Categories
Crypto News Updates

The Conundrum Of Bitcoin Legal Tender Laws

The adoption of bitcoin by El Salvador poses an interesting contradiction of freedoms, albeit solved on a secondary level.

Nayib Bukele, El Salvador’s laser-eyed President, shocked the world at the Bitcoin 2021 conference in Miami when he announced that bitcoin would become legal tender in his country. A few days later, the “Bitcoin Law” was passed, ushering in a new era for the virtual currency.

There is something about the law — mandating that vendors accept bitcoin — that goes against the voluntary “opt-in” ethos of Bitcoin. However, there are key features of the law that many people may have overlooked that protect vendors from the risk of holding the volatile asset while maintaining the benefits of using bitcoin in transactions.

First, the law confirms that vendors are indeed mandated to accept bitcoin as legal tender. However, for accounting purposes, dollars will still be the “reference” currency — meaning prices will still be expressed in dollars but “may” be expressed in bitcoin. Secondly, steps have been taken to avoid forcing vendors to hold bitcoin.

Art. 8. Without prejudice to the actions of the private sector, the State shall provide alternatives that allow the user to carry out transactions in bitcoin and have automatic and instant convertibility from bitcoin to USD if they wish. Furthermore, the State will promote the necessary training and mechanisms so that the population can access bitcoin transactions.

Art. 9. The limitations and operations of the alternatives of automatic and instantaneous conversion from bitcoin to USD provided by the State will be specified in the Regulations issued for this purpose.

Art. 14. Before the entry into force of this law, the State will guarantee, through the creation of a trust at the Banco de Desarrollo de El Salvador (BANDESAL), the automatic and instantaneous convertibility of bitcoin to USD necessary for the alternatives provided by the State mentioned in Art. 8.

Source: Nayib Bukele

In an impromptu interview with Bukele, it was revealed that the citizens of El Salvador will have open access to an official government wallet — designed by Strike — that will allow receivers to instantly and automatically convert incoming bitcoin into dollars if they don’t want to take on the risk of holding an asset as volatile as bitcoin. This is what Strike does best: turning bitcoin into a payment rail that users don’t even have to think about.

The El Salvador government is setting up a $150MM trust fund with the Banco de Desarrollo de El Salvador (BANDESAL), and anyone who converts their bitcoin to dollars with the official wallet is essentially selling their bitcoin to the trust fund.

When the trust fund has more than $150MM of bitcoin it will rebalance and use the proceeds to fund technology investments in El Salvador. The worst possible outcome is that the $150MM only spurs tourism and investment to the impoverished country. The best possible outcome is limitless upside potential.

Users will not be forced to use the government wallet either. They can use a private custodial or non-custodial Lightning wallet if they want. And any private wallet service, made by Strike or any other neobank, could offer the same conversion service.

Thus, this isn’t a full legal tender mandate in the traditional sense. Users aren’t forced to take on the risk of holding bitcoin nor provide change in bitcoin and are free to receive dollars if someone sends them bitcoin. Vendors only have to have a Lightning QR code and they can instantly and automatically receive dollars when someone gives them bitcoin.

One can envision a world where this kind of adoption model spreads to other countries — using bitcoin as an open payment rail that spurs regional investment, while third parties take on the risk.

Your average saver may not like volatility, but guess who does? Professional money managers. If banks want to stay relevant, they will eventually figure out that there is money to be made by becoming the third party that will take on and manage the risk of holding bitcoin from Lightning payments as a value-added service.

Is forcing bitcoin as legal tender still a form of government coercion? Yes, of course. Users are mandated to, at least during the transaction, accept an open payment rail as a payment option. However, Bukele’s implementation is a less forceful way to mandate it. Private wallets are open to compete with the government’s implementation and nobody is forced to hold bitcoin.

The ethos of bitcoin is to not mandate its use and to allow the free market to decide its ideal use case. If private banks or services made wallets that utilized bitcoin’s open payment rails, to reduce friction — and users had free choice to use those wallets — those wallets would be adopted organically, without anyone needing to mandate their use. However, any law that eliminates capital gains taxes, for bitcoin users, is a huge win.

This is a guest post by Level39. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.

Source: Bitcoin magazine

Categories
Crypto News Updates

Elon Musk And The Dutch Central Bank's Misinformation Campaign

The two environmental FUDsters could potentially mislead bitcoin investors as they utilize incorrect analysis.

More than a decade after Satoshi Nakamoto combined proof of work and bitcoin mining together, fallacious comparisons of “energy cost per transaction” continue to be spread by seemingly intelligent and well-researched individuals.

We can trace much of the spread of this narrative back to Alex de Vries—a data scientist who goes by the handle “Digiconomist” and is cited in nearly every anti-bitcoin energy article and op-ed in the mainstream media. There’s just one problem. Neither he, nor most of the journalists that cite him, regularly disclose that his employer is De Nederlandsche Bank (DNB), the Dutch Central Bank, which is an undeniable opponent of bitcoin and open payment rails. It’s irresponsible for journalists to cite de Vries, or his work, without disclosing his conflict of interest. He is effectively a DNB lobbyist.

De Vries’s work for the DNB focuses on financial economic crime. In 2020 the DNB required controversial and overly aggressive KYC regulations for digital asset firms serving the Netherlands. Among other things, the regulation required users prove they control their withdrawal address. The rule was reversed last week, in court, after Bitonic formally complained. The DNB is also leading CBDC development and integration in Europe.

De Vries’ website, Digiconomist, described as a “hobby project,” apparently misleads readers by failing to disclose his employment. The site uses unreasonable assumptions and deceptive infographics about so-called “Single Bitcoin Transaction Footprints.”

This has led others to come up with similarly misleading transaction-based comparisons to erroneously claim which altcoins use the least amount of electricity as a function of utility.

In March, Bill Gates repeated this FUD, which was then echoed by the media using de Vries’s own misleading data. More recently, Elon Musk became the latest to spread misinformation when he tweeted that Tesla would no longer accept bitcoin as payment for vehicles.

“We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel…We are also looking at other cryptocurrencies that use <1 of Bitcoin’s energy/transaction.” 
Source: Twitter

After crashing the market, which coincided with some suspicious trading activity, he followed up:

“Energy usage trend over past few months is insane https://cbeci.org” 
Source: Twitter

Although we can’t know what Musk was actually thinking, if Musk had bothered to read the Cambridge Bitcoin Electricity Consumption Index (CBECI’s) FAQ, then he would have learned that “energy cost per transaction” is a misconception.

The popular “energy cost per transaction” metric is regularly featured in the media and other academic studies despite having multiple issues.

First, transaction throughput (i.e. the number of transactions that the system can process) is independent of the network’s electricity consumption. Adding more mining equipment and thus increasing electricity consumption will have no impact on the number of processed transactions.

Second, a single Bitcoin transaction can contain hidden semantics that may not be immediately visible nor intelligible to observers. For instance, one transaction can include hundreds of payments to individual addresses, settle second-layer network payments (e.g. opening and closing channels in the Lightning network), or potentially represent billions of timestamped data points using open protocols such as OpenTimestamps.

Source: CBECI | FAQ

The CBECI even goes a step further, dispelling common mainstream climate narratives.

There is currently little evidence suggesting that Bitcoin directly contributes to climate change. Even when assuming that Bitcoin mining was exclusively powered by coal – a very unrealistic scenario given that a non-trivial number of facilities run exclusively on renewables – total carbon dioxide emissions would not exceed 58 million tons of CO2, which would roughly correspond to 0.17% of the world’s total emissions.

This is not to say that environmental concerns regarding Bitcoin’s electricity consumption should be disregarded. There are valid concerns that Bitcoin’s growing electricity consumption may pose a threat to achieving the United Nations Sustainable Development Goals in the future.

However, current figures should be put into perspective: available data shows that even in the worst case (i.e. mining exclusively powered by coal), Bitcoin’s environmental footprint currently remains marginal at best.

Source: CBECI | FAQ

Adam Back, creator of Proof of Work, made an effort to set the record straight:

“Doge is years unmaintained, a literal joke copy of outdated version of bitcoin with long known vulnerabilities. Factually #Bitcoin doesn’t consume incremental power per transaction. And has layer2s like lightning and @Liquid_BTC which amplify capabilities.”

Source: Twitter

It makes no difference how many transactions take place on a proof-of-work blockchain. A single bitcoin transaction could, in theory, provide final settlement for a Layer 2 channel that contained millions of transactions.

Additionally, the energy spent on mining each block isn’t just producing a transaction, it’s securing every transaction that ever came before it. That energy is securing all of the transactions that have ever happened in the history of Bitcoin — including Elon Musk’s own personal transactions as well as the preceding transactions that led to those transactions.

Michael Saylor also attempted to help clarify Musk’s misconceptions:

“The estimated electricity consumption per http://cbeci.org YTD increased 40% during the same period that the network grew 100% in assets, meaning that energy efficiency dramatically improved during this time period. #Bitcoin is becoming less energy intensive as it scales.”

Source: Twitter

Musk replied by tweeting out three URLs. The first link was about the Greenidge power plant in upstate New York, that came back online to mine bitcoin with natural gas. Nic Carter later did the research that Musk and mainstream journalists should have done in the first place:

MSM narrative:

– old coal power plants are coming back online to mine BTC

Reality:

– Greenidge plant is natgas, not coal powered (much lower carbon intensity)

– the plant is buying full carbon offsets

– Greenidge is mostly feeding the grid, powering 1000s of local homes

This is a cornerstone of the new hostile coverage around bitcoin and you may see this talking point about “decommissioned coal plants coming back online to mine BTC” hundreds of times. Only one problem: it’s completely false.

This is basically a “Saddam has yellowcake” tier misrepresentation, simply egregiously wrong.

Source: Twitter

The second link was a one-sided interview with de Vries, and the third link heavily featured de Vries as well. Again, neither of these links disclosed the fact that de Vries is employed by a central bank that opposes Bitcoin.

Musk soon pivoted his misinformed take to announce that he is supposedly “working with Doge devs” on perhaps adopting it as a green payment alternative — a dubious claim given the project has been largely abandoned. His comments only served to perpetuate the “energy per transaction” myth.

It’s not just Musk and de Vries that are perpetuating “energy per transaction” deception, as Doge supporters have been touting similarly misleading research from TRG Datacenters which claims that Litecoin uses 18.5 KWh per transaction, and Dogecoin uses 0.12 KWh per transaction.

Energy consumption has nothing to do with how many transactions are mined in a block. Energy consumption is related to coin issuance and miner profitability, not number of transactions. Nic Carter explained:

“Today, bitcoin miners earn around $50 million/day, which annualizes to around $18.2 billion in miner revenue. Fully 85% of that revenue derives not from per-transaction fees, but from the issuance of new bitcoins. This issuance process is finite: in fact, it’s 88.7% done. The rate of new coin issuance halves every four years as it approaches that 21 million limit. (These are the “halvings” you have probably heard about. Bitcoiners really love them.)

So the issuance component of miner revenue is *structurally decaying over time*. Unless you believe that the price of bitcoin is going to literally double in real terms every four years until 2140, that expenditure (and hence energy usage) is going to decline.”

Source: Nic Carter | CoinDesk

Energy required to solve complex random guesses can’t be faked, which makes proof of work an extremely fair, neutral and impenetrable physics-based approach to issue new coins and secure networks.

If you understand that energy expenditures are a function of miner profitability, and not the number of transactions, you can begin to understand that Doge’s claim of low-energy footprint per transaction is entirely misleading.

Ari Paul explained in a Q&A:

Ari Paul: …electricity isn’t used for transaction processing. It’s used to secure the network. Doge is PoW meaning it faces the same basic dynamics as Bitcoin. It uses less electricity now because it’s less secure.

Q: Because of DOGE’s unlimited supply, it price has “some” ceiling. Due to which there’s also ceiling for miner profitability beyond which miners wont add more hash rate to network which would keep the electricity consumption below a fixed maximum rate. Is this incorrect?

Ari Paul: I think that’s accurate – basically anything that depresses a POW’s token price will also depress its security and electricity usage, at least generally.

Q: Just for clarification, depressing POW token price reduces security because of inherent miner reward reduction.. i.e.: less miners -> less network scale (less electricity usage) -> less security. Appreciate the insight?

Ari Paul: Basically yes. Difficulty of the network adjusts with hashpower. Miners are rewarded in tokens and will keep investing in hashpower (causing higher difficulty) as long as it’s profitable. Higher token value supports more investment in hashpower.

Source: Twitter

So, if profitability and higher token value drives on-chain energy consumption, one can clearly see that Doge would suffer the same increased energy consumption if it were to ever become the success Musk suggests it could be.

Ironically, Doge does not solve the problems that Musk is concerned about. Digital currency miner/investor De Flandres (@Pacifica2525) further explained the misconceptions of Doge mining in a series of tweets.

On Musk claiming he set up “some little Doge mining rigs”:

There is no such thing as a “Dogecoin mining machine.” It is called a Scrypt miner, which mines predominantly Litecoin, since Dogecoin in merge-mined with Litecoin.

Source: Twitter

On the TRG Datacenter research claiming Doge has a low “energy per transaction” footprint:

It is all about numbers isn’t it. On average, an Antminer (or equivalence) consumes 0.800 to 0.950 KwH of juice processing blocks. The numbers above are bogus. You also have to understand that “confirmations” continue indefinitely. If today miners each mine 1 block of LTC and 1 block of Doge, then both will consume equal amounts of power. If the same miners mine 25 blocks of LTC and 10 blocks of Doge, then Doge used less power. The problem is that a Doge block is mined every minute, while an LTC block is mined every 2.5 minutes, so in effect, miners have to mine 2.5 more Doge blocks than LTC, making Doge more miner dependent. In other words, Doge is less miner efficient. So as Doge interest/activity increases, there are less empty blocks processed by scrypt miners. If this conversation was taking place a year ago, an argument could be made that Doge uses less energy, because there were more empty blocks. # of blocks is always 1 every minute for Doge. 

Source: Twitter

Dogecoin is PoW only because Litecoin/scrypt is PoW, and that mining machine, assuming L3+ or L3++, is still using 0.800+ KwH of juice whether it is under heavy or light load, mining LTC and Doge together. So, the claim Doge uses less is fundamentally a lie.

Source: Twitter

One Dogecoin block is created every minute. There is 1 LTC block created every 2.5 minutes. Both = scrypt coins. Both are mined on the same machines. The more popular Doge becomes, the higher the price, the higher the difficulty, the more intense the mining, the more energy used.

Source: Twitter

On Musk claiming to work with Doge devs to improve its aging protocol:

“…Dogecoin is a merge-mined coin with Litecoin…. the same scrypt miners who own all of the hardware. So, who is he working with again? Change the protocol and it ceases to be mined by Litecoin miners. They would have to hard-fork the coin. Have fun with that.”

Source: Twitter

“Litecoin doesn’t ‘help’ secure Dogecoin’s blockchain, it basically ‘owns’ Dogecoin’s blockchain, because until recently, no miners would ever mine just Doge. It was a losing proposition. Now, it may be more profitable, but it still is a byproduct of Litecoin mining.”

Source: Twitter

“Piss off the Litecoin/scrypt miners and Doge takes a permanent dive.”

Source: Twitter

“Good luck trying to mine on their own. You have to have the miners, which have not been manufactured now for nearly 2 years. Those which are available are used, on eBay, and expensive, with break-even around 2 years.”

Source: Twitter

Furthermore, Galaxy Digital published research highlighting the poor quality of the Doge network. So, why would Musk get behind an unmaintained altcoin?

Q: Why not just make a crypto from scratch that does everything you want technically and has a lot of dev support and doesn’t have high concentration of ownership at least initially?

Elon Musk: Only if Doge can’t do it. Big pain in the neck to create another one.

Source: Twitter

It’s likely that Musk is referring to the challenges that Facebook faced, when it tried to launch Libra. Mark Zuckerburg was famously hauled before Congress and stonewalled with regulation.

It would be less of a headache to use Bitcoin or any other modern project. Turning Doge into a high speed centralized payment coin would trigger a hard fork from Litecoin, which would leave Doge on its own with few Scrypt miners. Musk could then create his own Scrypt miners and put them in all of his products, but that would just turn it into a centralized private payment network. One can only assume that he would rather meme his own coin into existence as opposed to dealing with regulators and red tape. Of course, he could just implement bitcoin payments and Layer 2 technologies, like everyone else.

It remains to be seen if Musk is intentionally spreading misinformation or if he is suffering from the Dunning-Kruger effect. Recent tweets from Musk suggest the latter, as he seems to lack the fundamental understanding of how decentralized systems work or why they are necessary. Regardless, it’s difficult to tell what Musk’s true motives are.

When the false “energy per transaction” narratives that are spread by central bank economist de Vries, Musk and Doge supporters can be easily debunked by reading the CBECI’s own FAQ, it’s not difficult to see it’s a hustle.

Intelligent investment teams are able to look past these false narratives. The Sustainable Thematic Equities team at AllianceBernstein published an informative post on Bitcoin from an ESG perspective:

…We believe concerns about the high-energy intensity of bitcoin mining are overstated, and the technology can play a less-acknowledged but important role in promoting financial inclusion. Source: AllianceBernstein | Is Bitcoin ESG Friendly for Equity Investors?

ARK Invest also reiterated firm support for Bitcoin:

In our view, the concerns around Bitcoin’s energy consumption are misguided. Contrary to consensus thinking, we believe the impact of bitcoin mining could become a net positive to the environment. With real-world data, we demonstrate how mining could impact the amount of renewable energy provisioned to the grid by transforming intermittent power resources into baseload generation by way of energy storage. We illustrate that renewables would be able to satisfy only 40% of the grid’s needs in the absence of Bitcoin mining but 99% with the commercial “subsidies” associated with bitcoin mining.

Source: ARK Invest

The energy spent on Bitcoin is the unassailable physical budget for securing the entire financial network. Other proof-of-work projects claiming lower energy budgets are only touting lower levels of security and much lower levels of use, while trying to pull a fast one on non-seasoned investors.

Musk and altcoin supporters appear to be unaware that it would be virtually impossible to reproduce the neutral and fair launch of Bitcoin, as well as its astounding network effects around the world and secure track record over the past decade. If it were even possible to reproduce Bitcoin’s launch, any attempted altcoin would be a decade behind in finding vulnerabilities, a decade behind in network effects, a decade behind in its proven track record and a decade behind in proving its immutability as sound money. It would lack the credibility necessary to become a secure and global reserve asset.

Proof of stake and other newly developed protocols are still unproven experiments that will require years of testing and scrutiny, which tend to lack distribution and launch fairness. These experiments are not the kinds of protocols the entire world wants backing up the next global reserve asset. No one in their right mind chooses to have one’s life savings, or a company’s treasury, guarded by a low security budget based on trust. Institutions and individuals want the maximum security budget, with a near-zero chance of failure, for their valuable and hard-earned life savings.

Bitcoin provides security that no other asset can by bridging the physical and virtual world with proof of work. It is the most secure energy budget on the face of the planet, backed by physics, and worth every joule that flows into it.

This is a guest post by Level39. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.

Source: Bitcoin magazine

Categories
Crypto News Updates

What Does the Future of Energy Hodl?

Bitcoin may be the key piece in solving the growing demand for energy usage outpacing our ability to capture and store energy from the sun.

The stage has been set for Bitcoin to incentivize renewable energy and power a greener future. Tesla and Elon Musk have the technology and ingenuity to solve one of the greatest challenges facing humanity. A dawn of optimism and hope is coming into focus.

In February 2019, Cathie Wood (CEO of Ark Invest) interviewed Elon Musk on the ARK Investment podcast, “FYI – For Your Innovation.” Elon said, “I’m not sure it would be a good use of Tesla’s resources to get involved in crypto. We are really just trying to accelerate the advance of sustainable energy.”

I’m not sure it would be a good use of Tesla’s resources to get involved in crypto. We are really just trying to accelerate the advance of sustainable energy. And I think, actually, one of the downsides of crypto is that, computationally, it is quite energy intensive. So, there has to be some kind of constraints on the creation of crypto, but it’s very energy intensive to create the incremental Bitcoin, at this point. – Elon Musk | FYI – For Your Innovation | Feb 19, 2019

Two years later, Tesla has since added $1.5 billion of bitcoin to its balance sheet and now accepts bitcoin as payment. Since then, the company has been raked over the coals by environmentalists and critics, who were triggered by the move.

Tesla’s mission of accelerating the advance of sustainable energy has not changed. Almost no one has given even the slightest thought about how Elon could use bitcoin to incentivize solar.

In recent weeks, Fortune, Bloomberg, The New York Times, The Independent, The BBC, Forbes, The Financial Times, CBS, The Telegraph, Time and The Guardian have all parroted the same anti-bitcoin narrative derived from self-described “hobbyist” Alex de Vries who, as it turns out, works for the Dutch Central Bank.

On Earth Day, the Bitcoin Clean Energy Initiative (BCEI) released a memorandum, with Square Crypto and ARK Invest, that caused further uproar. Elon publicly endorsed it.

And the anti-Bitcoin media machine again went into action.

The details of the BCEI memo itself went largely undiscussed, which is a shame, since it appears to give away Tesla’s game plan. It very clearly describes using Bitcoin, solar and batteries to “overgrow” solar energy and solve the problem of the “Duck Curve.”

The Duck Curve, coined by the National Renewable Energy Laboratory (NREL), is the greatest challenge facing solar energy at scale. Watch David Roberts’s excellent 4-minute video, The ‘duck curve’ is solar energy’s greatest challenge, and you’ll quickly grasp the issue. To summarize his video:

Power companies supply the least amount of power overnight then ramp up in the morning. Then at sunset, energy demand skyrockets. As more people adopt solar energy, it causes problems in this demand curve. The sun produces the most energy at midday. Every year adds new solar capacity, which makes midday demand “belly” lower and lower. Researchers call this drop in demand the “Duck Curve.” The belly of the curve grows deeper every year.

From the regional grid managers’ perspective, it looks like a drop in demand. It’s neither cost effective, nor possible, to transmit all the excess solar energy into the grid, much of it is stranded or curtailed. It is an overabundance of energy that, today, has to be wasted.

As the sun sets, solar production ends right as the demand for energy typically peaks. Power plants then have to quickly ramp up production to compensate for that, which is challenging with today’s power infrastructure.

The second problem is economic. Say you have a couple of nuclear and coal plants. Those plants are only economic when they are running all the time, basically. They run around the clock. And if you have to turn them off at mid-day, it completely screws up their economics and plus lots of utilities just have contracts with those power plants to keep them running all the time. So that creates sort of an artificial floor. If solar generates too much power, and there’s no use for it, there’s no one to consume it. Then grid managers just have to turn some solar panels off. – David Roberts | The ‘duck curve’ is solar energy’s greatest challenge | Vox

If the excess solar power wasn’t curtailed, the power grids are at risk of being overloaded or even damaged.

So we throw away some of that extra solar energy. Effectively, what’s happening is that solar power is being wasted. That waste, curtailment, is the big challenge moving forward for solar energy. If you want solar to eventually power everything, or close to everything, we’ve got to figure out some way of shifting it to the night time.

The Duck Curve cannot be solved with current infrastructure and storage. This makes solar adoption less appealing and less profitable but also wasteful. If Tesla cannot figure out how to solve this problem, the technology won’t scale and adoption will stagnate.

How does this relate to Bitcoin? Tesla recently announced Tesla solar panels and solar roof will only be sold as an integrated product with Tesla’s Powerwall battery. Their Powerall system cannot be purchased without also purchasing Tesla solar.

This would make Tesla solar configurations very poor investments. A home, with a $100/month electric bill, would require $20,000 upfront for just the panels and not breakeven for 17 years. After 25 years, one would save $13,000 were it not for the $12,500 Powerwall.

So, after 25 years, you would save roughly $500? Those economics don’t add up. There is no monetary incentive for homeowners to invest in solar.

However, this creates an integrated solar product that can link to the power grid and Tesla devices. Powerwall will sit “behind the meter” and have the ability to intelligently store excess energy or put it to good use.

Tesla now makes its own custom ASICs. For example, their Full Self Driving (FSD) ASIC. Powerwalls could ship with Tesla ASICs that instantly and intelligently switch between pooled bitcoin mining or selling back to the grid, when demand increases and it becomes more profitable to sell energy than mining. In other words, Tesla could create a massive green mining pool to consume the solar “Duck Belly” and turn it into bitcoin. (Here are two examples of innovative homeowners with DIY versions of this concept).

The BCEI memo was all about using a combination of solar, batteries and Bitcoin to solve the Duck Curve. Tesla just happens to have all of these in its bag already. All they need is a way to intelligently pool that power into hash, whenever it makes the most sense, and solve the technical hurdles of taming ASIC heat and noise. If anyone can figure that out, it will be Elon and Tesla.

A Unique Energy Buyer – Bitcoin miners are unique energy buyers in that they offer highly flexible and easily interruptible load, provide payout in a globally liquid cryptocurrency, and are completely location agnostic, requiring only an internet connection. These combined qualities constitute an extraordinary asset, an energy buyer of last resort that can be turned on or off at a moment’s notice anywhere in the world. – Bitcoin is Key to an Abundant, Clean Energy Future | Bitcoin Clean Energy Initiative Memorandum | April 2021

Bitcoin miners are unique energy buyers in that they offer highly flexible and easily interruptible load, provide payout in a globally liquid cryptocurrency, and are completely location agnostic, requiring only an internet connection. These combined qualities constitute an extraordinary asset, an energy buyer of last resort that can be turned on or off at a moment’s notice anywhere in the world.

The memo also formally introduces ARK’s “Solar + Battery + Bitcoin Mining” model, and it links to their blog post which says these combined systems “should work at all scales and could create interesting opportunities at the residential level.”

We believe these three-part energy systems should work at all scales and could create interesting opportunities at the residential level, particularly if heat waste from bitcoin mining can be put to use in other applications. – Solar + Battery + Bitcoin Mining | ARK Invest | April 2021

It would appear that ARK is open-sourcing their model to get constructive feedback, before it is considered by Tesla for residential use at scale. It is worth pointing out that the model assumes the solar bitcoin miners will put profits into satisfying the needs of the grid, over maximizing profits of the miner.

Not only does the BCEI memo spell out how Bitcoin works in this strategy, it also links to this brilliant article, by Max Webster, which artfully explains virtual power plants and miner amortization.

Tesla could pay customers for sacrificing their Duck Bellies, in whatever currency they wanted: bitcoin, fiat, shitcoins or stablecoins. The customers would earn money and Tesla would stack the mining rewards in their bitcoin treasury. (Smart customers would demand payment in bitcoin).

So, imagine you have a Bitcoin Powerwall. It learns your energy habits and intelligently spends the excess energy on either hashing or selling back to the grid, whichever is more profitable. Although Tesla has an obvious advantage in this area, this strategy is something other device makers could employ if they partnered with solar companies.

People might argue that the excess power was better spent on scientific computations, and perhaps a market could be made for these other computations. But, with all that distributed computing power, it would drive the cost of all those other competing computations to zero. See Michael Saylor’s explanation of what happens when something becomes commoditized and gets oversupplied by technological advancements, like dematerialization. Bitcoin is uniquely immune to this, thanks to the difficulty adjustment.

Only Bitcoin’s closed thermodynamics offers the ability to absorb all that excess energy, like a black hole, without driving the cost of the computations to zero. No other asset on the planet can do that. Bitcoin is the energy buyer of last resort.

Only a neutral proof-of-work asset, like bitcoin—free of the taint from premine or fallible figureheads—has the ability to eat unlimited amounts of curtailed solar energy for breakfast. Proof of stake is anorexic, when it comes to eating energy.

Listen to Michael Saylor explain how Bitcoin acts as a thermodynamic closed-loop battery, for energy.

This is the first truly engineered monetary network in the history of the world. And by that i mean it’s a closed thermodynamically sound monetary system. If you put a hundred million dollars in the system, it’s like charging a battery. It has no power loss. You can store it for a hundred years, it’ll still be there. Every other monetary system has a power loss in it. It bleeds energy. If you put your money into electricity and store it in a battery, you lose two percent a month. You have 24% inflation rate a year. You can’t move electricity around without losing six percent of it over the course of a few hundred miles. So what if i wanted to store all my monetary energy and I didn’t want to lose it every month or every year or every decade. Well, I’d design a closed system, 21 million gold coins, none come in, none go out. All I can do is heat it up or cool it down. That’s the definition of a thermodynamic closed system.

Bitcoin is the first example of that system. What that means is that you can collect all of the monetary energy in the world, store it in this battery, hold it for a hundred years. Channel it through time and space with no energy loss. It’s an engineering breakthrough. It’s like an aqueduct. It’s like an electrical power system or grid. —Michael Saylor | Should Tesla Convert Its Cash To Bitcoin? | HyperChange | Dec 15, 2020

In “The Problem of Increasing Human Energy,” Nikola Tesla described how humanity must use more energy to increase the force accelerating human progress, ideally by harnessing the sun. Amazingly, he foresaw the problem of the Duck Curve and how it would largely be impractical and go wasted, without some way to efficiently harness its periodic energy.

Motive power means work. To increase the force accelerating human movement means, therefore, to perform more work…Whence comes all the motive power?…All this energy emanates from one single center, one single source—the sun…The sun is the spring that drives all. The sun maintains all human life and supplies all human energy.

…Notwithstanding the apparently vast amount of energy received from the sun’s rays, only a small fraction of that energy could be actually utilized in this manner. Furthermore, the energy supplied through the sun’s radiations is periodical, and the same limitations as in the use of the windmill I found to exist here also. After a long study of this mode of obtaining motive power from the sun, taking into account the necessarily large bulk of the boiler, the low efficiency of the heat-engine, the additional cost of storing the energy, and other drawbacks, I came to the conclusion that the “solar engine,” a few instances excepted, could not be industrially exploited with success. – Nikola Tesla | The Problem of Increasing Human Energy | The Century Magazine | June 1900

Bitcoin might just be the missing ingredient in Tesla’s calculations.

The BCEI memo suggests that putting a fraction of solar to work, mining bitcoin, would dwarf existing (dirty) mining operations.

The second major potential impact could be a sizable transformation and greening of the bitcoin mining industry. It’s estimated that there’s only 10-20 GW of mining capacity worldwide today. Deploying miners at even 20% capacity with the above mentioned 200GW of delayed solar and wind projects on U.S. grids alone could result in 40 GW of new mining capacity, effectively dwarfing the entirety of the existing global market. | Bitcoin is Key to an Abundant, Clean Energy Future | Bitcoin Clean Energy Initiative Memorandum | April 2021

The BCEI, Jack and Elon are hinting that this strategy, at scale, would effectively turn Bitcoin into a massive green energy project—unlike anything anyone has ever seen before. Similar strategies could be used with other energy sources like wind, hydro or geothermal.

Bitcoin has the potential to solve one of the greatest challenges facing the solar industry and humanity. And the innovators that are going to make it happen just published the game plan, in broad daylight.

This is a guest post by Level39. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.

Source: Bitcoin magazine