The Breakdown - The Latest New York Times Bitcoin Mining Hit Piece Is a Monument to Intellectual Laziness

Episode Date: April 16, 2023

This week’s “Long Reads Sunday” looks at three refutations of the piece, by: David Z Morris Daniel Batten  Margot Paez - “The Breakdown” is written, produced and narrated by Nathaniel Whittemore aka NLW, with editing by Michele Musso and research by Scott Hill. Jared Schwartz is our executive producer and our theme music is “Countdown” by Neon Beach. Music behind our sponsor today is “Foothill Blvd” by Sam Barsh.  Join the discussion at discord.gg/VrKRrfKCz8.

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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 produced and distributed by CoinDes. What's going on, guys? It is Sunday, April 16th, and that means it's time for Long Read Sunday. A quick reminder, however, before we dive in, the breakdown, is expanding. We've become the Breakdown Network. That means we've launched a new show, Bitcoin Builders, which you can find wherever you listen to podcasts. But it also means that if you are listening to this show on the CoinDesk Podcast Network feed, you're going to need to switch

over to the Breakdown Only feed if you want to keep listening. After April 23rd, the breakdown will only be available on the Breakdown Only feed. For more on that announcement, go check out the Announcing the Breakdown Network and Bitcoin Builders episode from Tuesday, April 11th. All right, guys, long read Sunday time. And this week, after so, so much discussion about this New York Times mining article, I had to read a couple of rebuttal pieces. Instead of talking too much about the setup to the piece, I'm just going to let these essays speak to the issues themselves.

The first piece comes from David Z. Morris at CoinDesk and is called The New York Times Skewed Bitcoin Mining Expoise reveals blatant bias. A new hit piece from the paper of record makes it clear. These are not serious people. David writes, For much of March, rumors flew in crypto-back channels that the New York Times was working on a major new expose on cryptocurrency. It would, of course, focus on the only crypto topic the Times is truly interested in,

the massive, apparently catastrophic energy cost of Bitcoin mining. That rumored hit piece arrived on Sunday, April 9th, and it is profoundly strange. Its actual findings are stretched to fit a conclusion handed down, it seems clear, from the newspaper's higher-ups. On its face, the piece is almost comically incoherent, but that very incoherence highlights its real message. Bitcoin is bad because we say it is. While the headline grandly declares it will expose the real-world costs of the digital race for Bitcoin, the bulk of the article's factual findings seem to describe failures in a specific load balancing incentive program in Texas.

The program is offered by the Electric Reliability Council of Texas or Urquot and is available to customers in any industry. The Times piece seems to take issue only with its use by Bitcoin miners. In the course of this critique, the report repeatedly indulges in wild non-sequiters, some almost surrealistic in their juxtaposition of Bitcoin mining with unrelated negative events. Quote, as beautiful as the chance encounter of a sewing machine and an umbrella on an operating table. But another way, this is journalism as an exercise in raw power, throwing disconnected facts under a tendentious headline and calling it a day. Let's talk about real problems. To be clear, I agree that

Bitcoin's network energy consumption and energy consumption model are less than ideal. The real problem, one not addressed directly in the Times piece, is that Bitcoin mining has no inherent upper bound. In theory, it could spiral ever higher, though in practice it is reined in by real-world economics. More generally, it would be great if Bitcoin used a lot less electricity, and that all of that power was zero carbon. But that's true of literally everything else in human life that uses power, which is ultimately where all these Bitcoin mining hip pieces break down. The truth is, many critiques of Bitcoin mining are not critiques of power consumption, or their exclusive targeting of Bitcoin would be obviously nonsensical.

Instead, these pieces all rely on the implicit but unstated argument that Bitcoin has no fundamental utility. This unstated premise is intended to sneak entirely past readers' critical defenses, as taken for granted as oxygen. I further want to be clear that I respect the investigative work done by reporters and researchers here. They deliver some interesting facts and insights, but those were seemingly not enough to satisfy the agenda of times higher-ups. Based on the text, it seems likely reporters were pressured to reshape their reporting into something it is not. This is suggested by the bizarre opening anecdote, which recounts a February 14th, 2021 incident when the Texas power grid was struggling under the load of a winter storm.

The apparent crime being recounted the cardinal sin committed by Bitcoin miners in this dire situation was that they turned off so that more Texans could heat their homes. Texas Bitcoin miners turned off at this key moment at the request of Texas electrical authorities and in compliance with one of a few load balancing programs available to the industrial Texas power customers. Anyone in the program can collect a fee for curtailing peak energy usage. In this case, a BitDeer facility collected $18 million over four days. The article's sweeping claim that the public pays the price for Bitcoin mining largely hinges on this single-state program. The article's problem with Bitcoin mining, if you can really call

it that, appears to be that miners are too good at doing the thing that the Texas incentives are designed to encourage, turning off at times of peak load. The point of those incentives is to keep the entire grid healthy, but the article frames it as some sort of nefarious manipulation. More to the point, it uses an isolated, in fact quite unique example, Texas, to support much broader claims that the Bitcoin network is raising energy prices across America. This exemplifies the basic problem with the piece. The reporters may have uncovered genuine questions about the structure of incentives available to large-scale power customers in Texas. Maybe they're unfairly lucrative for Bitcoin miners compared to customers that can't switch office quickly or completely. But instead of

addressing a real issue, this finding has been manhandled to support the, in-fact, non-falsifiable argument that Bitcoin mining consumes too much energy. Notably, the piece does not meaningfully explore why the Texas program is structured the way it is in the first place. I'm not going to to do their homework for them, but it seems reasonable to assume it is because Texas's power grid, overseen by Ercot, is a technical and regulatory basket case. It is held together by bailing wire and duct tape after decades of libertarian deregulation that led public and private power companies to starve their systems of investment, both in halted expansion and deferred maintenance. The Texas power grid is also uniquely isolated from the rest of the U.S. electricity grid.

This suggests the price effects documented by the Times would be more acute in Texas than elsewhere, because the Texas grid cannot access backup electricity across state lines. This unique feature of the Texas power grid is not mentioned a single time in an article purporting to be a deep analysis of its workings. It's the kind of system that requires you to pay customers for not using it too much. A truly daring thinker might argue that's the real problem here. A thought-terminating exercise. The piece's methods for covering over this kind of logical failure are bizarrely slapdash

as entries in the genre go. Let's look particularly at the conclusion. This is one of the strangest closing paragraphs to a news or investigative article I have ever read. Quote, in Rockdale, where two of the largest mines in the country operate just outside the city limits, the city manager Barbara Hawley told the times that the town used to be a, quote, fairly wealthy little community. She said that changed when a large industrial plant that had provided thousands of jobs closed more than a decade ago. It just cut the legs out from under this community, she said.

It was the old aluminum smelter, now home to the Bit Deer mine. End quote. The clear goal here is to associate the Bit Deer Bitcoin mine with the decline of Rockdale. But the framing is brazenly untruthful and clumsily delivered. Elsewhere, the article alludes to the fact that Bitcoin mines don't create a lot of jobs, but this paragraph seems to imply that the mining facility is somehow to blame for the departure of an aluminum smelter that closed more than a decade ago. That is, the smelter quite likely closed before Bitcoin was invented. It is certainly sad that this, quote, cut the legs out of the

community. But in what possible way is that relevant to the story being told here about Bitcoin, other than to emotionally manipulate readers into associating the two. This is, as presented, just sloppy writing. If I were editing this piece, I would draw a big, angry red line, or its Google Doc's equivalent around this paragraph. But I don't think that's the kind of rigor editors brought to bear here. More likely, they nudge this torturous malapropism into existence. Extra, extra, demand for electricity raises the price. I'm not here to drag you through a point-by-point rebuttal of the Times piece, but let's look at one more example of the word games being played here by America's Paper of Record. Quote, the New York Times has identified 34 such large-scale

operations, known as Bitcoin mines in the United States, all putting immense pressure on the power grid and most finding novel ways to profit from doing so. Their operations can create costs, including higher electricity bills and enormous carbon pollution, for everyone around them, most of whom have nothing to do with Bitcoin. This paragraph exemplifies the tendentious nature of this piece, that is the fact that while it is fact-based reporting, its real goal is to advance an agenda. In this paragraph, the piece pursues its agenda by finding the most maniacal, ominous-sounding possible way to describe being an electricity consumer. Putting immense pressure on the power grid is another way of saying buying lots of power.

Finding novel ways to profit from buying power is another way of saying running a business that uses electricity to operate and or participating in the energy market. The most brazenly disingenuous claim here is that Bitcoin miners create, quote, higher electricity bills for everyone around them. This is another way of saying purchasing electricity in a capitalist economy results in higher prices for other consumers. When I turn on my toaster, I am also, in fact, creating higher electricity bills for everyone around me. That's how all of this works, guys. So I think David nails the overall sentiment here

that there was clearly an agenda and that it wasn't a particularly well-executed hit. Others have jumped in to look at specific facts. Climate tech investor and climate activist Daniel Batten writes, here's two quick reasons why we should have zero trust in the New York Times article on Bitcoin. First, have a look at the table they compiled on the top six miners. I have the actual data from these miners and the others in their table compiled over an eight-month period. The New York Times article overstates fossil fuel used by the following levels. Using special accounting rules reserved only for Bitcoin miners, it would seem to justify the overstatement. Riot overstated by 82.5%. Atlas overstated by 32.8%. Cipher mining overstated by 74.9%. U.S. Bitcoin Corp overstated by 74.9%.

Rhodium overstated by 89.9%. BitDeer overstated by 82.5%. The emission levels are also overstated on average by 81.7%. The article is full of such transgressions of genuinely objective reporting. All right, one more rebuttal, and then we'll call it a day. This one is from Margo Paez, and was published on the Bitcoin Policy Institute website. The piece is called the absurdity of the New York Times latest Bitcoin hit piece. To get a sense of where this article is going, I will actually also quote a tweet from Margo, where she said, you know, from the moment I learned about this New York Times piece, I thought there would be things printed that would be hard to disagree with. Bitcoin mining is not a perfect industry, of course.

But wow, was I wrong? Margo writes, A recent New York Times article argued that Bitcoin mining hurts people in the planet. Here's what they miss. The most recent New York Times Bitcoin Exposé, the real-world costs of the digital race for Bitcoin, is a morality tale. Its main character, Bitcoin mining. Its lesson? No good can come from a malign and irredeemable presence like Bitcoin mining.

We set the stage with a murder scene. A rare winter storm in Texas has triggered massive power outages and a grid failure, leading to scores of deaths. Next, we introduce our misfeasor, Bitcoin mining data centers, those end. energy-guzzling computers racing to score more Bitcoin in an endlessly repeating lottery. The Bitcoin miners whine with robotic indifference while human beings literally freeze to death for lack of electricity, until at last the grid operators forced them to power down. The implication, though not explicitly stated, this industry kills people. The remaining tale unfolds with an impressive paper trail of evidence to round out the character

sketch. Bitcoin mining is portrayed as a grift. Exploiting grid programs for obscene profits, while using precious resources and raising power prices for everyone else, it is shown to be an epic polluter that hides and downplays its staggering carbon impacts. The paper trail is laden with data and scientific sounding claims. How could one take issue with the science TM? But alas, the facts do not add up. The opening scene is a misleading setup. The character sketch is partial and highly skewed. The paper trail is devised with unpublished proprietary methodologies. The metrics are generally accepted but wrongly applied to a narrow context. In other words, the scientific appearance lacks the rigor of actual

science. The truth is more complex and far more positive. The storm. In reality, we know what happened during winter storm, Yuri. It wasn't that Bitcoin miners were stealing power from residential communities. The cold weather froze water and gas and oil wells, which in turn caused gas production. 38 gas plants shut down or reduced production. Many gas plants plus coal, nuclear, and some wind power plants were affected. In response to the 40-degree below-average weather, power demand surged. According to Environment America, a computer glitch led to a massive price spike as a result of the grid's desperate attempt to entice generation to come back online. Meanwhile, Bitcoin miners operating in Texas's demand response programs

were told to curtail their power and did so on Q. Demand response. Demand response isn't unique to Bitcoin miners. Though, after reading the New York Times piece, one might think that was the case. Any kind of large load can participate in demand response and get paid for doing so. For example, universities sign up for such programs with the expectation that they might have to reduce consumption anywhere from zero to two times a year, providing five megawatts of load as grid insurance could earn a participant in annual profit of $185,000. Indeed, in the most recent report of demand response, Ercot reported a 2021 average responsive reserve service payment of $208.28 per megawatt per hour. The same year that Winterstorm Uri impacted the Texan grid.

Ultimately, Urquhart made nearly $2.6 billion worth of payments that year. Payments made to Bit Deer, the mining company that was highlighted in the New York Times opening salvo, accounted for 0.69% of total RRS payments that year. The New York Times report does not make any mention of how demand response works in Texas. Instead, in a strange twist, the report appears to demonize flexible load. despite a well-understood need for more of it to meet the unique requirements of an electrical grid with high levels of solar and wind generation. The IEA forecasts that by 2025, renewable capacity will overtake gas and coal, and that by 2030 all this additional variable energy will require more than 12 times as much demand response from 2020 levels.

According to the New York Times, it's just not fair that miners can power up and down almost instantly, making them so valuable to the grid that Erkod is willing to pay them millions of dollars each year just to make their flexible load available for emergencies like winter storm Yuri. It's not fair that a hospital can't benefit from the same program. The truth is, of course, that a flexible load should shut down in a crisis so that hospitals don't have to. Emissions and price data. What about the data? The evidence seems irrefutable. Two studies were commissioned, one from Wood McKenzie and Energy Research and Consulting Company, and another from Wattime, a non-profit tech company. The results claim to show that Bitcoin's

grid demand is damaging to electricity ratepayers in the planet. The Times reported increased electricity prices across the state and claim that the largest mining companies are running on 78 to 99% fossil fuels, producing millions of tons of carbon dioxide as a result. It is difficult to evaluate these claims, because the Times does not explain the methodology behind the studies. We have no idea how Bitcoin miners were modeled beyond assuming a 95% uptime. One thing we do know is that Watt Time uses marginal emissions accounting to measure Bitcoin miners' greenhouse gas emissions footprint. Marginal emissions are used to evaluate short-term effects on grid emissions when a change in demand occurs.

Marginal emissions accounting tells you what kind of generation is available to meet that additional demand. It doesn't matter if the change in demand is a result of electric vehicles, batteries, heat pumps, or Bitcoin miners. One would apply the evaluation in the exact same way. Marginal emissions should not be confused with average grid emissions. Marginal emissions count the emissions of the generators that would need to come online to meet the increased demand.

Average grid emissions are based on the average grid generation mix, which assumes that the electricity generated to meet demand will be a combination of all available generation. In a grid where a response to a change in demand will likely be met with fossil fuels like natural gas, which is typical of most electrical grids in the United States, one would intuitively expect marginal emissions to be higher than average grid emissions. In fact, when studying the effect of energy storage on short-term grid emissions, multiple research groups have found that when storage relies solely on price arbitrage, they increase marginal emissions rather than reduce them.

Another study found that adding a significant load of heat pumps required more natural gas in the first few years to meet this demand increase. Both energy storage and heat pumps are part of the plan to achieve decarbonization goals and reduce long-term emissions. Yet they have the same kind of high marginal impacts on carbon emissions as Bitcoin miners. Looking at the broader context, it should be clear that an electrical grid that is yet to add constraints on carbon intensity of generation will have high emissions factors that affects all kinds of loads that create a change in demand. In the long term, as countries work towards meeting emissions reductions, we expect that marginal emissions will

go down. In the meantime, Bitcoin miners, batteries, heat pumps, electric cars, and other new demand will all have high marginal emissions when price is the only incentive. Therefore, claiming that Bitcoin mining is bad for the planet on marginal emissions alone shows that the Times does not understand how to apply greenhouse gas emissions accounting. While it is true that it is preferable that new demand bring its own renewable generation with it, this is only available to the largest and wealthiest of corporations like Google and meta. If we think that this standard is the only way to achieve emissions reductions, then the

ultimate conclusion is that there should be no increase in demand ever again, unless one can afford their own solar farm. This is not the world we live in. The New York Times does not add any of these contexts to its report, but instead uses carbon accounting metrics to create a false sense of certainty that there can be no debate about. Bitcoin miners are destroying the planet. The science may be settled on climate change and the risks from failing to meet this challenge, but it is definitely not settled on the effects of Bitcoin miners as highly flexible loads

that provide demand response. To answer these questions, we need Bitcoin mining companies to step up. We need miners to be transparent. Bitcoin miners voluntarily reporting their emissions uptime, demand response participation, whether in official markets or its price response, will go a long way to dispel the misconceptions and fear that could cloud the industry's reputation. Despite the lack of available data, a closer look at the industry reveals a more nuanced story than what the Times reported. An independent researcher recently identified

over 30 United States-based sustainable Bitcoin mining companies, accounting for over 14% of global Bitcoin mining operations. When it comes to methane mitigation, Bitcoin miners are now looking towards capturing landfill gas and burning it, which reduces near-term warming. There are now three companies developing products to incentivize sustainable Bitcoin mining. Finally, the energy industry is beginning to see the value of Bitcoin mining as a floor for revenue, and we are now seeing the co-location of miners with wind and solar power generation. The New York Times has revealed itself to be more concerned with spinning morality tales disguised as investigative reporting than fairly representing the truth.

The reality is that Bitcoin miners play a valuable role in improving grid resilience and reducing carbon emissions. Rather than demonize the mining industry, we should work to understand how this unique consumer of power can be leveraged in the fight against climate change. To win that fight, we must keep an open mind towards all available solutions, including Bitcoin. All right, guys, I think these three really said it all, so I don't have too much to add other than this. So much of this conversation about Bitcoin mining and energy use

to me comes down to two things. One is that ultimately, if you don't think that Bitcoin has any value, it doesn't matter how much energy it uses and what percentage of it is from renewables. You think it's all a waste. That is the fundamental underlying subtext and sometimes main text of many arguments against Bitcoin mining. Second, however, is that there is fundamentally this question at core of whether government should be in the business of determining what people can and can't use energy on.

Slippery slope arguments can often be specious, but in this case I think they are appropriate. Is it okay? Is it the type of world we want to live in, where the powers that be get to determine who uses energy for what purpose and how? That's the question we have to ask ourselves. And by the way, for people who don't particularly like Bitcoin, but who do like their other power-intensive things, be it gaming or war, washing machines or anything else, should think extra hard about that question as well. Thanks to Margot, David, and Daniel for their contributions to the show, and thanks to you guys for listening. Remember, switch over to the breakdown-only feed to keep getting this show after

April 23rd. Until tomorrow, guys, be safe and take care of each other. Peace.