Does Bitcoin consume too much energy?

The current market value of all bitcoins in existence (around $80b) is around 0.1% of the total global broad money supply. Compared to narrow money ($28t), it is less than 0.3%. Is building a new form of electronic money for a thousandths of the global money supply worth expending 0.05% of the global energy production?

Whatever our individual answer to this question may be, the answer of the market is unequivocal. If people are willing to pay the miners the market price of bitcoin, then people value the services bitcoin offers them enough to justify the electric consumption. This is, after all, the only way that the market for energy functions. The fundamental starting principle of Austrian economics is the notion that value is subjective. There are no objective ways of determining value, and value can only exist in the mind of people, based on their subjective preferences and understanding of goods and services. For energy to be available for people at an affordable rate, there is simply no alternative to having a free market in its production and distribution. This ensures that the users of the energy get to pay its cost, and so will only pay for it if their subjective valuation of it exceeds the price. In places where markets for electricity are dysfunctional, with subsidies or government-enforced monopolies, such as Beirut, where I write these lines to constant power interruptions, electricity is neither cheap nor reliable. For that, there is simply no alternative to a free market.

To understand the growth of energy as a good, one must understand that it can only really function as a market good, because otherwise the potential to waste it enormous. The extent to which electricity has grown over the past century is extent to which humans have found productive uses for energy and paid for it, and for capital investment to provide it. At every step along the way, someone had discovered a way to utilize the awesome power of energy to create economic value that justified the cost of producing it. As people find more uses for energy, more energy is produced.

The electric washing machine came into the home to save humans enormous amounts of time washing. The car came into the streets of cities to relieve people from living surrounded with horse manure. The personal computer replaced the typewriter, electric light replaced candles, central heating replaced chimneys, and all aspects of human life started to become revolutionized with the application of ubiquitous power at the press of a button. Every one of these innovations required more energy to operate than its predecessors, but people happily paid the cost because it was more valuable, and more productive. The modern world built by the industrial revolution is the product of countless small marginal innovations that have improved our life through increasing productivity with energy.

It is only natural for better technologies to consume more energy, and there is nothing different about bitcoin in this regard. As an apolitical global settlement network with its own automated algorithmic monetary policy, bitcoin is a more advanced technology for performing the functions of central banking than the current government monopolies. In the same way cars and airplanes consume more energy than bikes and horses, bitcoin's monetary system consumes more energy than the central banking system it replaces.

Many bitcoin defenders make the mistake of attempting to compare the amount of energy consumption taking place in the banking system to bitcoin's energy consumption, in an attempt to argue bitcoin consumes less energy. I do not find this comparison accurate, because as discussed in my book, I do not think bitcoin replaces banking, or the functions of banking. It rather replaces central banking, being a primitive and barbarian edifice, consume nowhere near as much energy as bitcoin in the same way outhouse cleaners consume less energy than a sewage system, or horses consume less energy than cars. That did not stop cars from displacing horses, and our quality of life has not suffered from all the extra energy we have "wasted" on cars instead of riding horses. The benefits incurred from this move are incalculable for us, primarily by not having to deal with horse manure as a permanent fixture of life. In a very similar way, the benefits of bitcoin lie in the horrors it would allow us to avoid by taking money production out of the hands of the state's violent Keynesian barbarians.

Should Bitcoin take from one governments the ability to finance one needless war, if it prevents one instance of hyperinflation such as Venezuela from happening, if it prevents one megalomaniac leader from being able to finance his genocide, bitcoin's energy consumption would be the best bargain humanity ever got. If it restores to humanity a sound monetary system outside of government control, and allows us to return to a store of value that appreciates over time, just how much would bitcoin worth?

When making a true cost benefit analysis of bitcoin, the true benefit is not in replacing banks' or central banks' energy consumption. It is rather in returning to a free market monetary standard, and the long-term orientation, individual liberty, restraints on government power, and sound economic system it provides. It is akin to a return to the economic institutions of the late nineteenth century, la belle epoque, arguably the pinnacle of human civilization. In my mind, if bitcoin succeeds as a technological solution immune to control by government, no amount of electricity it consumes could possibly be too much. There are no better uses of electricity imaginable, to me at least.