How to fight Bitcoin energy FUD
Bitcoiners face a collective action problem and miners are best positioned to overcome it
Timed for Earth Day, a group of 22 Democratic members of Congress sent the administrator of the EPA a letter asking him to look into whether proof-of-work miners are complying with the Clean Water Act, the Clean Air Act, and the Noise Control Act. It’s anyone’s guess whether the EPA administrator has the time or inclination to actually carry out the requested investigation in any serious way, and if he did it’s not clear that it would amount to much more than annoyance for miners. It certainly doesn’t seem like a serious threat to their continued operation.
However, the two-page letter contained a remarkable amount of FUD. For example, it contained this assertion: "A single Bitcoin transaction could power the average U.S. household for a month." Just a moment's reflection should reveal the absurdity of that claim. Nevertheless, those kinds of claims help create and reinforce a narrative about proof-of-work consensus being energy inefficient, which these days is a dangerous thing to be accused of being. That narrative, in turns, softens the ground for more serious action by governments.
We saw the same dynamic at play with the recent passage of a bill in the New York Assembly that would impose a moratorium on "behind-the-meter" proof-of-work mining by carbon-fueled energy generators. In practice the bill's effect would be pretty narrow, but it furthers a pernicious narrative that can and will drive policy. And here's a tweet from the World Economic Forum last week that has the highest misstatements per second I've ever seen. Talk about misinformation.
Over the years many smart Bitcoiners have valiantly sought to counter FUD with ad hoc corrections of the misinformation that's constantly produced. They also regularly release factual data on the state of mining's energy use for anyone who’s interested in digging into the details. Just this morning a group of Bitcoin luminaries released a thoughtful line-by-line refutation of the congressional Earth Day letter. The goal of all this is to set the record straight, which is admirable and necessary, but I'm not sure it's sufficient to counter the false narrative about proof-of-work mining.
Efforts to debunk the FUD quickly run into Brandolini’s Law, which Wikipedia defines like so:
Brandolini's law, also known as the bullshit asymmetry principle, is an internet adage that emphasizes the difficulty of debunking false, facetious, or otherwise misleading information, especially in comparison to the difficulty of creating the misinformation in the first place. It states that "The amount of energy needed to refute bullshit is an order of magnitude larger than is needed to produce it."
Folks like the members of Congress who sent the letter to the EPA have the luxury of "just asking questions" or engaging in simplistic deductions, like dividing Bitcoin's electricity inputs by number of transactions. Honest deboonkers, on the other hand, face the challenge of having to be nuanced, and nuanced in a way that requires lots of technical understanding to fully grok. And even then a response or debunking won't get anywhere near the same amount of attention from the dominant media as the FUD that precipitated it.
So what a can be done?
First it's important to note that while this is a problem that affects all proof-of-work networks (including Ethereum), it is really seen as a Bitcoin issue. For all kinds of reasons, both fair and unfair, proof-of-work is increasingly synonymous with Bitcoin, and will be more so if and when Ethereum switches to proof-of-stake. We also have to understand that while the FUD narrative is a problem that affects all Bitcoiners, it's something that the mining industry is best positioned to address.
In the decade I've been working on Bitcoin in Washington I've seen several serious but ultimately abortive efforts to create the equivalent of a "milk board" for Bitcoin to drive its own narrative and counter false ones. The reason these efforts have never come to fruition is that while everyone in Bitcoin is threatened by false narratives and the policies they can spawn, no individual has the incentive to dedicate the resources that are necessary to seriously counter the threat. Instead the incentive is to free ride, and even when there are some who are willing to pitch in for the common good, they typically (and understandably) will want to individually call the shots on message and strategy, which in turn limits the scale of common efforts.
What Bitcoiners face is a collective action problem.
That concept was best explored by economist Mancur Olson, a thinker who's had a great influence on me. In particular, I've long been keen on his thinking on how collective action problems are overcome. His key insight is that the size of the group matters. Here's how Wikipedia explains it (emphasis mine):
In contrast to the traditional theory the group size plays a decisive role in Olson's theory. Concerning the optimal group size it has to be stated that small groups possess the tendency of suboptimal provision with public goods. But large groups often fail to provide themselves with a collective good at all. The smaller the single share of a member is the less is the optimality. This means that larger groups are less efficient. Moreover, it is important to consider not only the number of members of a group but also the size of each individual. The individual with the highest gain will most likely pay for the most part of the public good. “Normal” members will most likely not pay but nevertheless consume the public good, which is known as the so-called "free-riding", this can only be wiped out in groups which provide benefits only to active members. This results in the tendency of the exploitation of the great by the small. An optimum can only be reached, if the marginal costs are equally high as the marginal gain. There cannot be an over-optimality as in that case some individual had to have higher marginal costs than marginal gain and would cease the payment to provide the good, which would lead to a suboptimal provision of the public good.
In the end this leads to the conclusion that even though they tend to provide a suboptimal amount of a public good smaller groups are more efficient than larger ones which fail more likely to obtain even a minimal amount of a public good the larger they are.
If you'd like to go deeper on the theory, I would heartily recommend The Logic of Collective Action: Public Goods and the Theory of Groups by Olson or, for a more accessible application of the theory to politics, Government's End: Why Washington Stopped Working by Jonathan Rauch.
That all said, it seems pretty clear to me that the largest possible group that will ever be capable of taking serious steps to combat FUD on Bitcoin's energy use, and that also has a sufficiently direct incentive to do so, is the mining industry—and even it may be too big. Efforts to organize at a scale larger than the mining industry will likely fail, especially if the larger size is due to the inclusion of folks with less-direct incentives to contribute.
In my view, any systematic defense or (better yet) positive marketing campaign for proof-of-work will only come from the Bitcoin mining industry. Miners have a clear, short-, medium- and long-term interest in the matter at hand. Miners are few relative to the millions of people with an interest in Bitcoin worldwide or even just in the U.S. And because it is a relatively small industry, free-riding can more easily be policed through informal reputational mechanisms and the like. So, miners need to unite.
On that front, it won’t do to only engage in ad hoc or small upstart efforts. It also probably can't be done effectively through broader industry groups that represent a wide array of interests and have to constantly and understandably juggle priorities. And while a well-resourced mining industry trade group could be the ultimate outcome, it doesn't have to be the first step. Miners should instead consider forming a professionally managed coalition to address their immediate concerns about energy FUD. (If you don’t know what an issue coalition is, here's a Washington Post article on how they work.) And again, while the temptation will be there to make a coalition broader and include VCs and investors and exchanges and others with a vested interest in Bitcoin's success, the better path would be to read Olson, keep it tight, and think of expanding only after an effort has had some success.
Now that we know who’s best positioned to act, the next question is, what should they do?
To answer that I'd ask myself another question: Who are you trying to convince? I'm not sure I have a good answer to that, but answering it clearly and deliberately should be the first order of business. I doubt that people like Biden's EPA administrator, or the 22 members of Congress who sent him a letter on Earth Day, are the folks most primed for a positive proof-of-work message. I also don't think that the general public is a good target; given inflation, rising crime, war in Europe, and the rest, I'm not sure they're primed to care much about this stuff or vote one way or another based on it.
The folks to reach, in my view, are the Joe Manchins and Kirsten Sinemas and Mitt Romneys of the world who form the vital center of policymaking that's more or less reasonable, open to persuasion, and that should be in control in an evenly divided nation. It's also the Joe Weisenthals and Kevin Rooses of the world who'd give one a fair hearing in the dominant media. What’s missing, therefore, is not more data, or more research, or more thoughtful analyses—there's thankfully plenty of that. What's missing is a serious and targeted lobbying and communications effort (i.e. going out and talking to people).
What’s the message?
Again, I'm not sure I have the answer, but there are a couple of ways to think about that. First, one has to contend with the compelling notion that arguing on the climate maximalists' terms means one's already lost. For example, conceding the desirability or even physical possibility of net-zero emissions in a few decades' time (without a concomitant human calamity) means one has already implicitly agreed to unachievable policy aims. Why concede that "renewable energy" is preferable to other sources of energy simply by virtue of them having been categorized as "renewable"? Ethanol requires vast expanses of otherwise-food-producing land and tons of petroleum-derived fertilizer; solar requires energy-intensive production of polysilicon; and nuclear isn't even classified as "renewable" by some climate maximalists. And why concede on the concept of "ESG" with its inscrutable and movable goal posts? Trying to make Bitcoin fit into an "ESG" box without realizing that the box is just a tool for social control, and one that Bitcoin will never be allowed to fit in, is a probably a fool's errand.
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It would take guts to stake out that kind of position because it runs so counter to the dominant narrative, but it has the advantage of comporting with physical reality in the long run. And in the long run should appeal to the American sensibilities and our bias for markets, innovation, and optimism.
Another way to approach this (and not mutually exclusive with the above) is to make the case that if one really believes that electricity generation that emits greenhouse gasses is bad, then it's bad no matter the use to which the electricity is put. If one believes a kilowatt of coal-generated electricity is harmful, then it's harmful whether it powers a Bitcoin miner or an electric vehicle. It should follow then that the way to address the negative externality of emissions in a manner that comports with American values of choice, competition, and fair play, is to target the electricity production, not to pick winners and losers among competing uses of electricity. And a reasonable way to do that is to impose a Pigovian tax—that is, a tax on the externality, which in this case is emissions-producing electricity generation, not any particular use. This should have the benefit of not just disincentivizing high-emission electricity generation, but also incentivizing the development and use of low- or no-emission electricity, all while leaving allocation to the market.
Although I have to admit I haven't thought through the implications of implicitly conceding on the advisability of a carbon tax, what I like about this message is it's simplicity. It doesn't require one to justify or apologize for Bitcoin's use of electricity. Instead it puts the onus on those who would single out Bitcoin to explain why they want to tinker at the margins targeting specific uses rather than addressing the root problem, and why they think they have a better grasp than the market on what's a valuable use of electricity. They'd also have to answer whether their goal is not just limiting green house gas emissions, but rather limiting the use of electricity itself, which is anti-growth and anti-human. This is a message that should appeal to the vital center I mentioned above, but what do I know.
As a final word I'll say that if the mining industry undertakes this challenge it should recognize that there likely is no ultimate victory to be had. I doubt there will a point in our lifetimes when the matter is settled one way or another. Instead it will be a Sisyphean undertaking that's the price of living in a liberal democracy.
State pension fund pushing Mastercard to address ghost gun purchases
What Can Elon Musk Do with Twitter? - Cato Institute
Mr. Crypto Goes to Washington - Apricitas
Sanctions on Russia Won't End the Dollar's Reserve Currency Status - Apricitas
Inter-Elite Competition and Institutional Destruction - Discourse
Michael Lind: The End of Progressive Intellectual Life - Tablet
My thanks to Peter van Valkenburgh for making the case to me.