The Breakdown - So, Is the White House Banning Bitcoin Mining, or Promoting It to Help Climate Change?

Starting point is 00:00:00 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 nexus.com, and ftX, and produced and distributed by CoinDesk. What's going on, guys? It is Friday, September 9th, and today we are talking about a new White House report on crypto mining. Before we dive in, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review. view or if you want to dig deeper into the conversation, come join us on 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

Starting point is 00:00:48 FTX. All right, well, happy Green Friday, y'all. It is a beautiful Friday morning. I haven't taken the time to figure out why I think the numbers are going up. I just don't care. All I care about is that they are. Anyway, I mentioned earlier this. week that what I thought was sort of a calm, basic week had turned very interesting with a flurry of communicates from the U.S. government about crypto. And so today we're digging into another one of those communications. We're now at the point where reports and analyses asked for by the Biden administration as part of the executive order on crypto are starting to roll out. They give us a chance to understand not exactly how policy is going to be made, but how

Starting point is 00:01:30 policymakers are thinking about things after some concerted engagement. This way, we're going to week, we got a report from the White House titled, Climate and Energy Implications of Crypto Assets in the United States. And no pun intended, it was something of a lightning rod. The 46-page report covered two main areas. First, energy usage and impact on the electricity grid. And second, emissions and other environmental impacts. The report is actually the first document published from the March Executive Order, which required government departments to assess various parts of the crypto industry and make policy recommendations. Within the framework of seeking to, quote, support responsible digital asset development in line with our climate change objectives

Starting point is 00:02:09 and for the benefit of everyone in America. The report is written from the point of view of government policy to reduce greenhouse gas to net zero by 2050, and puts forward the premise that, depending on the technology used, the crypto industry could hinder the efforts made to achieve that goal. It also has a continuous note of environmental justice, seeking to ensure that impoverished communities don't end up with noise and other pollution, as well as electricity shortages due to crypto mining. So let's start with what the report actually says. The report asserts that energy usage from the crypto industry has increased rapidly, somewhere between doubling and quadrupling between 2018 and 2022. They suggest that crypto energy usage represents between 0.4% and 0.9% of global

Starting point is 00:02:51 energy usage, making one of our favorite types of comparisons to a country such as Argentina or Australia. It claims that crypto miners had increased electricity use by 76% from July. 2021 to January 2022, but then reduced usage by 17% by August 22. It points out that this rapid variation in energy usage could impact other energy consumers in the grid. Using the example of Texas, the report claims that current mining activities use around 3% of local peak electricity demand, which could increase by 25 gigawatts over the next decade, representing a third of existing peak demand in Texas. In pointing out the differences between proof-of-work consensus and proof-of-state consensus, the report suggests that Bitcoin mining accounts for between 60 and 77% of total

Starting point is 00:03:33 crypto industry electricity usage, with Ethereum mining representing a further 20 to 39%. The report claims that proof of stake validation only represents 0.001% of global energy usage at present. Regarding emissions, the report claims that crypto mining contributes between 0.4% and 0.8% of total U.S.-based greenhouse gas emissions. That's a similar level of emissions to all diesel fuel used in railroads. The report notes that emissions from electricity usage vary by region, with some regions relying more on nuclear and renewable generation. Other direct environmental impacts listed include noise and water pollution, as well as electronic waste. It also lists the indirect impacts from fossil fuel electricity generation, which would occur for any

Starting point is 00:04:14 industrial use of electricity. The report notes that distributed ledgers could be used to power carbon credit markets, but also says that the benefits of adoption would need to outweigh the negative environmental impacts. In sum, the report makes six key recommendations. One, minimize greenhouse gas emissions through, quote, evidence-based environmental performance standards for crypto technologies, as well as introducing standards around energy intensity, water usage, noise pollution, and promoting clean energy usage. The report does highlight that, quote,

Starting point is 00:04:42 additional carbon-free generation should be constructed to facilitate mining facilities, but suggest that executive orders and legislation should be considered, quote, to limit or eliminate the use of high-energy intensity consensus mechanisms for crypto-asset mining if initial measures are ineffective. In other words, the report does at least open the possibility of a Bitcoin mining ban. Its second key recommendation is to ensure energy reliability by assessing current and projected strain on local electricity grids, and if necessary, update quote, reliability standards and emergency operations to ensure adequacy of electricity supply while mining

Starting point is 00:05:13 activities grow. Third, the report recommends obtaining data to understand, monitor, and mitigate impacts of crypto mining. Include energy usage and fuel mix, power purchase agreements, environmental justice, and demand response participation. Fourth, advance energy efficiency standards, which task Congress and regulators to develop energy conservation standards for mining equipment, blockchain design, and other operations. Five, encouraged transparency and improvements in industry reporting of mining facility locations, annual electricity use, emissions, and electronic waste recycling performance. And six, improved government modeling of the impacts of the industry on electricity

Starting point is 00:05:47 usage and environmental justice, as well as understanding beneficial uses for grid management and environmental mitigation. The report suggests that the goals of research and development should be to advance U.S. goals in security, privacy, equity, and resilience, as well as U.S. climate goals. Here's how the White House Office of Science and Technology Policy summed it up on Twitter. Crypto asset mining can use a lot of electricity. That's why the president directed our office to examine the rapid growth of digital assets and provide recommendations on the climate implications. Here's what we found. Global electricity usage for crypto assets is estimated to be

Starting point is 00:06:19 between 120 and 240 billion kilowatt hours per year. This exceeds the total annual electricity usage of many individual countries. Crypto asset mining operations can cause local noise and water impacts, electronic waste, air, and other pollution from any direct usage of fossil-fired electricity and additional air water and waste impacts associated with all great electricity usage. Nexo is a security first platform built for the long run with everything you need for your crypto. Five key fundamentals, including real-time auditing and insurance on custodial assets, safeguard your funds. Making Nexo the right place for you to buy exchange, and borrow against your assets safely.

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Starting point is 00:08:16 Download the FTCS app today and use referral code breakdown to support the show. As you might imagine, this produced some real hot takes from lots of different directions. One of the things that I thought was most interesting is that this was sort of a Rorschach test, in which people saw whatever they wanted to see and headline memed the hell out of it. Two dichotomous versions of this were represented by Bitcoin Magazine's tweet, Breaking. White House says U.S. Congress may consider legislation to ban proof of work Bitcoin mining, and Jason Williams, Breaking News. White House report states proof of work Bitcoin mining can yield positive results for climate. So obviously, if a report is generating

Starting point is 00:08:56 that divergent a response, it likely has to be more nuanced than it might initially seem. Now, in terms of really getting two ends of the spectrum on this report, let's look to Dylan Leclair's one side of the argument. He writes, it's not about climate change, it's about complete and utter control. Don't give them one inch. Stop pandering to the ESG narrative. It is utterly moronic. If you don't like how someone is using energy, pay a higher price than them. Mining enables the build out of baseload for the grid and can dynamically shut off during surge demand. No other industry operates similarly. Hasch rate will continue to march higher. No amount of hysteric screeching about climate change will stop the next block from being mined. Education is good, yes, but stop pandering

Starting point is 00:09:36 to pandering to communists is the real waste of energy. The sides are being drawn. You were either in favor of living in a digital panopticon where every action of your life is monitored and controlled, or you're not. Money is the final boss. If we don't reclaim stateless money for the digital age, all else is lost. Now, this is certainly about the hottest of hot takes out there, but frankly, it's not totally out of sync with a growing narrative in the U.S.S.G has become a become a new target for the American right, and this is probably something we'll talk about at some point in the future. However, it wasn't the only type of take that we saw from Bitcoiners. Troy Cross summed up the report this way. OSTP recognized Bitcoin's potential role in stabilizing grids,

Starting point is 00:10:17 incentivizing renewable energy and mitigating methane. They note non-energy-related tradeoffs between proof-of-work and proof of stake. They note how much they don't know about everything. This is very different from the Warren-Huffman purely political posturing and fear-mongering. It would a huge mistake to equate this report with the FUD we're all more familiar with. What comes out of this report? A call for more study. Some tensions there around data gathering, but the idea is to get more info to make sound policy. This is a conservative impulse and a good one. Agency's states and industry will be invited into the info gathering. And yes, once we have a baseline understanding of industries environmental and energy market impacts, then they are going to want to benchmark and

Starting point is 00:10:55 set out standards. That will be dicey. But Bitcoiners, I'd humbly suggest, need to get in on those conversations. The report maps out administration's goals and concerns with regard to crypto and mining. We know from the report exactly what they're worried about. This makes our job relatively easy. We show the worries are unfounded. We tick all the boxes. No, this isn't bending the knee. This is the process whereby fear-mongering and political windbaggery meets the reality of policy. Fact-finding, industry getting a seat at the table and articulating why the windbags are wrong and on-the-ground reality is wildly different. Sorry, but I'm optimistic. OSTP report looks bad and is vaguely threatening. In absolute terms, parts of it are still

Starting point is 00:11:36 uninformed or misinformed, parts badly framed. In relative terms, from the letters that prompted all of this, it represents a shift in a very good truth-responsive direction. Hats off to the civil servants and scientists who learned a whole new field in a matter of months and did their level best in a sea of information with everyone bag pumping to inform policy for the administration. I think Troy there is dead on. And it relates to what I've said over and over again about these regulatory conversations. If engaged with, with anything resembling good faith, they inevitably come out better than the fud and memeified version of what politicians think about crypto right now. Some took it even farther than Troy. Derek Ross writes, the White House's full report on proof of work in

Starting point is 00:12:18 Bitcoin is extremely bullish. They mention how proof of work mining can help the USA meet climate goals with flared gas and stabilize the electric grid. They're trying to determine if the positives outweigh the energy use. We know they do. Joe Carlos Ares says every major, major Bitcoin influencer going on national TV should be hammering the point that the White House report found that proof of work mining could yield positive results for climate change. Tell our story, not theirs. David Zell, the founder of the Bitcoin Policy Institute, writes just in from the White House OSTP. Crypto asset mining that installs equipment to use vented methane to generate

Starting point is 00:12:49 electricity for operations is more likely to help rather than hinder U.S. climate objectives. Indeed, the part that he's talking about is one of the positive notes in the report is pointing out the growing field of mining using methane capture from landfill, agricultural waste and natural gas flaring. In terms of climate impact, methane is estimated to be about 80 times as potent as carbon dioxide over a 20-year time frame, meaning that methane capture should be a high priority in the goal to reduce emissions. The report explains, quote, climate policy aligned with achieving net zero emissions would have zero methane venting and zero methane flaring. A combination of regulation and technological innovation can help

Starting point is 00:13:23 realize this vision. Crypto-asset mining that installs equipment to use vented methane to generate electricity for operations, is more likely to help rather than hinder U.S. climate objectives. The report then continues to lay out two ways in which mining would be zero emissions via the use of grid energy. Quote, constructing or contracting new clean electricity sources to power mining, or two, using existing renewable electricity that would otherwise be curtailed by the grid. Now, one thing that Bitcoiners are familiar with that the report gets into is Bitcoin miners assisting Texas during grid emergencies over the last few years by curtailing their electricity usage. However, they kind of draw the opposite conclusion to most Bitcoiners. They criticize Bitcoin

Starting point is 00:14:02 mining as the marginal additional electricity users that push the grid into overload in the first place. The report is concerned that by adding a projected 25 gigawatts of Bitcoin mining demand to the Texas grid, it may leave the state with insufficient electricity for other users or push up prices for all users. It is particularly scathing of a publicly listed but unnamed Bitcoin miner who received $9.5 million from the Texas grid regulator in exchange for curtailing electricity use in July 2022 during a summer grid emergency, which was a higher value than the Bitcoin mine that month. The conclusion of this section is, thankfully, not a policy recommendation, but a recommendation that more transparent reporting of curtailment

Starting point is 00:14:39 agreements is needed to, quote, reduce the incentive for rent seeking and gaming, and also notes that ultimately this type of flexible grid user can improve the reliability of grids. This gets out one of the key assumptions of the report that I believe is really worth pushing on and questioning. The report generally assumes that zero additional electricity should be generated in the United States, that the industries that we have now consuming electricity, and the consumer uses that we have now generating electricity, should be effectively the last of them. This totally belies the reality of technological change and transformation. Troy Cross again writes, electricity rights are not like water rights. Newcomers have equal rights to existing electrical power

Starting point is 00:15:19 as incumbents. If you think otherwise, don't simply assume it. Stated explicitly and then argue for your position. Hanukuki writes, no such thing as electricity rights. It's a service. I want electricity. I find a company to provide me with it. Tri-Cross writes, yes, even better, different from water rights because rights is entirely the wrong framework. It's a market. And this sort of assumption is, I believe, the best and most important part for bitcoins in the crypto industry as a whole to push back on. That is the notion that the government has the ability to say one use of electricity is not legitimate while another one is. That would be a radical expansion of governmental power into free markets. It creates an inherent prohibition against new technology in favor of incumbent energy users.

Starting point is 00:16:01 It also creates an incredibly slippery slope. If crypto mining isn't an acceptable use of energy, what's next? And listen, it's not impossible that as a society, there is a determination that some uses of energy are worth more or less. But that would be a hell of a bit of a bit of big shift in thinking about governmental power. And if that's a debate that's going to be had, it needs to be had at the level of elected officials, not appointed bureaucrats. Now, as we wrap up, what about the political risk that we've discussed before about ETH moving to proof of stake? Are Ethereum's going to come out and say, this report is great, we should ban proof of work? The responses I've seen in general have been pretty on point and basically the opposite.

Starting point is 00:16:39 DC investor, the NFT collector, writes, I am not pro-proof of work. I am pro, let the free market decide. There is no more justification to ban proof of work than there is to ban GPUs for PC gaming. Anthony Sassel writes, for what it's worth, I leak Ethereum proof of stake more than proof of work, but I don't want nor will I advocate any government to ban proof of work. Heavily regulating energy use is a slippery slope that leads to nowhere good. Let the free market do its thing. Eric Vorhees writes, a good Bitcoiner should defend defy on Ethereum when the government attacks it on the grounds of surveillance. A good Ethereumer should defend proof of work on Bitcoin when the government attacks it on the grounds of energy use.

Starting point is 00:17:14 The war is money versus state. The latter is powerful. Do not squabble. In the comment threads, Vitalik Boudarin, the creator of Ethereum, wrote, I don't approve of your consensus algorithm, but I will strongly defend your right to consents with it. Here. Here.

Starting point is 00:17:30 For now, I want to say thanks again to my sponsors, nexus. com. I know. Chainalysis and FTX. And thanks to you guys for listening.

The Breakdown - So, Is the White House Banning Bitcoin Mining, or Promoting It to Help Climate Change?

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