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It goes without saying. Bitcoin critics will stop at nothing to make themselves heard and to try and turn a miracle like Bitcoin into an anathema.
So-called “nocoiners” have recently resurrected an argument against the energy usage of the Bitcoin network and it is common to hear them rail against the supposed destruction that Bitcoin is wreaking against the environment.
Bitcoin does use a lot of energy. And it’s likely true that some of the energy powering the Bitcoin network comes from sources, like coal and oil, that humanity has determined have a less than positive impact. However, it is also true that much of Bitcoin’s energy comes from renewable sources like solar, wind, and hydro power. The mystery for some observers lies in determining how much energy is renewable and how much energy is “dirty”.
Enter the Bitcoin Mining Council
Earlier this month, Elon Musk shook the crypto world by stating that Tesla would no longer accept Bitcoin as payment for its cars. While few Teslas were likely purchased with the cryptocurrency, it sent cryptocurrency markets into a panic nonetheless. Musk’s concern was with Bitcoin’s “increasing use of fossil fuels”. In summary, Musk had fallen for the notion that Bitcoin mining is bad.
Perhaps many felt relief this past Monday then seeing the following post on Musk’s Twitter account:
Musk had gotten together with well-known Bitcoin supporter Michael Saylor and a group of executives from eight of the largest Bitcoin mining companies in North America. Saylor shortly thereafter released the name of the group as the “Bitcoin Mining Council” and described the goals of the group as the following:
To standardize energy reporting, pursue industry ESG goals, & educate + grow the marketplace
Certainly nothing could be wrong about a bunch of millionaires and billionaires conversing about the future of Bitcoin mining behind closed doors, right?
Responses from the Bitcoin community have been mixed to say the least.
The Pros
Perhaps a bit of optimism is in order to start us off. After all, most people these days believe that caring for the environment is key to humanity’s long-term survival. We all know the drill: Recycle, avoid bad emissions, use clean energy, repeat. In fact, many within the community believe that Bitcoin incentivizes the transition to renewable energy.
There’s also quite a bit of FUD (read: Fear, Uncertainty, Doubt) in cryptocurrency markets that gets stirred up thanks to the mud-slinging against Bitcoin and its energy use. Many in the cryptocurrency community, including certainly Musk, Saylor, and the mining executives themselves, believe that promoting mining standards and transparent energy reporting will remove a key criticism of Bitcoin and will make it more accessible for investment by retail users and institutions alike.
The Cons
On the other hand, many in the community believe that the Bitcoin Mining Council poses a huge centralization risk for Bitcoin. And there’s likely some truth to that. Bitcoin’s pseudonymous creator, Satoshi Nakamoto, envisioned Bitcoin as a “purely peer-to-peer version of electronic cash” that didn’t need to rely on centralized institutions, governments, or organizations to give it stability or functionality. For some, the mere existence of the Bitcoin Mining Council flies in the face of Bitcoin’s decentralization ethos.
What harm can this type of centralization from Bitcoin miners cause though? As it turns out, quite a lot.
As everyone was reminded last week, governments around the world are often some of cryptocurrency’s biggest detractors and are actively looking for ways to regulate cryptocurrency markets, for better or worse. A centralized consortium of Bitcoin mining companies who are also responsible for defending the Bitcoin network and its hundreds of billions in market capitalization makes an attractive target for any regulator looking to cut its teeth in cryptocurrency. I see at least a couple possible actions a government could attempt against Bitcoin through the Bitcoin Mining Council.
First, centralized mining opens up the possibility for governments to force miners to block transactions by any group or person that the government doesn’t agree with. Perhaps this seems appropriate to you in the context of terrorists and criminals. But for many individuals living in authoritarian and repressive regimes, being at odds with the government may be as simple as speaking out against an overbearing dictator or military. Just ask Roman Protasevich.
It is true that independent miners outside of the centralized groups would still have the possibility of confirming a block that contains “non-approved” transactions. However, the greater the amount of hash rate on the network that is subject to government or industry oversight, the less frequently independent miners will be able to push transactions through in an unbiased manner, and the less free and open the Bitcoin network will be for anyone to use.
Second, centralized mining creates interdependencies that governments or bad actors could use to influence Bitcoin’s hash rate. For example, it is common knowledge that crypto mining pools use centralized software to connect Bitcoin mining machines to one another and have centralized power structures. It would be a simple matter for governments to exercise their power against the individuals at the top of a consortium like the Bitcoin Mining Council, who in turn could pressure member miners to acquiesce to the governments’ demands or face expulsion from and censure by the group and the government.
There are surely other attack vectors on centralized organizations that I haven’t listed and I encourage you to share them with me in the comments below or on Twitter.
The Reality
It is on each of us to form our own opinions as to whether we believe the Bitcoin Mining Council will be a force for positive or negative change within Bitcoin and its community. However, the Bitcoin Market operates independently of our individual opinions. The market will decide how it feels about this development and react accordingly.
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