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Breaking Down Elon Musk’s Misunderstandings About Bitcoin

05/28/2021

In a current tweet explaining why Tesla would now not settle for bitcoin, Elon Musk displayed a poor understanding of Bitcoin’s vitality use.

Bitcoiners yearn for the great outdated days of nice debates with knowledgeable critics who have been up for the mental problem. It allowed the neighborhood to hone its thought processes, construct information and expertise to widen the talk and dialogue, and usually strengthen our resolve and dedication to our funding thesis.

Sadly, we’ve been fully out of coaching for about seven years, with not one single new criticism of Bitcoin surfacing that hasn’t already been factually refuted to dying. The outdated critics have been a chilly glass bottle of Traditional Coke, now all we get is lukewarm, off-brand, generic cola.

Et tu, Elon? In any case we’ve been by means of collectively?

With a purpose to hold this text readable inside an affordable period of time, I’ll depend on the reader to dig into the refutations of those arguments, ready by trade specialists primarily based on onerous information and pc science, and I will likely be extensively linking to their work all through this piece.

We’ll undergo the three paragraphs in Musk’s tweet one after the other…

1. “Tesla has suspended car purchases utilizing Bitcoin. We’re involved about quickly growing use of fossil fuels for Bitcoin mining and transactions, particularly coal, which has the worst emissions of any gas.”

I’ve two phrases for you Mr. Musk: “Show it.” Show that the usage of fossil fuels for Bitcoin mining is rising. Sadly for everybody, that is:

  1. Unimaginable to do with 100% accuracy because of the decentralized nature of the trade and the impossibility of surveying each single mining operation on this planet.
  2. Not what the literature has been saying: A) The Cambridge Centre For Various Finance estimates that 76% of all miners use renewable energies as a part of their combine, with between 29% and 39% of all vitality used coming from renewables, primarily based on trade information from the world’s largest miners and mining swimming pools B) CoinShares estimates that complete share of renewables could even be as excessive as 73%.

2. “Cryptocurrency is a good suggestion on many ranges, and we imagine it has a promising future, however this can not come at a fantastic price to the setting.”

That is the place it appears that evidently Musk could be making this assertion underneath duress. Clearly, Musk clearly is aware of that methane has over 50 occasions the greenhouse gasoline impact as carbon dioxide and certainly he is aware of that there at the moment are miners who use waste methane to mine bitcoin, comparable to Upstream Knowledge, Nice American Mining, Giga Vitality, Crusoe Vitality and Wesco Working, Inc, to call just some.

Perhaps he simply doesn’t know that within the U.S. alone, 538 billion cubic toes (cf) of methane was vented and flared in 2019. We all know that 1 cf of methane equates to 0.29 kilowatt hours (kWh) of vitality (and 1 cubic meter equates to 10.28 kWh), due to this fact we calculate that 156 terawatt hours (TWh) is wasted to flaring, greater than sufficient to energy Bitcoin for a 12 months. Globally, the overall determine for flaring is 150 billion cubic meters, or, 5.3 trillion cubic toes, leading to 1536 TWh wasted, sufficient to energy Bitcoin greater than 10 occasions over.

Is Bitcoin truly saving the planet? The Aker Group appears to assume so in its current letter to shareholders and thru the institution of Seetee.io, a enterprise devoted to attaining these environmental ends. That is even being seen in a number of different industries, with warmth from Bitcoin miners getting used to extend greenhouse farming yields in arctic environments, construct residential water boilers, brew whiskey and even produce connoisseur flake salt. The Worldwide Vitality Company (IEA) tracks flaring discount commonly, with its “Sustainable Growth State of affairs” (SDS) not-surprisingly having a present standing of “Not On observe.”

“There may be an growing variety of voluntary authorities and trade commitments to eradicate flaring by 2030,” based on the IEA. “The SDS depends on a fast discount in flaring, with authorities insurance policies and trade dedication all however eliminating it by 2025.”

I hate to interrupt it to you guys, however the one technique to even come near such a lofty objective as eliminating all worldwide flaring by 2025 is with a lot extra Bitcoin mining!

3. “Tesla is not going to be promoting any Bitcoin and we intend to make use of it for transactions as quickly as mining transitions to extra sustainable vitality. We’re additionally taking a look at different cryptocurrencies that use <1% of Bitcoin’s vitality/transaction.”

There are literally three statements that should be addressed right here, regardless of this paragraph solely having two sentences! Clearly, Tesla isn’t promoting any bitcoin; however presumably shopping for extra within the wake of Musk’s tweet, which prompted $3.45 billion of liquidations (https://archive.is/wjcb7), together with $1.8 billion of bitcoin, $120 million of dogecoin, and unsurprisingly, $60 million of shiba inu coin, the place 2.85 trillion (sure, trillion with a “t”) cash have been liquidated. Wow.

On second thought, Tesla asserting extra purchases would most likely set off a go to from the authorities, as Musk’s recklessness has triggered a wipe-out of over $1 trillion of wealth within the weeks since his tweet, so Tesla doubling down wouldn’t have the most effective optics from a market manipulation standpoint. He’s additionally finished vital injury to Tesla shareholders along with his antics, so maybe he can also have to reply questions from them as to why he would resolve to nuke Bitcoin from orbit when his firm holds over $1.5 billion of it. However I digress…

Musk then goes on to say that they intend to make use of bitcoin when mining transitions to extra sustainable vitality. The U.S. vitality grid is 20% renewable and 19% coal, and Tesla’s second greatest market, China, has a grid that’s 28% renewable, and 64% coal. As talked about earlier on, within the worst case, Bitcoin is 29% renewable, and in the most effective case, round 73%, however most likely closest to about 39%.

It is a higher determine than both the U.S. or Chinese language grid. So, if Musk is severe about sustainable grids, we invite him to cease promoting his vehicles within the U.S. or China, because the electrical energy going into his vehicles is dirtier than that going into Bitcoin. Maybe he can resume gross sales as soon as the grid is 100% sustainable? He hasn’t but bestowed us along with his information on what the perfect grid combine must be earlier than he begins to be ok with utilizing Bitcoin.

Lastly, he says that he’s taking a look at cryptocurrencies which have lower than 1% of Bitcoin’s vitality per “transaction.” Nicely, he’s in luck! There’s a cryptocurrency that has been stay for nearly three years now, which makes use of as little as one-octillionth of Bitcoin’s energy “per transaction” — it’s known as Bitcoin! Sure, you heard that accurately — an octillionth, or 0.0000000000000000000000001%, of the vitality per transaction!

Now, Musk could not have realized about how Bitcoin settlements and transactions work earlier than he splurged $1.5 billion on it, however, successfully, how Bitcoin works is that each 10 minutes or so, all the world’s cash provide, alongside each settlement in historical past, is meticulously vetted and audited, and up to some thousand extra settlements are stamped into Bitcoin’s base layer blockchain. That’s about as broad and easy an outline of the basic mechanics of Bitcoin as you’ll be able to presumably get. Moreover, all of Bitcoin’s vitality use is extra so geared in direction of auditing and securing the cash provide, with settlements successfully having a marginal vitality use of zero.

Word the repeated deliberate and daring use of the phrase “settlement” main up so far, as I hope to impress upon you the criticality of distinguishing settlements and transactions from one another (this text by the legendary Nic Carter is a superb place to start out!). Each settlement is a transaction, however not each transaction is a settlement. What is supposed by that is that though it’s true that Bitcoin can solely do round 3.5 settlements per second, the variety of transactions inside any particular person settlement can vary from “one transaction” to a number of hundred by means of strategies comparable to transaction batching.

On Bitcoin’s second layers, such because the Lightning Community or the Liquid sidechain, the variety of transactions per second are theoretically infinite. New developments comparable to Taproot, which is able to probably be activated later this 12 months, will make the bottom layer much more environment friendly, though not exponentially in order Musk would have hoped.

Musk is nice at arithmetic and calculus, and he hopefully understands the idea of limits, so he ought to notice that because the denominator in a fraction tends towards infinity, the ensuing reply will method zero. For instance, Bitcoin at present makes use of round 116 TWh per 12 months. Let’s assume that there are about 3.5 settlements per second, or round 110 million settlements per 12 months. If it’s assumed that every settlement solely accommodates one transaction, then sure, Bitcoin would eat 116,000,000 kWh / 110 million = ~1 MWh per transaction.

Contemplating the typical U.S. home used 77 million British thermal items (BTU) of vitality per 12 months (equal to 22.5 MWh) in 2015, one “transaction” might energy a U.S. home for simply over two weeks. Nevertheless, should you assume that 10 transactions occur in a settlement, then your “per-transaction vitality use,” regardless of truly being zero as defined above, may be mentioned to be solely 100 kWh as an alternative of 1 MWh. When you go additional and study concerning the second layers just like the Lightning Community, you’ll study that the restrict for transactions per settlement is theoretically infinite. Subsequently, common vitality per transaction is 116 TWh per 12 months divided by infinity, which is as near zero as one can get.

We’ll by no means actually know for positive why Musk mentioned and did what he did. What we are able to all take from this episode, nonetheless, is that information and proliferation of the details are of utmost significance to the expansion of Bitcoin, as even a “genius billionaire” can simply get sucked into false narratives and do a trillion {dollars}’ price of injury.

It is a visitor put up by Hass McCook. Opinions expressed are solely their very own and don’t essentially mirror these of BTC Inc or Bitcoin Journal.