The Breakdown - Should Bitcoiners Be Worried About Biden's Energy Team?

Starting point is 00:00:00 There is no story here, not really. It's just an excuse to write something, which is fine. No shade to the author. Authors have to write stories, so they pitch things and then write them. What I want to initiate a discussion of is what to care about and what not to care about and what we can actually learn from the piece. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexo.io, near an FTX and produced and distributed by CoinDesk. What's going on, guys? It is Thursday, June 2nd, and today we are asking whether Bitcoiners should be worried about Biden's energy team. Before we get into that, however, if you are enjoying

Starting point is 00:00:47 the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to get deeper into the conversation, come join us in the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Also, a disclosure as always. In addition to them being a sponsor of the show, I also work with FTX. So today we're going to do that classic thing of discussing something specific, but also something general at the same time. And something that I think is going to be particularly important the deeper we get into

Starting point is 00:01:17 this summer. And that is how to interpret and contextualize reports that are antagonistic towards Bitcoin or towards the crypto industry as a whole. We're going to start today with a Bloomberg law piece that has been making the rounds on Bitcoin Twitter this morning. Here's how Bitcoin magazine summed it up. Just in, the Biden administration is preparing policy to reduce Bitcoin's energy consumption. Sounds kind of scary, huh? Like the president is coming after us. Well, let's dig in a little further. The piece that they're citing comes from Bloomberg Law and is titled Crypto Miner's Energy Climate Costs Draw White House

Starting point is 00:01:54 Scrutiny. Here are a few of the key quotes that had us all riled up. The Biden administration is teeing up policy recommendations to lower cryptocurrency mining's energy consumption and emissions footprint, making its first major foray into a poorly understood industry that critics say threaten U.S. climate goals and strains the power grid. That's the way the article kicks off. Not long after, we have a quote from Costa Samaras, the principal assistant director for energy for the White House Office of Science and Technology Policy. Quote, it's important if this is going to be a part of our financial system in any meaningful way, that it's developed responsibly and minimizes total emissions.

Starting point is 00:02:30 When we think about digital assets, it has to be a climate and energy conversation. Then finally, probably the most reference thing that I've seen. This year, Ethereum is planning a switch from proof of work to proof of stake. Bitcoin, despite public campaigns, calling for it to follow suit, has announced no plans to do so, and there appears to be little interest in such a change. So if you just looked at Twitter, you'd basically only see screenshoted pull quotes from those sections,

Starting point is 00:02:57 and rightly you might be concerned. Energy has outlasted almost everything else to be the leading Bitcoin fud, with tether crashing being perhaps the only long-term fud competitor. Part of that, of course, is righteous keyboard warriors who have decided to load this industry no matter what. But part of it isn't. Put yourself in the lens of someone who doesn't know much or anything about blockchain's Bitcoin crypto, but who does believe that climate change is a significant global issue.

Starting point is 00:03:23 You're barraged with these constant articles saying Bitcoin consumes more energy than Pakistan and the like, and you're like, what the hell? Of course, you've never taken the time to think about the value underlying Bitcoin and why it would be important to people in the first place. It's just this random new thing exists that some people got rich off of. You've also never really had people bring up the energy footprint of other industries unless they were the actual energy industry. You'd be forgiven for thinking that there is this new thing that who really cares that much about because what is even the point, and it's so environmentally destructive that maybe that's an issue. What I'm dramatizing here is how a person coming into this with no biases whatsoever, other than

Starting point is 00:04:01 believing that climate change is a valid concern, might come into this discussion. I believe that this describes a lot of the officials who are now tasked with working on this, and I think that's important to keep in mind. So with this in mind, let's actually look at the rest of this article and what the substance is. First, let's talk context. When the Biden administration put out its executive order in March, one of the reasons the community received it, well, is for what it didn't do. It did not propose rules. That was one of the big concerns that it would be some ham-fisted, unconsidered, unconsidered set of specific proposals.

Starting point is 00:04:36 Instead, it organized the entire administration, more or less, to take the next six to 12 months to go research and prepare reports on various topics where the departments and part of the cryptocurrency industry intersected. The quote above about minimizing emissions and having crypto be a climate and energy conversation came from the principal assistant director for energy at the Office of Science and Technology. Climate and energy is what he's concerned with. Of course, that's the lens through which he's going to look at this issue. What's more, that was what was assigned to him in his department. In other words, the fact that he's looking at it through those lens does not suggest he's a priori taking a negative view. It's that we know the stakes that he's bringing with him to

Starting point is 00:05:16 this conversation. But let's go on in the article. Section two of this piece reads carrot or stick. But whether any policy action follows the recommendations remains unclear. The Energy Department, which issues efficiency standards and studies clean technology, was unable to provide a person to speak on cryptocurrency energy usage. The Environmental Protection Agency broadly doesn't regulate energy usage by specific consumers or industries. The EPA's inaction on the issue drew criticism from some congressional Democrats in April. Some see the role of the federal government as shaping disclosers to investors who will then push crypto miners to clean up their operations. So, pause, we have this article, which again was framed on Twitter as this big disastrous thing

Starting point is 00:05:54 in some way, as both pointing out that the energy department didn't have anyone to talk to them about this, and the EPA's historic sense being that it doesn't regulate energy usage by specific industries. The article goes on to quote someone from industry, Jesse Morris, the CEO of Energy Web, which is a technology company that works with utilities and consumers to accelerate decarbonization. He said, I have a really hard time seeing some sort of stick approach. I think the most bang for their buck is going to be on education and disclosure of Bitcoin mining, and that would send a huge signal too. So basically, so far, on our journey here, we've got some quotes from an energy official with a scary-seeming headline, but then a thesis that any action

Starting point is 00:06:33 will not be about some draconian policy, but more disclosure and open information, sort of seeming less and less scary at this point. But the piece is long and it goes on, so what's the next section. The next section is called strained sector, and it is about the energy context into which Bitcoin and proof of work are coming into. In a lot of ways, it is a recognition that the discussion is contextualized by the energy grid that we have. Hold aside ladder points about free markets and accessibility and all sorts of things like that. If I'm an energy official, thinking about the state of the grid is just going to be a part of it. It may not seem fair to a newer technology that it has a higher burden because it's coming into a crappy grid later, but it is what it is.

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Starting point is 00:09:14 but it has nothing to do with the governmental body in question, the one who will actually have influence to shape what this Biden administration executive order mandated report is going to have to say. The next section is called company registry, and it is all about specific policies that crypto miners might have to undertake. So is this one about things that the Office of Science and Technology or the Energy Department are saying that they're interested in? Again, no, this section is all about recent comments from Greenpeace, the Environmental Working Group, and Earth Justice. So here again, same as before, be annoyed at the author for including it, and at Greenpeace for writing it, but it has nothing to do really with the actual question at hand, which is what the government offices focused on energy and climate actually think.

Starting point is 00:09:55 Which brings us to the final section, which does, in fact, have more quotes from that same person we started with. It begins, the White House energy team will be keeping an open mind as it collects evidence, Samara said. And then it has another quote from him. We need to think about what would be the appropriate policy responses under a world that shifted to proof of stake, or a world that has some continuous mix of proof of work and proof of stake. Proof of work is energy intensive by design, but it also increases security. Wait a second now. Is that the same official recognizing that there is an intentional difference in design that may come with different types of benefits? Does this suggest possibly a good faith,

Starting point is 00:10:33 open-minded effort to understand this? The piece goes further and concludes, the team will study claims made in recent months in places like Texas that mining facilities could provide grid operators with flexibility by agreeing to temporarily shut down during times of peak demand. A central question, Samara says, concerns the economic incentive for miners to turn off their servers, given the opportunity to make money by running all the time. Quote, we've seen miners set up in places where the electricity prices are low and they've secured favorable industrial rates. I would like to see the evidence that an afternoon peak mining tariff slows down mining operations. To me, this doesn't read like some group that have made up their

Starting point is 00:11:08 mind. It sounds like a group who is interested in hearing the industry's counterpoints to the sort of attack pieces and arguments that feature in the middle section of this article, and is trying to determine the veracity of our claims. I don't know, man, kind of seems reasonable. At this point, you may be wondering where the story is here, and in short, there really isn't one. The closest thing to a piece of news here is the contention that an energy-focused report resulting from that executive order may be one of the earliest to drop. It may come out in August. but like it's the government, so who knows when it will actually come out. The EO itself was expected for months and months before it actually got here.

Starting point is 00:11:47 There is no story here, not really. It's just an excuse to write something, which is fine. No shade to the author. Authors have to write stories, so they pitch things and then write them. What I want to initiate a discussion of is what to care about and what not to care about and what we can actually learn from the piece. The piece sort of just reads like one official of a department, which is only one of many departments involved,

Starting point is 00:12:10 have some relatively expected benign comments that at least show some amount of open-mindedness. But there was another piece that has been on everyone's radar. This is the frankly preposterous letter from some 26 quote-unquote experts. Here's how the financial time sums it up. Tech experts urge Washington to resist crypto industry's influence. To quote Eniga Montoya from the Princess Bride,

Starting point is 00:12:34 let me explain. No, there is no time. Let me sum up. First, these folks say, we are 26 computer scientists, software engineers, and technologists who have spent decades working in these fields producing innovative and effective products for a variety of applications in the fields of database technology, open source software, cryptography, and financial technology applications. We will come back to this claim of expertise. Second, they want a skeptical approach to crypto. Third, you in Congress should resist pressure from lobbyists. Fourth, these technologies aren't useful for ordinary America.

Starting point is 00:13:06 Fifth, blockchains are just append-only digital ledgers that have been known since 1980, and aren't really useful. Sixth, blockchains can never reverse transactions. Seventh, they are a disaster for privacy, but also a gift for money launderers? Eighth, blockchains are bad at everything. I'm not being glib in children's book about this, that's basically exactly what it says. Ninth, again, blockchains have no real economy use cases, and cryptos are all for fraud. 10th, they also have all sorts of terrible externalities like money laundering. 11th, blockchains will never be good.

Starting point is 00:13:39 All of the bad things we've said are inevitable. 12th, you have to protect investors from crypto. Now, I'm not going to debunk each one of these point by point. For that, I highly encourage you to go check out Preston Burns debunking the Crypto Critics letter line by line. Instead, the one piece I want to hone in on is this appeal to expertise and wide representation of the entire technology industry. Stephen Deal, who is the latest in a long line of stuffy snuffboxes trying to make a career out of hating crypto in public, declared triumphantly.

Starting point is 00:14:08 Today, the global community of technologists sent a letter to Congress urging them to resist the crypto industry's lobbying influence. The letter was signed by some of the most respected scholars and technologists in our field, and now we need your help. So the point is that this is a specific appeal to the authority of the people who signed it. So who was it? Well, here's how Nick Carter sums it up. It's like half a dozen Twitter trolls, some embittered academics that have been arguing in the Bitcoin subreddit since 2011, and then some low-level engineers at mediocre tech cos. He goes on, how many of the 26 signatories of the anti-crypto letter are actual tech experts, specifically on the matter of blockchains?

Starting point is 00:14:44 I don't see how being a mid-level engineer at LinkedIn or HubSpot, with no track record of working on blockchains confers you any authority, especially when the entire letter is an appeal to authority. A lot of the signatories are just random Twitter trolls with no actual expertise. At most, they've written some petulant e-book. How many peer-reviewed publications on relevant topics do they boast collectively? Writing code for a living doesn't make you a tech expert on some other unrelated system, just because it's also made of code. That's insane. Now, one of the signatories took issue with all of the people calling them not experts. He said, this idea that you have to be an expert before you can share your thoughts or

Starting point is 00:15:23 opinions is a tool gatekeepers use to discourage people from looking behind the curtains. Niraj Agrawal from Coin Center followed that tweet up with three headlines. Tech experts urge Washington to resist crypto industry's influence. Tech experts to Congress resist the crypto hype. Tech experts urge Congress to fight crypto influence. Nairaj says, wasn't their expertise the whole point of the letter? In other words, if the appeal to authority rests on their expertise, isn't it fully reason to question that expertise? So let's back it up. What is actually important about this letter,

Starting point is 00:15:59 particularly in the point that I'm trying to make? It's not about the specific claims, and it is certainly not the so-called experts behind it. It is relevant, though, as a representation of the state of crypto discourse in mainstream media. It is clear that as we settle into this bare market, what writers want to write about and what editors think will get clicks, has shifted from exciting things about the growth of crypto to critiques of the space, no matter how to how. hamfisted, ill-informed or dubiously sourced they are. Those are the current table stakes of MSM, Bitcoin, and Crypto, period, full stop. Jake Chavinsky said, we could write a letter to Congress with 10x stronger arguments in favor of crypto innovation, signed by 10x more leading

Starting point is 00:16:38 engineers and entrepreneurs, but not get 1% of the media attention this handful of misinformed skeptics generated today. Luckily, media narrative is not reality. Now, media is a form of power, and that's really the point that I want to get to and end on today. This show is all about big picture power shifts, right? Well, the most important word in there is, of course, power. Right now, surrounding Bitcoin and crypto, there is a significant power battle. But it's not on Twitter, at least not primarily. It's in Washington.

Starting point is 00:17:09 It is what the various departments within the Biden administration will come back with in their reports. It is in the interdepartmental power struggles. It is in what is going to make it into congressional bills about new race. regulatory regimes. It's about how much power Congress and the Senate are willing to cede to unelected officials on the future of this industry. Nearly all of these media-mediated shit storms are distractions from the actual power battle. This doesn't mean that the industry shouldn't react. I'm all four people on Twitter pointing out the ridiculous hypocrisy and unexposed backgrounds of those 26 signatories, for example, have at it. But it does mean that we need to save

Starting point is 00:17:47 the real ire and fire for real battles. It is likely to me that in upcoming legislation, there are parts that we will very much want to push hard on to change, even if that legislation is delivered in good faith. It seems likely to me that in upcoming reports from these various parts of the administration, there will be cited studies we disagree with that lead to conclusions that could be dangerous. Again, even if presented in good faith, and we will need to use our voices for that. There's a great line in season one of the West Wing, where White House Chief of staff Leo McGarry asks Admiral Percy Fitzwallis, the chairman of the Joint Chiefs of Staff, about some small optics and PR issue. Fitzwallis turns to him and says, I got some real

Starting point is 00:18:27 honest to God battles to fight Leo. I don't have time for the cosmetic ones. That's the energy that I want to at least bring to these conversations. I think we have some real honest to God battles, guys. Fight all you want on Twitter, but I don't think we have time for the cosmetic ones. For now, I want to say thanks again to my sponsors, nexo.io, near and FtXX. And thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace. Hey, Breakdown listeners, come join CoinDesk's Consensus 2020,

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The Breakdown - Should Bitcoiners Be Worried About Biden's Energy Team?

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