Bitcoin, electricity and the law

There are two things I want to write about today: Bitcoins uses a hell of a lot of electricity and humans are pretty bad at cryptocurrencies.

 

The electrical bill:

Each Bitcoin transaction takes about 320KWh of energy. The network uses about as much electricity as Hungary which is roughly 40TWh per year.[Digiconomist] In comparison, Google reports that it used about 6 TWh in 2015. While there are only around 300,000 Bitcoin transactions per day, there are about 3,000,000,000 Google searches every day. (Google also does more than just searches)

These simple statistics have convinced me the either Bitcoin is not the future, or at the very least that I really don’t want it to be the future. Bitcoin’s energy consumption doesn’t even depend on the volume of transactions per day but rather on the price of Bitcoin and by extension the profitability of mining. (The difficulty of the hashing problem is set so that a constant number of blocks are mined every hour; if more hashing is done, then the problem gets harder) The more profitable mining is the more money you can spend on electricity to mine. Maybe there are additional and significant market forces I’m not accounting for, but even at the current rate of consumption Bitcoin has the potential to be environmentally disastrous. (however, in places where electricity is already used for heating…why not?)

 

Humans:

When I say that humans are no good at Bitcoin, I mean that we’re not good at computer security (storing keys securely) and that we are very bad at rigorous cryptographic proofs and hard coded contracts. In cryptocurrencies, math decides ownership and humans struggle to understand what exactly they are getting. I think Bitcoin was designed with computers in mind, not humans.

The only time when it really matters that you “own” a Bitcoin is when you try spending it. When you do that, you have to convince the network cryptographically that the bitcoin is yours to spend. Putting aside “weary giants of flesh and steel” all you need to use a bitcoin in a transaction is the key. The networks doesn’t care how you got it, if it’s yours or if you stole it or “hacked” it by beating the crypto. If you can produce the proper key, the transaction goes through and it’s carved into the ledger and the only way to reverse that would be to convince a majority of nodes that it never happened.

Laws of flesh and steel might disagree but the whole point of cryptocurrencies is that the proof is in the math and not the courts or government. Of course if I spend your bitcoins, then the law can make me pay you back or throw me in prison etc. and this is no different then if I spend your dollars but at that point why do we even bother with cryptocurrencies? How is Bitcoin better than dollars if cryptographic proof means nothing if the law disagrees? Sure, Bitcoin also does away with central banks and currency manipulation, but if the law decries that the 21 million bitcoin cap is too low, and if the law has the coercive power, what’s stopping it from adding another million? Perhaps there are answers to these questions or perhaps reality will just be a compromise where the math nearly always counts but the law corrects theft indirectly (not forcing anyone to return spent bitcoins but to repay the same number of coins). But this still doesn’t seem like quite the dream of a truly decentralized currency.

The other example on the subject of humans that interests me is the DAO “hack”. This “hack” happened when some clever fellow figured out that there was a discrepancy between what people thought the DAO’s Ethereum contract did and what it actually said. As it turned out, the contract made it possible to take ether (Ethereum coins) that the humans involved would say aren’t your’s, but the code (the contract) said sure. As I understand flesh and steel contract law, contracts can be ambiguous and the exact meaning of clauses can be interpreted in different ways and in such cases the courts decide. Like with Bitcoin, kind of the whole point of Ethereum contracts is that they are algorithmic and deterministic; there is only one interpretation. If the humans involved don’t understand this one true interpretation then there might not be anything they can do once they “sign” the contract. In this case of the DAO, this is exactly what happened.

Rather than accept the loss, the humans involved in Ethereum and the DAO decided to erase the mistake from the ledger and perform a “hard fork.” A majority of nodes agreed and the “hack” was mostly undone. But here again I ask why even bother with the blockchain? We already have a tried and tested system in place to resolves conflicts regarding contracts. Maybe the courts are inefficient or bad but shouldn’t we then focus on changing them rather than using some infallible code and then deciding it was wrong after all? It would be silly to say that we have learned from the DAO and will never make such mistakes again. Of course we will because if we were so great at contracts then litigating flesh and steel contracts would be really easy (the correct interpretation would be obvious). Again, maybe I’ve overlooked perfectly good answers to these questions but for now if someone asks me if I think cryptocurrencies and blockchains are the future all I can do is shrug and say, “I donno, probably, but not really.”

 

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