need to be linked to
areas with lots of demand for electricity.
Real time ERCOT prices show divergences driven by insufficient transmission

This is a chart of electricity prices in Texas on April fifth of this
year. Notice how the west has instances of negative pricing (This is
due to tax credits which compensate renewables for power generated
regardless of local prices. This requires prices to be negative before
its uneconomic for them to generate power), and the south and east is
paying massively high prices? This is because electricity can’t just
be teleported. If it needs to move long distances, it needs to be
transported through long range, high voltage transmission, of which
there is only a finite amount. So the market cannot clear at a single
price.

As renewables further penetrate US grids, the cost of generation will
go down (as renewables do not have marginal costs like electricity)
but the need for transmission will go up. Bitcoin miners help monetize
some of these renewables, but they don’t fix the core need for
transmission. And I can assure you, grid developers can figure out
where to put them. The signal is perfectly clear. The inhibitors are
really just a lack of political will, NIMBYism (no one wants
transmission lines in their back yard), and of course financial costs.

3) Gives miners no credit for subsidizing a renewable buildout

Lastly, the report dismisses Bitcoin miners buying renewables,
adopting a weirdly rigid and unrealistic attitude to power:

    When a crypto-asset mine purchases electricity from existing
renewable sources, it displaces the GHG emissions in the near-term,
shifting users of renewable sources to fossil fuel sources. This is
because coal and natural gas often supply electricity generation for
each additional unit of electricity demanded in the United States. As
the amount of renewable sources is held constant, but electricity
demand increases, additional fossil power will likely be dispatched.
This displacement results in no net change or in increases in total
global emissions through a process called leakage.

Given the report’s earlier insistence on the ‘electrify everything’
school of thought, it’s truly odd that they take such a zero sum
approach here. Basically, the OSTP claims that buying renewable power
just forces other grid consumers to buy thermal power, so it’s a wash.
This assumes, wrongly, that:

    Bitcoin miners aren’t subsidizing the addition of new renewables
in any way. This isn’t true. For instance, Aspen Creek is just one
example of a miner that focuses on mining with renewables with
additionality, meaning that they are bringing new power to bear, and
only consuming part of it.
    Electricity is geographically fungible; that is, it can be
transmitted anywhere at no cost instantly. In reality, power needs
transmission and ends up trapped in pockets throughout the grid.
Miners buying this power when it is negatively or cheaply priced are
directly improving the economics of these renewable installations, and
making it easier to justify building more.
    There are no ancillary benefits to having a flexible load on grid.
This isn’t true either. Miners are a uniquely responsive load that can
enhance grid flexibilization. Ever more renewable grids need massive
flexibility from both the supply AND demand side. Miners can do this
better than any other load resource, period. Here’s a great paper
explaining this. More flexibility = more renewable penetration.

Indeed, a heavily renewable grid must be overbuilt to several times
its nameplate capacity, because wind and solar are so intermittent. So
in the glorious Net Zero future, there will necessarily be a massive
overbuild of renewables. Having day-1 buyers for these renewables,
especially location agnostic ones which can travel to the generation
source, fundamentally improves the economics of these new buildouts.
The report implies a scarce, zero-sum world, where the available power
is fixed. This isn’t the case, nor is it even consistent with
statements made earlier in the very same report! To achieve a real
emissions reduction, tons of renewables will need to be built and grid
flexibility will need to increase. Bitcoin Miners directly and
indirectly help achieve both of these objectives.
Refuses to even take a guess on future energy trajectories

While the OSTP House is willing to repeat De Vries’ unscientific fever
dreams about Bitcoin’s emissions with no issues whatsoever, they oddly
draw the line at projecting future energy usage. This is a really odd
move, because doing a back of the envelope projection for Bitcoin’s
future energy demands is really very simple, and should be within the
reach of the Scientists at the OSTP.

Refusing to propose any model at all helps the OSTP’s anti-crypto
case, because it leaves future crypto energy demands wide open to the
imagination. Most people, if not guided by reasonable models around
future usage, tend to panic, relying on linear extrapolations of prior
energy usage growth into the future. Most people, however, are
ignorant of the effect of the halving, the declining growth rate of
price, the effect of rising energy prices on consumption, and the
real-world constraints to price growth and fees. These models —
provided generously by industry, which the government has chosen to
disregard — show that even under the most optimistic price models,
it’s very unlikely Bitcoin becomes a ravenous energy basilisk.

In fact, in my own Bitcoin Net Zero report (coauthored with Ross
Stevens of NYDIG), we find that even in the “high price” scenario of
gold parity (which would price Bitcoin around ~$500k per coin!)
Bitcoin mining doesn’t even reach 0.5% of global primary energy
consumption.

None of this is complicated. Proof of Work is really just Bitcoin, so
we can ignore everything else. For price, you can generate a few
scenarios over a certain timeframe — say, you think Bitcoin might
match gold’s capitalization in 15 year’s time. You already know the
supply ahead of time. You then determine what you think fees might be,
given historical trends. Right now, they are de minimis, but you can
assume generously that fees will pick up again. Then you simply
determine what share of revenue miners are likely to spend on pure
electricity. This data is also attainable from historical trends. It
varies, but if you think ASICs are likely to be more commoditized over
time and miners will focus more on opex rather than capex, electricity
spend might head to 50–70% of their revenue. Those are all the tools
you need to construct a simple energy consumption estimate. I am not
including an excel file — I trust the Office of Science and Technology
Policy can do that part?

Generating energy mix projections and hence emissions trajectories is
much more difficult, but you can always just use the generic US carbon
intensity, which you expect to become more renewable anyway. (Even
though many miners are low or zero carbon, especially newer ones).
There you have an easy back of the envelope estimate. No need to
fearmonger and pretend that Bitcoin miners in west Texas will be
depriving hospitals in LA of electricity in the hyperbitcoinized
future.

There are many ways to skin this cat. The OSTP, with all its abundant
resources, doesn’t even try.
The OSTP recommendations are stupid and counter productive

The report recommends the following:

    The Environmental Protection Agency (EPA), the Department of
Energy (DOE), and other federal agencies should provide technical
assistance and initiate a collaborative process with states,
communities, the crypto-asset industry, and others to develop
effective, evidence-based environmental performance standards for the
responsible design, development, and use of environmentally
responsible crypto-asset technologies. These should include standards
for very low energy intensities, low water usage, low noise
generation, clean energy usage by operators, and standards that
strengthen over time for additional carbon-free generation to match or
exceed the additional electricity load of these facilities.

    Should these measures prove ineffective at reducing impacts, the
Administration should explore executive actions, and Congress might
consider legislation, to limit or eliminate the use of high energy
intensity consensus mechanisms for crypto-asset mining. DOE and EPA
should provide technical assistance to state public utility
commissions, environmental protection agencies, and the crypto- asset
industry to build capacity to minimize emissions, noise, water
impacts, and negative economic impacts of crypto-asset mining; and to
mitigate environmental injustices to overburdened communities.

To simplify, they want to require that bitcoin miners are bringing net
new renewable generation online in order to be eligible to mine
(“additional carbon-free generation to match or exceed the additional
electricity load of these facilities”). No such requirement exists for
any other industry in the US, period.

If miners can’t do this, “Congress might consider legislation, to
limit or eliminate the use of high energy intensity consensus
mechanisms for crypto-asset mining.” Of course, no such rule exists
for any other extractive industry in the US, like gold mining (even
though gold mining uses a comparable amount of (much dirtier) energy).

Effectively, the OSTP is asking that miners be forced to meet a
completely impossible standard — again, one that isn’t asked of any
other industry — and if they can’t meet that, they are asking Congress
to regulate mining out of existence.

Overall, the report is laced with a profound neo-malthusian attitude.
Even though it gives lip service to Net Zero goals like “electrify
everything” which would require a massive buildout of power and
transmission (implying that we will have an energy abundant future),
the fact that the US government is so intent on marginalizing an
industrial sector that accounts for around 0.5% of electrical
generation — much of it otherwise going unused in places like West
Texas — should give anyone pause. If the government was really that
confident in the energy-abundant, everything-electrified green
transition, why would they be worried about 0.5% of current
generation? If their Net Zero trajectories are met, the electrical
sector will be greening at a rapid clip anyway, and with it,
purchasers of grid power.

Unlike virtually any other industry, Bitcoin is already fully
electrified, so it can benefit from the (envisioned) greening of the
grid. So why is a large buyer of energy, that is fully electrical,
location agnostic, interruptible, and portable, a threat to the green
transition? Could it be that the government doesn’t believe their own
incantations around Net Zero? Could it be that their motives have more
to do with using ESG to politicize the electricity sector and
determine politically acceptable uses of energy, like an electrical
version of Operation Choke Point?

Reading the report, and in particular the section on miners using
renewables, it is very clear that the current administration views
electricity as a good that only politically favored firms should have
access to. If they are able to “choke point” electricity, they won’t
stop with Bitcoin mining. They will move on to demanding that
utilities shutter electricity used by politically disfavored entities
like firearms manufacturers, religious institutions, and right-wing
educational facilities.

The government already politicizes access to finance, and in a ghastly
partnership with big tech, politically determines who has access to
internet infrastructure. Why should electricity be any different? The
totalizing state doesn’t know any restraint. Obviously their political
enemies should be deprived of any resources, whether financial,
communications, or literal energy. Bitcoin just so happens to straddle
all three of those sectors.

>From a practical point of view, a domestic ban on PoW would be
counter-productive. I’ve already pointed out that policymakers in
Western countries concerned about Bitcoin’s emissions should convince
miners to stay domestic. A ban would be massively counterproductive to
the US’ ability to influence both Bitcoin and the network’s emissions
trajectory. If the US were to successfully ban industrial Bitcoin
mining, miners elsewhere — almost all of them dirtier than US miners —
would immediately receive a massive dividend. Naively assuming the
30–40% of BTC mining (the current US total) comes to a complete halt,
non-US miners would almost immediately be producing 42–66% more units
of Bitcoin with their same level of exertion. US miners experienced
this when China banned the vast majority of domestic mining and
ex-China miners were rewarded a bumper crop.

Regulating Bitcoin mining is like squishing the water inside a water
balloon and expecting the balloon’s volume to decrease. Squeeze hard
enough, and it just goes to the other side of the balloon. Xi Jinping,
the great dictator of our time, wasn’t able to stamp Bitcoin out when
he forced miners out of China. They just packed up and left — Bitcoin
was completely unaffected, and western miners profited greatly.
(Sidenote: if even the most powerful man in the world, Xi Jinping, was
unable to eliminate mining — not even within his own borders — how
does the generally hapless Biden admin expect to achieve anything
different?) It’s also worth noting that there is still ‘black market’
mining in China.

If you hate the ecological impact of gold extraction, you don’t ban
gold mining domestically — that simply advantages competing producers
(in case you’re wondering, that’s China, Russia, and Australia). Gold
will still be mined and make it onto global markets, so a ban does
nothing to affect the gold mining industry overall.

Instead, you regulate the industry and ask participants to please not
dump mercury in rivers. The same could be done with Bitcoin miners.
Ask them to disclose their energy mix and be transparent with regards
to their emissions and participation in grid stabilization. You could
easily request that they stay away from populated areas given the
noise pollution. You’ll find that miners are very willing to play
ball.

In a sense, the naïve approach the Biden admin is taking around mining
echoes carbon accounting generally. American pundits like to celebrate
our declining emissions while ignoring that this is a consequence of
America’s deindustrialization and offshoring of almost all heavy
industry to places like China. Not to mention that the green
revolution built on wind turbines, photovoltaics, and batteries is
almost entirely dependent on emissions-intensive Chinese heavy
industry.

Yes, you can “decarbonize” by decommissioning nuclear and coal plants
and substituting them with wind and solar (albeit at the cost of a
more unstable grid). But you are now importing new emissions from
China via those PV panels and batteries. You can eliminate
energy-intensive aluminum smelting or industrial manufacturing and
import the finished goods from coal-heavy China. You haven’t reduced
the CO2 molecules in the atmosphere. The sky doesn’t care about the
borders between countries and your fancy country-based carbon
accounting.

Equally, pushing mining outside of the US doesn’t help the climate
(most likely, it makes things slightly worse by putting mining in the
hands of Russia, Iran, Venezuela, and North Korea). It might make
western policymakers feel better, but it raises the carbon intensity
of the network. The U.S. is the most capacious energy grid in the
world, is adding renewables at a rapid clip, and has many pools of
stranded energy, which are only growing, as generation (especially of
new renewables, generally not located near population centers)
outpaces transmission. This is empirically observable.

On the more insidious side, the report is definitely infected with
this sentiment that perhaps PoS could be a plug and play replacement
for PoW, and maybe this problem will solve itself. (Note again that
the government is citing non-academic lobbyist work funded by PoS
protocols in this paper.) Partly I ascribe this to naivete, but you
could also point to more sinister motives, given how much more
controllable PoS networks are than PoW. It’s very much in the interest
of the government (that seeks to politicize all of finance) to
advocate for PoS over PoW. I’ve pointed this out before: PoS is simply
more capturable, because coins tend to accumulate in large financial
institutions, which are trivially influenced by the State. Miners are
far more resistant to capture and control. Empirically, hashrate is
far, far more distributed among a diverse, global set of miners than
capital held by stakers is.

The envisioned substitution of PoS for PoW the Biden admin hints at is
simply a move to outlaw an asset the US government can’t control and
replace it with one it can.

Ultimately, what the administration thinks of Bitcoin mining is a
reflection of whether it’s willing to embrace a high-energy,
pro-American dynamism, energy-independent future in which we reshore
our industrial capacity, or if it would rather take a neo-malthusian
scarcity mindset and play political games about who is entitled to
which resources.

Think of it this way. If a new industry came along tomorrow with the
following properties:

    It consumes energy, but it doesn’t matter where that energy is produced
    It is fully digital, so requires no physical infrastructure aside
from electricity, transformers, and a datacenter
    It is completely interruptible, and can be curtailed fully at any
time, so it could be fully offline whenever the grid needs it (a
feature that renewable grids increasingly require)
    Because it’s fully digital, it can be rendered as sustainable as
its electricity inputs, and indeed, by most measures, it appears to be
more sustainable than any single other heavy industry in the US
    It renders a service giving property rights to the entire world
    It buys up low or negatively-priced renewable energy, vastly
improving the economics of new and existing renewable projects that
would otherwise not be able to monetize
    If the industry goes away, the infrastructure built could be
repurposed for other location-agnostic uses, like the generation of
green hydrogen, a key part of the renewable transition
    It mitigates emissions associated with unavoidable gas flaring, a
byproduct of oil extraction
    It rebuilds a high-energy infrastructure in the heartland of
America, laying the groundwork for a desperately needed reshoring of
industrial capacity
    If you ban it, its aggregate emissions will go up. If you embrace
it, its aggregate emissions will go down
    If you ban it, you empower your enemies, like Russia, Iran,
Venezuela, and North Korea. If you embrace it, you directly hurt them,
and give their citizens tools to free themselves from those oppressive
regimes.
    It represents tens of billions of equity value and offers a
massive tax windfall to states that can sell their otherwise unsold
energy to the producers of this product

… would you ban this industry? Or would you embrace it?

I know my answer.

I only hope that the White House can eventually come to their senses
and reach the same conclusion.

Thanks to Level39, Shaun Connell & Lancium, and Lee Bratcher for their
assistance with this article.