A hard look at the wastefulness of "proof of work," the idea at the core of the blockchain

David Gerard is a technically minded, sharp-witted, scathing critic of Bitcoin and other cryptocurrencies; his criticism is long, comprehensive and multipartite, but of particular interest is is critique of "proof of work" (an idea that is central to the blockchain, but which many cryptographers are skeptical of).

It's proof of work that makes Bitcoin so energy-hungry; the way the system is designed, it becomes less energy efficient the more useful it becomes: that's because the amount of time between new coins being minted remains static regardless of how much mining is going on, so as more people use Bitcoin, each coin becomes more energy-expensive. No amount of renewables, or better hardware, or similar improvements will change this fact: if a breakthrough in ASIC design means you can mine twice as fast, the system will compensate for it by requiring you to mine twice as much.

Many people have pointed this out before (including Bitcoin pioneer Hal Finney), but what distinguishes Gerard's critique is that he goes beyond discussing the problems with Bitcoin and proof of work, and comprehensively addresses the arguments raised by Bitcoin proponents who say that this just isn't a big deal, or that it's fixable.

Saifedean Ammous’ book The Bitcoin Standard goes further — proof-of-work is good and necessary because it spends so much electricity to generate bitcoins (pp. 218-219):

Although solving these problems might initially seem a wasteful use of computing and electric power, proof-of-work is essential to the operation of Bitcoin. By requiring the expenditure of electricity and processing power to produce new bitcoins, PoW is the only method so far discovered for making the production of a digital good reliably expensive, allowing it to be a hard money.

The question of whether Bitcoin wastes electricity is at its heart a misunderstanding of the fundamentally subjective nature of value. Electricity is generated worldwide in large quantities to satisfy the needs of consumers. The only judgment about whether this electricity has gone to waste or not lies with the consumer who pays for it. People who are willing to pay the cost of the operation of the Bitcoin network for their transactions are effectively financing this electricity consumption, which means the electricity is being produced to satisfy consumer needs and has not been wasted. Functionally speaking, PoW is the only method humans have invented for creating digital hard money. If people find that worth paying for, the electricity has not been wasted.

That is: proof-of-work is the only way yet found to do the Bitcoin trick. And if people want to spend money on it, not only is that their business and nobody else’s, but it is therefore not a waste.

This assumes the unalterable Bitcoin blockchain is intrinsically worth it, and that externalities aren’t anyone else’s business. The former is highly questionable to anyone who isn’t already a Bitcoin fan, and the Bitcoin fans are having more and more trouble convincing the non-fans of the latter.

Bitcoin’s stupendous power waste is green, apparently — bad excuses for Proof-of-Work [David Gerard]

(via Four Short Links)