It's been a month since my last post. I have been consuming everything I can about Bitcoin and the freedom/liberty it gives. Of course, those who wish to control us, will inevitably attack Bitcoin. The next big attack will be based on how much energy the Bitcoin system consumes and how that is bad for the environment. Of course, this is total BS. But to defend it and convince others, you will need ammo. This post is going to supply you with it. (Please add additional references you may have to the comments below.)

The following thread was posted on Twitter by Gigi. Here is a link for reference, but I have copied the text and links below: https://twitter.com/dergigi/status/1392826448017346561

A failure to understand proof of work is a failure to understand #Bitcoin.

Decentralized systems, by definition, do not have a single source of truth.
Satoshi's breakthrough was to build a system that allows all participants to zero in on the same truth independently. Proof of work is what allows this to happen. The point of proof of work is to create an irrefutable history. If two histories compete, the one with the most work embedded in it wins. The chain with the most work is the truth, by definition. This is what we call Nakamoto consensus.

Why does this work? In short: because work requires energy. You can't cheat it. You can't argue with it. You can't lie about it. The proof that you did the work is self-evident in the outcome of the work. In Bitcoin, work is computation. Not any kind of computation, but computation that has no shortcut: guessing. There is no shortcut because there is no progress. Every guess stands on its own. The beautiful thing is that the work itself is embedded in the solution. The data speaks for itself. The map is the territory. There is no external source of truth required. The work is implicit in the data due to the probabilistic nature of guessing. Other mechanisms, such as proof of stake, don't have this property. You can never be sure that what you are looking at is actually the truth since there is no external cost to create an alternative truth. Computation is the only bridge between the realm of information to the physical realm. When dealing with information, all we have is information and the transformation of information: computation.

Computation requires energy. Energy is the bridge. Energy is real. Remove this bridge to the physical world and you will stay in fantasy land: you can't tell what actually happened. You will have to trust others to tell you what happened. You can't verify it yourself. You have to rely on trust. Proof of stake has plenty of other problems, such as fair validator selection (who decides?), naturally centralizing effects (more stake = more reward = more stake), and having no natural resistance to timestamp manipulation attacks, for example. Proof of work solves these exact problems. It decentralizes the selection process, creates physical proof of what happened, has real externalized costs, and decentralizes time.

Bitcoin is Time. https://dergigi.com/2021/01/14/bitcoin-is-time/ or listen at https://bitcoinaudible.com/bitcoin-is-time/

The question of whether proof of work is wasteful or not can't be asked without understanding the problem it solves. Understanding the problem properly will lead you to the conclusion that there is no other way to solve it in a trustless manner. Thus, the question becomes: how useful is trustless digital sound money? Is it worth the energy expenditure? For fridges, cars, smartphones, and a myriad of other things, society answers this question in the affirmative. For Bitcoin, those who understand the societal benefits of sound and censorship-resistant money answer in the affirmative.

To summarize: proof of work is not only useful but absolutely essential. Trustless digital money can't work without it. You always need an anchor to the physical realm. Without this anchor, a truthful history that is self-evident is impossible. Energy is the only anchor we have.

Proof of work = trust physics to determine what happened.
Proof of stake = trust humans to determine what happened.

Addendum: I have a lot of sympathy for everyone who thinks that Bitcoin is wasteful. I thought so too, and I had to shift my perspective. Like most people, I didn't know anything about (sound) money. https://dergigi.com/2018/06/10/bitcoin-s-energy-consumption/

Addendum, part two: The problem of agreeing on a common time in an adversarial decentralized system can't be solved precisely, not even in theory. Proof of work is a practical, probabilistic solution to this intractable problem.

Addendum, part three: I wrote "trustless" for brevity. There is no such thing. It is always about the minimization of trust. https://21lessons.com/16/

Addendum, part four: It should go without saying that energy expenditure doesn't equal carbon footprint and that both are decoupled from transaction throughput.

Let’s dig into that last addendum a bit more. From Lyn Alden on Twitter: https://twitter.com/LynAldenContact/status/1374774367666761729

Lyn is replying to Lucas di Grassi about the energy usage of Bitcoin.

Bitcoin's total energy usage is determined primarily from market capitalization and difficulty adjustments, not transaction volume. In other words, the marginal bitcoin transaction/spending choice has virtually no impact on bitcoin's total energy usage. Like with a company, it takes a ton of work to make a good software product (equipment, staff, time, etc). But then, it takes minimal work to send that software to 1,000,000,000 users compared to 10,000 users. High base cost for it to exist + tiny cost per marginal user. Bitcoin's overall energy usages does go up with adoption as a store of value as its market cap grows, but in a nonlinear way as it matures. It needs to be secure to function, but from there, its marginal cost per user is efficient. (To dig into these dirty details, go here: https://www.swanbitcoin.com/bitcoin-fee-based-security-modeling-lyn-alden/ )

However, the bitcoin network can only handle a finite number of daily base layer transactions. From there, secondary layers can multiply that number arbitrarily. In other words, if 10x more people use bitcoin in 5 years, it won't use 10x more energy than now. Dividing "bitcoin's total energy usage" by "number of transactions" to determine "energy per transaction" falsely implies that your decision to spend bitcoin or hold it, linearly affects how much energy the bitcoin network uses that day, whereas it doesn't. The only way that individual transactions on goods/services affect energy usage in the long run is by affecting the fee portion of miner revenue, but that remains a minimal part of bitcoin's energy usage. And secondary layers, like Lightning, make that even more efficient, and further eliminate the additional marginal energy usage per transaction. The marginal decision to make a Lightning transaction has close to zero impact on anything. Like sending an email.

This is different from, say, making the marginal decision to fly a private jet somewhere. Your decision to fly or not fly the jet will linearly affect how much C02 gets emitted that day. This is not the case for deciding whether to hold or spend a bitcoin (or send an email). Bitcoin's store of value aspect is what mostly drives the total energy usage of the network, since that is what mainly drives the market cap up. The medium-of-exchange portion of that network, if successful, is very minimal in terms of additional energy usage. Much of the criticism around bitcoin's energy usage misinterprets the scaling mechanism and which factors affect bitcoin's total energy usage. Buying it and driving up market cap does indirectly increase energy usage, nonlinearly. Spending it vs holding it, however, not really.

Plus, due to the incentive mechanism for miners to find cheap energy, the energy that is used for the bitcoin network is increasingly renewable or wasted/stranded energy, which is good to strive for.

Lastly, a lot of energy concerns directed at Bitcoin start with the presupposition that it's useless. A trillion dollars in market cap disagrees. Little concern is given to worldwide washing machine energy usage, for example, because we understand the value.