THE RED EYE OF THE WHITE HOUSE ON CRYPTOS
The White House has its eye fixed on cryptocurrencies and the ongoing blockchain revolution. It just released this September 2022 its first-ever comprehensive framework, for what it calls “Ensuring Responsible Development of Digital Assets". This report is the first of its kind in the United States and comes in response to Executive Order 14067 issued on March 9, 2022 by US President Joe Biden, which had asked the federal government to weigh the risks associated with the use of cryptoassets and to research the possibility of using a central bank digital currency… the famous MNBC or the digital dollar.
Ensuring the responsible development of cryptoassets seems to be a high priority constraint to achieving US climate change goals! The United States is committed to addressing the climate crisis and reducing greenhouse gas emissions by 50% to 52% below 2005 levels by 2030, achieving a pollution-free electric grid from carbon by 2035 and to achieve net zero emissions by 2050 at the latest, while prioritizing “environmental justice”. The White House is opposing the impact of cryptoassets against the goal of reducing global anthropogenic greenhouse gas (GHG) emissions to net zero by mid-century!
The White House has developed certain beliefs and will take steps to convey these US decisions related to cryptoassets to international agencies such as the G7, G20, OECD, FSB, Financial Action Task Force (FATF) and the International Organization for Standardization.
This movement is not isolated in the world, in France for example, Bercy (Ministry of Economy and Finance) is also interested in the environmental impact of cryptos and is preparing an equivalent report which will be released in November 2022. Valuechain participated in Bercy's hearings on the environmental impact of cryptos following our publication of the global study “Bitcoin: Cryptopayments Energy Efficiency”
What are the recommendations and decisions of the White House on this subject, is exactly what I propose to analyze together in this new Valuechain article (and video in French).
Report Identity Card
The White House report titled “Climate and Energy Implications of Cryptoassets in the United States” aims to:
Examine the connections between distributed ledger technologies (DLT) and energy transitions
Assess the potential for these technologies to impede or advance efforts to tackle climate change at home and abroad
Determine the impact these technologies have on the environment.
Let us first recall who is really behind this White House report. President Joe Biden has directed the Assistant to the President for National Security Affairs and the Assistant to the President for Economic Policy to work with the White House Office of Science and Technology Policy (OSTP) and federal agencies through a US Interagency Steering Committee. Among the long list of institutions are:
The Department of Homeland Security (DHS)
The Department of Energy (DOE)
The Treasury Department (Treasury)
The Federal Reserve Board (FRB)
The Office of the Director of National Intelligence (ODNI)
And curiously the United States Agency for Development of International Aid (USAID)
Which already gives a glimpse of the importance that the White House now gives to the developments of the blockchain and crypto revolution in the world.
Let's analyze together the most important statements of this report.
The White House begins by judging that "cryptoassets use a significant amount of electricity " again based on Cambridge's imprecise Bitcoin Electricity Consumption Index, which states that the total global electricity consumption for cryptoassets are between 120 and 240 TWh/year. The report immediately jumps to the comparison of this consumption estimate to countries such as Argentina (124 TWh/year) or Australia (238 TWh/year)!
This equates to 0.4% to 0.9% of annual global electricity consumption and in the United States: Cryptoassets use 0.9% to 1.7% of total electricity consumption in the United States. Which places the United States as the leading country in Bitcoin mining at 38% of the total PoW power in 2022 compared to only 3.5% in 2020.
It is now known that these estimates are largely erroneous and imprecise. The Valuechain research that has just been published by scientific journal demonstrates the errors of the calculation method used by Cambridge and which is based on an average price of miners' electricity and a poor knowledge of the mining locations, which generates a margin of error of -50% to +120% of their estimates according to their own methodology. Valuechain has calculated the power consumption very precisely based on the computational power readable for everyone on the Bitcoin Blockchain and according to the distribution model of the real mining units without ever going through the unknown and unstable price of electricity. On this reliable basis, the margin of error is reduced to less than 5%. I had the opportunity to present an update of the data at the end of August on the occasion of the international event Surfin Bitcoin 2022 in Biarritz. The annualized consumption of Bitcoin is exactly 80 TWh/year and not 120 to 240 TWh/year. Bitcoin therefore consumes only 0.047% of the energy produced worldwide (including electricity and oil). For those who still have fun comparing Bitcoin to a country, its consumption is therefore close to that of the small island of Puerto Rico of about 3 million inhabitants!
The White House report makes the point that in Texas, proof-of-work mining is well developed, and uses about 3% of local peak electricity demand. “This increase raises potential challenges for maintaining electricity reliability.” Assuming Bitcoin consumes around 1.7 to 2.7 million kWh per block. Which is also wrong! Bitcoin uses a maximum of 1 million kWh/block according to Valuechain's very precise calculations, which is 2 to 3 times less than what the White House Report puts forward as a basis for reasoning derived from the Cambridge Index.
Carbon emissions and other pollution
The White House Report does distinguish that “electricity usage varies substantially with different crypto-asset technologies” and estimated that as of August 2022, Bitcoin is estimated to account for 60% to 77% of total global crypto-asset electricity usage, and Ethereum is estimated to account for 20% to 39% before the Merge. Then the report decides that global electricity generation for the cryptoassets with the largest market capitalizations resulted in a combined 140 ± 30 million metric tons of carbon dioxide per year (Mt CO2/y), or about 0.3% of global annual GHG emissions! Cryptoasset mining operations also cause local noise and water impacts from operations, electronic waste, air and other pollution from any direct usage of fossil-fired electricity, and additional air, water, and waste impacts associated with all grid electricity usage.
The White House ventures that a broader adoption of cryptoassets, and the potential introduction of new types of digital assets will require action by the federal government to encourage and ensure responsible development. Extrapolating is not prudent because it does not take into account the evolutions of layers 2 of the blockchains which come, and without increasing consumption, deliver the scaling up of services on blockchain.
This is where we notice the need for all public decision-makers to train in the blockchain revolution. For this Valuechain has prepared an online training completely in French and which lasts 2 days (available in english too contact us). It will give you all the essential keys to adopt the disruptive but also foundational revolution that blockchains bring. Whether you are decision-maker, manager or consultant, it is essential to train before judging or regulating. You will find the training link here.
Let's return to the White House report that admitted to an advantage of Blockchain: "Crypto-Asset Mining Can Be Powered by Stranded Methane and Renewables". Reducing methane emissions can slow near-term climate warming, which is why the Biden-Harris Administration released the U.S. methane emissions reduction action plan in 2021. Venting and flaring methane at oil and natural gas wells wastes 4% of global methane production!
For lack of knowledge of the mining industry, the report thought it is similar to data centers. The White House believes miners should use liquid cooling to keep computers within acceptable temperature ranges. “In standard computer data centers, a single, typical 10 kW rack of servers will require around 63,000 gallons of potable water per year for air cooling”. We reminf the reader that almost all miners in the world do not use water to cool ASIC machines, which come with an efficient ventilation system.
Another very important error that the report makes is on the lifespan of these mining machines which it estimates at “one year and four months. That's shorter than standard data center servers, which last three to five years”. This piece of information data is completely unrealisitic. Valuechain has studied all models of ASIC miners from the first model to new models yet to come. The actual average duration of mining units is 4-5 years. Moreover, according to the Valuechain model, if we apply the average lifespan parameter of 1.33 months the White House uses, Bitcoin would only consume today ~35 Twh/year, i.e. 55% less than its current actual consumption. I remind you that the energy consumption of a country takes into account its electricity production but also all the energies used in transport and heating... the argument of the White House on the lifespan of 1,33 years of a mining unit will rank Bitcoin close to the overall consumption of the island of Cyprus or Albania!
Note also that the report estimated that the current energy mix used for cryptoassets is 30% based on renewable energy, which is very imprecise because according to all indications from the mining industry, given the very high prices electricity and the search to increase the profitability of miners, currently we estimate at 60% the rate of renewable energy used by Bitcoin.
On the opportunities of blockchain technology, the White House, on a positive note, judges that research on digital assets “can advance U.S. goals in security, privacy, equity, resilience, and climate objectives”. Blockchain technologies may play a role in environmental markets, and DLT could potentially enable the coordination of distributed energy resources, as well as broader supply chain management.
To help the United States meet its climate change commitments, DLT must be deployed in a way that enables reductions in GHG emissions. “Benefits of DLT would need to outweigh the additional emissions and other environmental externalities that result from operations to merit its broader use in the carbon credit market ecosystem”.
On the other hand, the report raises the difficulty of predicting the electricity needs of cryptoassets by also noting that existing energy systems models do not adequately “represent digital technologies needs such as data centers and telecommunications networks, let alone crypto-asset and blockchain networks”
This argument is to be weighted according to Valuechain because future projections can be determined by other methods already presented in our published paper and which studies the efficiency of mining units called ASICs, which are closely linked and influenced by the value of cryptoassets and the capacity observed on the network as well as the prices of electricity at source. This last point is well experienced and presented by Big Block and Sebastien Gouspillou who remind us that the mining industry is well professionalized and relatively mobile, seeking to help the development of renewable energy production plants, to make them profitable and to stabilize their distribution network. On this point I refer you to Sebastien's videos and conferences at Surfin Bitcoin 2022 and on Grand Angle Crypto Youtube channel to demonstrate the real contribution of proof of work in the development of renewable energy by valuing electrivity excess production or limiting losses while low demand.
Then the White House report advances a series of erroneous estimates "Between August 2016 and July 2022, the average estimated deployed rig energy intensity decreased by around 85% due to computational efficiency improvements. Over the same time period, network hashrates increased by over 14000%, leading to a 2000% rise in estimated network electricity usage". Once again, based on the faulty assumptions and results of the Cambridge index, the White House report comes to the wrong conclusions. Actual electricity consumption increased by 900% during this period, not 2000%. This is due to the improvement in the energy efficiency of the mining units which are now able to produce the same work measured in watts for 1 tera-hashes. For this we invite you to see the actual consumption data in our published paper “Bitcoin: Cryptopayments Energy Efficiency”. You will find the link here.
Conclusions and Decisions of the Report
Let's complete our analysis of this long White House report with its conclusions and decisions.
The White House wants
reduce GHG emissions, avoid operations that will increase the cost of electricity for consumers
avoid operations that reduce the reliability of electrical networks,
and avoid negative impacts on equity, communities and the local environment.
The report calls on key policy decisions and critical innovations, encouraging the research and development and assessment tools needed to minimize or mitigate the climate, energy and environmental implications of cryptoassets.
Minimize GHG emissions, “environmental justice” impacts and other local impacts of cryptoassets:
Ensuring energy reliability
Obtain data to understand, monitor and mitigate impacts: Data should include mining energy usage and fuel mix used, power purchase agreements, environmental justice implications and participation in demand response
Advancing energy efficiency conservation standards for crypto-asset mining equipment
Encourage transparency and improved environmental performance
Continue research to improve understanding and innovation in this area.
US agencies will leverage US positions in international organizations to convey US values related to digital assets (such as the G7, G20, OECD, FSB, Financial Action Task Force (FATF) and Organization international standardization).
Agencies will promote standards, regulations and frameworks that reflect values such as data privacy, free and efficient markets, financial stability, consumer protection, strong law enforcement and environmental sustainability.
Finally the report concluded with a positive overall note that “opportunities exist to align the development of digital assets with transitioning to a net-zero emissions economy and improving environmental justice.”
As announced at the start of the video, Bercy in France is also currently interested in the energy impact of cryptoassets. French and European crypto players represented by Adan (Association for the development of digital assets) were received at Bercy in a hearing to prepare the publication of a French report "on the development of cryptocurrencies, on its challenges and on its current and future environmental impacts”, to reduce the environmental footprint of digital in France as indicated in article 27 of the law of November 15, 2021. I was present on behalf of Valuechain and I noticed that Bercy was already informed thanks to my paper of the errors of the Cambridge method. Hopefully, the French report will come to rather encouraging conclusions of the crypto ecosystem and take advantage of the opportunities of the blockchain revolution and even proof of work for the development of renewable energies in France.
It is clear now that “Bitcoin is Energy“ in a bi-directional way and we are seeing the transformation of the “Petro dollar” into “Energy Coin” race where energy industry is fighting to gain/maintain its role as the basis of money support system for world economies.
There is no choc of civilisations but there is a choc of Energy and Banking industry on Monetary Supremacy. We may be witnessing the transformation of the current "Petro-dollar" into a new "Energy Currency" equation where the energy industry would come to compete with banks and central banks to maintain its basic role of the monetary support system. to global economies.
Will we see a clash of the energy industry with the banking industry over monetary supremacy? This is what we will follow in the evolution of this profound transformation of our systems thanks to the ongoing Blockchain revolution.