DT Comment: Last week, we published details about the US governments strategic framework with regard to Cryptocurrency regulation. Today, we reproduce a comprehensive response to the key elements of that announcement from Nic Carter at coinmetrics.io.

As part of President Biden’s executive order, the White House Office of Science and Technology Policy (OSTP) conducted a study into the climate impacts of crypto mining. You can find it here.

I have annotated the study in full. You can find my annotated version by clicking the image below or the link here [pdf]:

Note: I’ve highlighted in yellow text that I am responding to in the margins. I have highlighted in purple claims that I consider to be untrue or misleading. I have also implemented a Pinocchio system (🤥🤥🤥) to qualify the egregiousness of these claims with five being the worst.

I wasn’t able to fully elaborate on my points in the margins, so I’m including some companion notes here. Note: I am not laying out a positive case for Bitcoin mining here. By this I mean a discussion of sustainable power models used by miners, or the propensity of miners to induce new renewables, stabilize the grid, and support location-agnostic energy infrastructure. I have done that in plenty of other places. See an index of my prior work on Bitcoin mining on my website, or the On The Brink mining miniseries. I am just responding to the most egregious parts of the OSTP report.

In the study, there are a few bright spots:

  • The OSTP acknowledges that PoW and PoS may not grant identical assurances, and there remains uncertainty as to whether PoS might be a perfect substitute for PoW
  • The OSTP acknowledges the interesting developments in mining with otherwise-flared or stranded natural gas (often released as an unsaleable byproduct of oil extraction)
  • The report meaningfully acknowledges the contributions to grid flexibility miners can offer via participation in demand response programs
  • The report notes the potential to mine with stranded renewables
  • And importantly, the report offers only lukewarm recommendations

However, the overall effort is weak. The paper is effectively an extended literature review with very little in the way of new data or analysis presented. It relies on a mélange of academia, anti-PoW consultancies like the Crypto Carbon Ratings Institute, and quasi-academic bloggers like the infamous De Vries. Many of the academics cited are conflicted. Virtually no sources from the mining space itself are included. Citing the non-peer reviewed work of (highly conflicted) amateur hobbyists just doesn’t cut it for a purportedly scientific paper. Remember that this report was nominally authored by the “White House Office of Science and Technology Policy.” The report should therefore adhere to a high scientific and academic standard. Relying on non-peer reviewed, non-scientific estimates, especially by individuals with known conflicts of interest, should be an absolute dealbreaker. Unfortunately, this paper does so with gusto.

Virtually no case studies are presented in the report, even though there are many examples of miners operating sustainably, adding power to the grid, taking zero-carbon approaches, and engaging in grid stabilization. There are a number of outright falsehoods in the report, which I’ve highlighted in purple. The report takes an extremely harsh stance on miners utilizing renewable sources, chastising miners for using renewables and laying out an extremely narrow set of conditions where their use would be acceptable. The section on demand response concludes that it’s mostly irrelevant, because miners, in the eyes of the government, are raising aggregate power demand without inducing any additional supply. The section on flared gas mining is a brief olive branch, but the report then concludes that because all oil and gas extraction must be shuttered to meet climate goals, no gas flaring can exist under Net Zero™.

Generally, the subtext is that because mining is a “bad” usage of power, it doesn’t matter if you promote grid stability, or use renewables, or even mine off-grid with stranded resources — you’re not welcome here, and you should buzz off.

Some of the chief issues are as follows:

  • Presenting virtually no new data
  • Ignoring contributions of industry subject matter experts
  • Relying on the partisan De Vries / Digiconomist
  • Relying on the conflicted Gallersdorfer, Klaassen, and Stoll
  • Citing the absurd Mora et al 2018
  • Urging caution on data while using it recklessly
  • Pushing a “can’t win” approach to miners using renewables
  • Refusing to project Bitcoin’s energy consumption trajectory
  • Making stupid and counter-productive recommendations

I’ll tackle these main issues in turn.

The White House presents virtually no novel data

This report is mainly regurgitation of data presented (and in some cases dreamed up) by academia and bloggers. I can tell that the authors have very limited experience with the debates around PoW, or are being lazy in their approach and citing folks willy-nilly, because they cite Mora et al 2018 (genuinely unforgivable) and have an extremely heavy reliance on De Vries/Digiconomist, as well as Stoll, Klaassen, and Gallersdorfer. The Mora reference is shocking. It’s a bit like reading a scientific government report on the history of the moon landing and finding a reference to a conspiracy website claiming that the entire thing was faked.

To get to the bottom of Bitcoin’s (we can ignore everything else, since post-merge, only Bitcoin will remain as a meaningful PoW blockchain) energy consumption, likely future trajectory, and emissions profile, you will need to do some original work. This report contains very little.

The battle lines are already drawn. We have data from hostile academics that are highly partisan and conflicted in many cases, and then data from industry groups like BMC. The report glowingly cites the former as if the data (which includes massive uncertainties, which I’ll delve into later) is settled science. It’s not. If OSTP wanted to make a mark on the debate instead of just repeating De Vries, they should propose some new data of their own.

The White House totally ignores any contributions from industry subject matter experts

So this is to be expected. The OSTP doesn’t cite any of the great work on mining done by Coinshares. They don’t cite Bitcoin Net Zero by Ross Stevens/NYDIG and myself — even though they ask for help modeling Bitcoin’s future energy and emissions profile. They don’t cite Arcane Research, even though the OSTP covers many of the topics where Arcane demonstrates helpful expertise. They don’t cite any of the data aggregated by the Bitcoin Mining Council, which aggregates sustainability data for half of the Bitcoin mining network.

Now you might say “well the OSTP can’t just rely on partisan data and commentary written by industry participants. They adhere to a higher standard of academia and rigor.”

That is where you’d be wrong.

As I will further demonstrate below, the OSTP is relying on the following in this report:

  • The personal blogs of a Dutch Central Bank employee with a widely documented antipathy to the subject matter and a clear anti-crypto motive
  • Non-peer-reviewed content published in the “commentary” sections of journals like Joule and Nature Climate Change
  • Non-peer-reviewed journal content published by authors with a serious, commercial conflicts of interest
  • Non-peer-reviewed journal content written by undergraduates, thrice-debunked in its own journal, widely considered junk science
  • Reports published by a for-profit ‘carbon ratings institute’ listing numerous Proof of Stake cryptocurrencies as clients — indicating a clear anti-PoW bias

These aren’t just one or two stray citations. These questionable sources (which I will elaborate on below) constitute dozens and dozens of citations, and in some cases constitute sole support for claims made in the paper. The OSTP is perfectly willing to rely on estimates published by conflicted individuals with clear commercial interests that incentivize them not to pursue the truth. They are also willing to publish non-academic and non-peer reviewed, vaguely academic content. So if their reasoning to the total stonewalling of crypto industry-derived content is “it’s not sufficiently academic,” or “they have competing, commercial motives,” this applies to the crypto-critical sources they’ve relied on in this report too. Ignoring the industry leaves the report starved of current data and analysis from subject matter experts. It is ultimately individuals and firms that are direct participants in or adjacent to mining that best understand the reality on the ground. Including these perspectives would have saved the authors many blunders (enumerated in the annotated version).

Additionally, the total exclusion of industry sources reinforces the fact that this report is almost completely one sided; that is, it is deeply hostile to Proof of Work.

Reliance on De Vries / Digiconomist

The De Vries body of work is neither academic, scientific, nor unbiased. He is a blogger who works for the Dutch Central Bank (an anti-crypto institution), an affiliation he routinely fails to disclose on his papers. He maintains an extremely antagonistic outwards stance towards his subject, Proof of Work cryptocurrencies, evident in his tweets. His Digiconomist website is just that — a personal website. It’s a hobbyist project run by an obviously conflicted individual. It’s not academia tier, not even close. His motive and mission is to exaggerate Bitcoin’s climate impact, whether it’s energy consumption, emissions, or e-waste (the White House paper cites him heavily on all three topics), which he does with gusto.

Quite simply, citing him at all is completely inappropriate for a purportedly scientific study. He is not a climate expert; he is not an authority on mining; he is a data scientist who works for the Dutch Central Bank. Most of his papers are published as “Commentary,” often in the journal Joule. These “Commentary” articles are not subject to peer review. They are basically glorified blog posts that happen to be hosted on the journal website. The Joule editorial team freely admits that Commentary articles are Opinion. Science, they are not. Let’s investigate a few of De Vries’ citations in the White House document:

  • Bitcoin Energy Consumption Index: personal blog, not peer reviewed (cited over a dozen times)
  • Revisiting Bitcoin’s Carbon Footprint, with Gallersdorfer, Klaassen and Stoll (2022) — commentary in Joule, no required peer review
  • Renewable Energy Will Not Solve Bitcoin’s Sustainability Problem (2019) — commentary in Joule, no required peer review

These look to the uninitiated observer like peer reviewed scientific papers. In fact, they are non-reviewed blog posts in scientific garb. You’d think the White House Office of Science Policy might be exercising more caution and perform a cursory review of the resources they are citing. Maybe they don’t care.

This “commentary” trick is also done by De Vries collaborators Gallersdorfer, Klaassen, and Stoll, for instance in their 2020 article (of course cited in the OSTP report). It’s a common way to launder sciency claims into the scientific literature and press without actually facing any scrutiny for those claims. Journalists almost never verify that the articles aren’t actual scientific journal articles.

As for Digiconomist, it’s even more straightforward. It’s just not science. It was even rejected as a valid citation by Wikipedia for the energy section of the Bitcoin page (thanks to Level39 for pointing this out). As a hobby website/blog it is not rigorous. When fact checked by industry experts it is frequently shown to be erroneous. Its estimates are consistently far, far above those issued by more rigorous academics. But the White House Office of Science is much more permissive and is willing to accept De Vries’ amateur assertions as fact.

De Vries is cited 16 times in the document. Digiconomist is cited 23 times. Collectively, this makes De Vries the #1 source for the White House report. The far more authoritative, less exaggerated, and genuinely academic and neutral (taking no industry financing) Cambridge Center for Alternative Finance is cited 10 times.

Take table A4 in the appendix, which purports to compile GHG emissions for a number of cryptocurrencies from an array of academics. Of the 24 datapoints cited, fully 58% are De Vries/Digiconomist, one is Mora et al 2018 (basically tinfoil hat climate trutherism — more on that later), and one derives from the questionable Stoll, Klaassen, and Gallesdorfer. So that’s 16/24 cited datapoints in the table that are extremely questionable or completely meritless (I can’t overstate the absurdity of Mora’s paper in particular).

To address the substance of De Vries would take an entire dissertation, because his strategy is to generate a huge volume of material and claims, all of which take far more energy to rebut than they do to dream up. There’s three broad claims the White House relies on for De Vries/Digiconomist. Energy consumption estimates, emissions estimates, and e-waste estimates. Each has been dealt with elsewhere capably, but I’ll address them briefly.

1) Energy consumption

De Vries’s guesses come in way, way higher than his more credible peers. Look at the table A1 in the appendix: De Vries comes in at 144 TWh/y for Bitcoin versus Cambridge’s 88 TWh/y. For ETH, De Vries guesses 93.9 TWh/y versus Kyle McDonald’s 22.9 for the same time period. His estimates are consistently far, far higher than competing ones by other researchers. (He biases the estimate upwards for Bitcoin by assuming that the average ASIC hardware on the network is very old and hence inefficient, requiring more electricity per unit of hash than a newer fleet would.)

More generally, the energy consumption model De Vries relies on (that the White House is citing here) has been heavily, and in my opinion fatally, criticized by Ben Gagnon, the Chief Mining Officer at Bitfarms. The De Vries model doesn’t actually follow its own stated methodology. It didn’t reflect changes in the actual Bitcoin network in 2021, indicating that De Vries was manually tuning the model to make it show a higher energy consumption figure than even the model would have outputted. There’s additional issues with De Vries’ assumptions around hardware too: he contradicts himself, claiming at once the hardware turns over extremely quickly with his e-waste estimates, yet claiming Bitcoin has a very old fleet with his energy estimates.

2) E-waste

The e-waste claim, which relies entirely on a De Vries paper, is just absurd. De Vries flips from thinking the Bitcoin ASIC fleet is extremely old with his energy consumption estimates, to thinking that it turns over very quickly — falsely assuming in the e-waste paper that Bitcoin ASICs are fully depreciated and junked every 1.3 years. This 1.3 year estimate comes from a misapplication of Koomey’s law, a completely irrelevant observation about the historical growth in the efficiency of computers. This obviously has nothing to do with ASICs specifically, and cannot be used as the basis for a top-down estimate of e-waste. We have plenty of real, actual data on how long ASICs last. Certain vintages, like the s9, were still chugging away 5 years into their lives in 2021. These are machines that you turn on and spit out money. Someone will always run them, if they are producing above breakeven given electricity costs. This is why — contra de Vries — there is a vibrant secondary market for ASICs. Older models get “retired” from initial buyers to operators who have low electricity costs and who can still run them profitably.

This 1.3 full depreciation — and trashing of ASICs! — assumed by De Vries is a premise completely out of step with reality, easily determined if you to talk to miners or read their public disclosures or look at the secondary market. ASICs aren’t thrown away when they are old, they are sold on in the secondary market. They contain virtually no toxic parts and can be recycled (they are mostly aluminum by weight). I address the e-waste paper from De Vries and Stoll more fully in this letter to the EPA — signed by the CEOs of many large financial institutions active in the Bitcoin space. (Skip to section 7 in the letter)

3) Emissions

De Vries makes many estimates regarding cryptocurrency emissions, rather than just energy use. This is extremely questionable, and there’s a reason few academics do this: because we don’t have energy mix data which would be necessary to derive an emissions estimate. The Bitcoin Mining Council publishes some data on miner sustainability via voluntary disclosures covering about half the network — this is ignored in the White House report — but this alone isn’t sufficient. To estimate emissions, you’d need to know what power source miners are actually using. Many miners are foreign and run by private entities. Unlike the subset of the network that is run by publicly traded companies in the US, these private firms don’t disclose much about their energy inputs. So emissions estimates are extremely vague, to the point where presenting that data without extreme caveats is irresponsible. Generally, they are based on average energy mixes in regions where miners are located. But this is questionable, because miners often use highly idiosyncratic local energy sources (eg, collocating with a hydro dam), and they disguise their locations, so IP-based tracing is not reliable.

Cambridge, an authority on Bitcoin energy consumption, has so far held off on making any kind of emissions estimate for Bitcoin mining because that would require distinct bottom-up knowledge regarding miners’ energy mixes. So emissions estimates that the White House cites are from the most aggressive and least rigorous sources, like De Vries, who are happy to interpolate (always in favor of higher, scarier numbers) and make wild estimates. Most actual academics mostly shy away from making these guesses. You can’t “debunk” this with real data, because the data doesn’t exist. The correct attitude would be to admit you don’t know and wait for more data, rather than relying on some wild, inappropriate energy mix assumption.

So what should the White House have done? The better approach would have been to rely on credible, non-conflicted actual scientists and academics. For instance, Cambridge’s estimates are academic, nonpartisan, and widely cited. Of course, they don’t make fantastical claims about GHG emissions associated with Bitcoin, because it really isn’t possible to make any estimates like that with any confidence. Naturally, the OSTP sought to amplify the most exaggerated, sensational claims about Bitcoin’s climate impact. Merely academic ones are of little interest to them.

The OSTP may not care that the #1 source they are relying on is the non-academic, largely non-peer reviewed work of a Dutch Central Bank employee (who appears to have no practical knowledge of Bitcoin mining). But they should, because this fact alone discredits their paper. Many sections of the report rely entirely on De Vries’ wild guesses.

Reliance on Gallersdorfer, Klaassen, and Stoll

These three academics (who also collaborate at times with De Vries), also rely on this same trick of getting blog posts published in journals under the “comment” section. Their tactic is actually more insidious, because rather being motivated by an anti-PoW ideological crusade like De Vries, they actually do cash in on their academic efforts with a consultancy called the Crypto Carbon Ratings Institute (CCRI). The basic model appears to be the following: obtain credibility by publishing quasi-academic work lambasting the emissions associated with PoW, and use that to sell ESG-focused reports to help Proof of Stake blockchains [pdf] launder their reputations. These blockchains can then proudly proclaim themselves green (even if a financial consortium happily claiming to be green because it’s NOT Bitcoin is an absurdity), armed with a report from verified academics™ with a track record of publishing on PoW (never mind that many of the articles aren’t peer reviewed).

GKS are cited in the White House report as well as the CCRI directly. Shockingly, the CCRI Report [pdf] referenced in the OSTP paper, Energy Efficiency and Carbon Footprint of Proof of Stake Blockchain Protocols, was actually commissioned by the PoS blockchain Avalanche. Avalanche was founded by longtime PoW antagonist Emin Gun Sirer, and the protocol aggressively markets itself on the basis of its supposed sustainability. Commissioning reports from the likes of GKS to greenwash Avalanche is part of the normal playbook for PoS blockchains. It is remarkable that the White House would cite such a clearly conflicted report though.

I am not ultimately that concerned about GKS’ rather transparent grift. What does trouble me is the OSTP ignoring all data originating with the crypto industry, as if it’s tainted by capitalism, yet embracing data that is clearly biased in the opposite direction — in this case, by consultants selling anti-PoW, pro-PoS reports to PoS blockchain clients.

As for the rigor of their work, it’s questionable. It goes without saying that the CCRI reports cited in the OSTP report (footnotes 40 and 67, as well as repeatedly in the Appendix table A1) are completely non-academic. Stoll collaborates with De Vries on the infamous e-waste article (addressed earlier). The report cites the 2022 Revisiting Bitcoin’s Carbon Footprint, featuring De Vries and each of GKS, which is published as Commentary in Joule (non-peer reviewed). Energy Consumption of Cryptocurrencies Beyond Bitcoin, cited in the report, also appears in Joule as Commentary.

Citing Mora et al

There’s not a lot of things that can shock me here, but the inclusion of Mora et al as a citation really did surprise me. It’s well-known as probably the worst paper ever written on the topic of Bitcoin’s emissions impact. Entitled “Bitcoin emissions alone could push global warming above 2°C,” Mora et al is a running joke in the mining space.

Mora et al 2018 is part academic fraud, part performance art. It was written by undergraduates (Mora himself reportedly didn’t actually contribute to the paper, just lent his name to it so it would get published) as a class exercise in “how to get a paper published”. The paper itself, if you care to read it, is completely ludicrous. It supposes a model of Bitcoin that bears no relation to Bitcoin at all, and gets an obviously erroneous result (Bitcoin will increase the earth’s temperature by 2 degrees). I discuss it in this video and in greater detail in this blog post.

It’s worth noting that the Mora et al paper also appears as a probably-not-peer-reviewed ‘Comment’ in the journal ‘Nature Climate Change’. And if you actually read the paper, it’s hard to miss the three rebuttals included right there on the journal page. I’ve helpfully pointed them out so the OSTP can find them.

If only there was a sign that something might be amiss

Easy to miss, I know.

If you read them, the rebuttals completely discredit the paper. The fact that this paper is still up, unredacted, is quite remarkable. Maybe because Nature Climate Change doesn’t really care that a blog post written by some undergraduates turned out to be unscientific garbage. Again, the problem is really that the OSTP figured this would be worthy of inclusion in their study. I’m sure they didn’t read the paper, because any sane person would realize how completely ludicrous it is. The problem is that they are further validating it by citing it and using it to bolster their arguments. I hope this is a case of ignorance rather than malice on the part of OSTP, but either way, it isn’t encouraging.

Deeply conflicted approach to data

The report stresses in many places the uncertainties involved in these estimates. That’s a step forward from the old model of governments simply rebroadcasting lunatic estimates or projections around Bitcoin’s climate impact and using that to set policy.

But the report fluctuates wildly between characterizing wild guesses from the likes of De Vries as fact, and then saying the estimates are uncertain and data is lacking. In places where we could have reasonably good models, like estimate Bitcoin’s future energy consumption (see the next section), they refuse to make an estimate.

Even though the report does emphasize data gaps and stresses the epistemic limitations of this topic, the authors are generally undeterred and plow ahead with naked assertions. Consider their assertion on page 6 around the emissions of major cryptoassets. There’s no footnote. It’s just a statement of apparent fact. Turns out it’s a Digiconomist estimate (which you have to do a fair amount of detective work to figure out, given the odd lack of footnote). So on the one hand, the OSTP is saying that the data is complicated and nuanced. And on the other, they’re making naked assertions regarding the most complex and nuanced piece of the entire debate (emissions estimates), and ones that are based on the Digiconomist, no less!

Another example of this is the report’s coverage of Texas. Texas represents a narrative violation when it comes to crypto mining; Bitcoin miners in Texas are aggressively going after cheap energy in West Texas particularly, which is a consequence of a massive renewable buildout (driven by federal subsidies) paired with a lack of local demand and insufficient long-distance transmission to load centers. Bitcoin miners in Texas are scooping up negatively or 0-priced energy, and opting into demand response programs such that they are offline during grid scarcity events. In short, they pay for cheap power that no one else will pay for (thus improving the economic profile of new renewables), and they don’t compete with households when energy is scarce. There isn’t a better energy buyer you could hope for.

The report however opts to cite erroneous figures in order to imply that miners are imminently taking over the Texas grid. They do this in multiple places. Here’s one such passage:

Texas, and has a peak summer electricity demand of about 76 gigawatts (GW), and current crypto-asset mining activity of about 2 GW. ERCOT has about 17 GW of crypto-asset facilities that are in the process of connecting to the grid, with an expected 5 to 6 GW of new demand in the next 12 to 15 months (equivalent to the power demand of the city of Houston). ERCOT may also see an additional 25 GW over the next decade. While many of these projects may not be completed, the prospect of up to 25 GW of new electricity demand from crypto-asset mining equivalent to a third of existing peak electricity demand in Texas raises potential challenges for maintaining electricity reliability, especially with rising power demands and extreme temperatures over recent years.

These numbers are huge. Seventeen gigawatts of power is an enormous quantity. As they helpfully point out, 25 GW would be equivalent to five Houstons. The only problem with this section is that the data is completely false.

ERCOT does not have 17 GW of crypto data centers that are in the process of connecting to the grid. There will most likely not be 5–6 GW of Bitcoin mining data centers connected in ERCOT in the next 12–15 months. ERCOT will not see 25GW (1.7 current Bitcoin’s worth) connected over the next decade. This 17 GW number in particular refers to non-binding, non-secured requests made speculatively to ERCOT. Nowhere near that amount of power actually stands to come online.

Every TX-based miner I connected with told me that the OSTP report numbers as described are erroneous, and the quoted 17 GW figure from ERCOT is deeply misleading. To confirm, I reached out to Lee Bratcher at the Texas Blockchain Council, arguably the organization with the most complete birds-eye view of mining in Texas. Lee related me the following:

Yes, we’ve asked the ERCOT Comms team to stop giving out that number without any context. There is currently between 1.5 GW and 2 GW of bitcoin mining in Texas. Another 2- 3 GWs could come on in the next few years. The 17 GW and 25 GW numbers are simply interconnection applications. Those do not require security to be posted. We are working with the utilities like Oncor and AEP to see if they would be willing to give an aggregated and anonymized number of who has posted security for their site. My guess is it would be around 1 GW of that 17–25 GWs that has actually posted any kind of collateral. Unfortunately the White House and the media are not interested in that nuance though.

Shaun Connell, EVP power at Lancium, a Texas-based data center company focusing on renewables, echoed Bratcher’s points. He told me that there was no financial cost for large putative loads to make requests to ERCOT to review new projects. Only once ERCOT greenlights the project does the applicant have to decide whether to move ahead and make the investment. So you had miners applying for the same massive project several times over with different utilities, hoping ERCOT would approve one.

Getting a request in the interconnection queue is a matter of submitting an Excel spreadsheet. There’s no meaningful filter or cost to doing this. Of the 8 GW in the territory of the utility Texas-New Mexico Power (these requests are evaluated jointly by ERCOT and the local utilities), 1 GW has been evaluated and only 50 MW have been approved so far. So that 2% yield should be understood as indicative of what you might expect in terms of energization.

So basically anyone — a miner, or broker trying to tout these contracts or relationships, could make a connection request to ERCOT at virtually no cost. During the bull market froth of 2021, there was a huge incentive to demonstrate confirmed capacity with ERCOT, even if it was just a trivial request for which no collateral had been posted.

From a more conceptual perspective, believing that 17 GW of new Bitcoin hashrate is imminent doesn’t make sense for other reasons. All of Bitcoin uses around 15 GW globally. If you more than double that, with new hardware, hashrate would increase by 3–4x. That massively compresses miner margins, and would lower the electricity price at which miners are breaking even. Adding this 17 GW would push miner breakevens to levels below average power prices in Texas. So the OSTP is basically positing that miners would expand their business well into the territory where they are guaranteed to lose money. This simply makes no sense.

The OSTP forgets that bitcoin mining is a business, and miners need to make money, or they will close up shop. The market size is bounded by the value of the Bitcoin rewards available to miners. This is a very real constraint on the amount of investment miners are willing to make.

The reality on the ground couldn’t be more different from the apparent apocalypse the OSTP is forecasting. The current status quo in ERCOT is a much slowed deployment pace, given worsened miner economics, a weaker capital markets environment and higher energy prices that further reduce the appetite of miners to build.

It’s also worth noting that the report assumes that energy is geographically fungible, as if a miner active in West Texas is depriving a household in Dallas of electricity. This isn’t the case; there is limited transmission from renewable-rich West Texas to the DFW triangle, explaining why power prices so frequently diverge between the two regions. Electricity decays with distance. Absent further high voltage transmission (and ERCOT’s CREZ, capable of carrying 15 GW, is already at full capacity ), you will inevitably develop local pockets of energy that simply go unused. Texas is a perfect case study showing how Bitcoin miners can surgically target these low-priced energy pockets. This is a category of energy I have dubbed ‘nonrival,’ because it doesn’t compete with other load centers at all; it’s only accretive, increasing the economic incentive to build more.

The debate really does suffer from a shortage of data, that is true. But the government isn’t exactly taking a welcome stance and inviting miners to collaborate with them in data sharing initiatives. Instead, they’re lambasting the sector, using junk data from fake academics or data that is simply erroneous, and threatening to ban the entire industry. If they had bothered to engage with actual miners with a knowledge of the Texas grid, they wouldn’t be making such mistakes.

“Can’t win” approach to miners using renewables

Probably the most frustration portion of the report concerns miners utilizing stranded natural gas or mining with renewables. Basically, the report dismisses all the efforts of miners to decarbonize their operations, laying out extremely narrow conditions in which mining with renewables might be considered acceptable. Suffice to say, I’ve never encountered the government insisting on conditions this stringent to any other buyer of grid electricity. Given that the report considers a full ban on mining in the US, the dismissal of miners’ genuine efforts to decarbonize should be deeply alarming. The OSTP sets them up to fail with a “can’t win” approach.

1) Dismisses flare gas mitigation

Despite a token admission of its usefulness, the report generally dismisses the merits of mining with otherwise flared or vented natural gas. First, the authors betray ignorance of how flared gas mitigation actually works. On page 24 they claim that mining with otherwise-flared gas doesn’t affect emissions one way or another. This is false: miners incorporating flared gas are able to combust the methane with a near perfect combustion efficiency, whereas generic flaring is low efficiency, especially in windy conditions. This is well documented in the literature. Thus, with flaring methane (a far more potent greenhouse gas) ends up vented anyway. Bitcoin miners are able fully combust the methane and convert it to energy and CO2. This is a direct improvement from an emissions perspective; it’s not merely emissions neutral like the report maintains.

The report also claims that the methane ought to be used for other uses, like hydrogen production, or that it should be exported via pipeline. This is a completely markets-blind claim. If the methane were market relevant, it would have been piped out. Many of these installations — the ones most suitable for flared gas mitigation — are off grid and have no pipeline infrastructure. Methane is a byproduct of oil extraction and it is not always the case that there are pipelines ready to go near a wellpad, nor is it necessarily economical to construct them. “If I were you,” the government is saying, “I would simply pipe out and sell the gas.” I am sure miners reading the report will appreciate the helpful tip.

Regarding grey/blue hydrogen (or other location-agnostic use cases) the OSTP should rejoice. Several Bitcoin miners have already announced their plans to build repurposable energy infrastructure that could be used for hydrogen product, if that market further develops. The fact is, the hydrogen market is generally not cost competitive with Bitcoin mining, especially as it requires additional physical infrastructure (you can just mine the Bitcoin into the cloud and sell it immediately. Getting the extremely flammable hydrogen to market is a bit more challenging). Bitcoin is just more location agnostic. OSTP again misses the mark by ignoring the insights of actual practitioners on this topic.

Third, the report goes on to dismiss the flared gas mitigation use case entirely by flatly asserting that “climate policy aligned with achieving net-zero emissions would have zero methane venting and zero methane flaring.” How convenient! According to the Net Zero Trajectory that we are all apparently on, the world will magically have no flaring, so mitigating the emissions associated with flaring or venting isn’t commendable.

Notwithstanding the Malthusian lunacy of a climate policy that purports to eliminate all oil extraction (of which waste natural gas is a byproduct), this statement is both myopic and utopian.

First, there’s no way to enforce a global ban on O&G, no matter how much the OSTP bleats about net zero. If the US bans all oil domestic and gas extraction, then competitor groups like OPEC would simply reap a massive windfall. (This would also put the US into the unenviable position of losing all energy sovereignty, a truly disastrous state to be in as our European allies are just learning.) In that scenario, mining with otherwise-flared gas would still be relevant, just overseas.

If the US bans flaring entirely, and, say, insists that all waste natgas is piped out from oil wells and brought to market, it will effectively be a subsidy to foreign oil producers that don’t share America’s flaring qualms. Foreigners will be able to mine more cheaply, because they will not be burdened with this additional step of building gas pipelines whenever they want to drill a new oil well. So the US will just be effectively imposing an artificial tariff on its on oil production and obliquely funding Russia, the Saudis, etc.

Maybe this is what the administration wants — the US disempowered, dependent on foreigners for essential petroleum (we aren’t deprecating this any time soon, all heavy industry depends on diesel, and planes still require jet fuel), and uncompetitive on the global markets. So if that’s their objective, by all means, illegalize flaring. But flaring will occur as long as oil is extracted from the earth, and miners will still be there to improve the emissions profile of that waste gas, and put it to use economically. And if the government thinks that miners should be producing grey hydrogen with that flared gas instead of Bitcoin, they are basically saying that the market is wrong.

2) Claims that using stranded renewables inhibits transmission

This is a wild one. The report claims that, basically, miners using stranded energy (as they famously do in Texas and other places with abundant renewables, which is well-documented at this point) means that there won’t be enough price signals for grid operators to know where to build transmission.

Using curtailed electricity can provide additional revenue to renewables developers and incentivize the construction of additional renewable energy capacity. However, it can also reduce the financial incentives to construct transmission from these renewables to existing users, or reduce the incentives to store excess renewable electricity to use when demand is higher. In addition, crypto-asset miners would not be likely to operate only during periods of curtailment, requiring consumption of grid electricity at all other times.

This is quite the claim. Basically, the government is saying that miners buying renewable energy — even if curtailed or undermonetized — isn’t praiseworthy, because that inhibits the signal to build more transmission.

Right. If only we had some kind of a sign that areas with lots of renewables (typically far from load centers) need to be linked to areas with lots of demand for electricity.

Real time ERCOT prices show divergences driven by insufficient transmission

This is a chart of electricity prices in Texas on April fifth of this year. Notice how the west has instances of negative pricing (This is due to tax credits which compensate renewables for power generated regardless of local prices. This requires prices to be negative before its uneconomic for them to generate power), and the south and east is paying massively high prices? This is because electricity can’t just be teleported. If it needs to move long distances, it needs to be transported through long range, high voltage transmission, of which there is only a finite amount. So the market cannot clear at a single price.

As renewables further penetrate US grids, the cost of generation will go down (as renewables do not have marginal costs like electricity) but the need for transmission will go up. Bitcoin miners help monetize some of these renewables, but they don’t fix the core need for transmission. And I can assure you, grid developers can figure out where to put them. The signal is perfectly clear. The inhibitors are really just a lack of political will, NIMBYism (no one wants transmission lines in their back yard), and of course financial costs.

3) Gives miners no credit for subsidizing a renewable buildout

Lastly, the report dismisses Bitcoin miners buying renewables, adopting a weirdly rigid and unrealistic attitude to power:

When a crypto-asset mine purchases electricity from existing renewable sources, it displaces the GHG emissions in the near-term, shifting users of renewable sources to fossil fuel sources. This is because coal and natural gas often supply electricity generation for each additional unit of electricity demanded in the United States. As the amount of renewable sources is held constant, but electricity demand increases, additional fossil power will likely be dispatched. This displacement results in no net change or in increases in total global emissions through a process called leakage.

Given the report’s earlier insistence on the ‘electrify everything’ school of thought, it’s truly odd that they take such a zero sum approach here. Basically, the OSTP claims that buying renewable power just forces other grid consumers to buy thermal power, so it’s a wash. This assumes, wrongly, that:

  • Bitcoin miners aren’t subsidizing the addition of new renewables in any way. This isn’t true. For instance, Aspen Creek is just one example of a miner that focuses on mining with renewables with additionality, meaning that they are bringing new power to bear, and only consuming part of it.
  • Electricity is geographically fungible; that is, it can be transmitted anywhere at no cost instantly. In reality, power needs transmission and ends up trapped in pockets throughout the grid. Miners buying this power when it is negatively or cheaply priced are directly improving the economics of these renewable installations, and making it easier to justify building more.
  • There are no ancillary benefits to having a flexible load on grid. This isn’t true either. Miners are a uniquely responsive load that can enhance grid flexibilization. Ever more renewable grids need massive flexibility from both the supply AND demand side. Miners can do this better than any other load resource, period. Here’s a great paper explaining this. More flexibility = more renewable penetration.

Indeed, a heavily renewable grid must be overbuilt to several times its nameplate capacity, because wind and solar are so intermittent. So in the glorious Net Zero future, there will necessarily be a massive overbuild of renewables. Having day-1 buyers for these renewables, especially location agnostic ones which can travel to the generation source, fundamentally improves the economics of these new buildouts. The report implies a scarce, zero-sum world, where the available power is fixed. This isn’t the case, nor is it even consistent with statements made earlier in the very same report! To achieve a real emissions reduction, tons of renewables will need to be built and grid flexibility will need to increase. Bitcoin Miners directly and indirectly help achieve both of these objectives.

Refuses to even take a guess on future energy trajectories

While the OSTP House is willing to repeat De Vries’ unscientific fever dreams about Bitcoin’s emissions with no issues whatsoever, they oddly draw the line at projecting future energy usage. This is a really odd move, because doing a back of the envelope projection for Bitcoin’s future energy demands is really very simple, and should be within the reach of the Scientists at the OSTP.

Refusing to propose any model at all helps the OSTP’s anti-crypto case, because it leaves future crypto energy demands wide open to the imagination. Most people, if not guided by reasonable models around future usage, tend to panic, relying on linear extrapolations of prior energy usage growth into the future. Most people, however, are ignorant of the effect of the halving, the declining growth rate of price, the effect of rising energy prices on consumption, and the real-world constraints to price growth and fees. These models — provided generously by industry, which the government has chosen to disregard — show that even under the most optimistic price models, it’s very unlikely Bitcoin becomes a ravenous energy basilisk.

In fact, in my own Bitcoin Net Zero report (coauthored with Ross Stevens of NYDIG), we find that even in the “high price” scenario of gold parity (which would price Bitcoin around ~$500k per coin!) Bitcoin mining doesn’t even reach 0.5% of global primary energy consumption.

None of this is complicated. Proof of Work is really just Bitcoin, so we can ignore everything else. For price, you can generate a few scenarios over a certain timeframe — say, you think Bitcoin might match gold’s capitalization in 15 year’s time. You already know the supply ahead of time. You then determine what you think fees might be, given historical trends. Right now, they are de minimis, but you can assume generously that fees will pick up again. Then you simply determine what share of revenue miners are likely to spend on pure electricity. This data is also attainable from historical trends. It varies, but if you think ASICs are likely to be more commoditized over time and miners will focus more on opex rather than capex, electricity spend might head to 50–70% of their revenue. Those are all the tools you need to construct a simple energy consumption estimate. I am not including an excel file — I trust the Office of Science and Technology Policy can do that part?

Generating energy mix projections and hence emissions trajectories is much more difficult, but you can always just use the generic US carbon intensity, which you expect to become more renewable anyway. (Even though many miners are low or zero carbon, especially newer ones). There you have an easy back of the envelope estimate. No need to fearmonger and pretend that Bitcoin miners in west Texas will be depriving hospitals in LA of electricity in the hyperbitcoinized future.

There are many ways to skin this cat. The OSTP, with all its abundant resources, doesn’t even try.

The OSTP recommendations are stupid and counter productive

The report recommends the following:

The Environmental Protection Agency (EPA), the Department of Energy (DOE), and other federal agencies should provide technical assistance and initiate a collaborative process with states, communities, the crypto-asset industry, and others to develop effective, evidence-based environmental performance standards for the responsible design, development, and use of environmentally responsible crypto-asset technologies. These should include standards for very low energy intensities, low water usage, low noise generation, clean energy usage by operators, and standards that strengthen over time for additional carbon-free generation to match or exceed the additional electricity load of these facilities.

Should these measures prove ineffective at reducing impacts, the Administration should explore executive actions, and Congress might consider legislation, to limit or eliminate the use of high energy intensity consensus mechanisms for crypto-asset mining. DOE and EPA should provide technical assistance to state public utility commissions, environmental protection agencies, and the crypto- asset industry to build capacity to minimize emissions, noise, water impacts, and negative economic impacts of crypto-asset mining; and to mitigate environmental injustices to overburdened communities.

To simplify, they want to require that bitcoin miners are bringing net new renewable generation online in order to be eligible to mine (“additional carbon-free generation to match or exceed the additional electricity load of these facilities”). No such requirement exists for any other industry in the US, period.

If miners can’t do this, “Congress might consider legislation, to limit or eliminate the use of high energy intensity consensus mechanisms for crypto-asset mining.” Of course, no such rule exists for any other extractive industry in the US, like gold mining (even though gold mining uses a comparable amount of (much dirtier) energy).

Effectively, the OSTP is asking that miners be forced to meet a completely impossible standard — again, one that isn’t asked of any other industry — and if they can’t meet that, they are asking Congress to regulate mining out of existence.

Overall, the report is laced with a profound neo-malthusian attitude. Even though it gives lip service to Net Zero goals like “electrify everything” which would require a massive buildout of power and transmission (implying that we will have an energy abundant future), the fact that the US government is so intent on marginalizing an industrial sector that accounts for around 0.5% of electrical generation — much of it otherwise going unused in places like West Texas — should give anyone pause. If the government was really that confident in the energy-abundant, everything-electrified green transition, why would they be worried about 0.5% of current generation? If their Net Zero trajectories are met, the electrical sector will be greening at a rapid clip anyway, and with it, purchasers of grid power.

Unlike virtually any other industry, Bitcoin is already fully electrified, so it can benefit from the (envisioned) greening of the grid. So why is a large buyer of energy, that is fully electrical, location agnostic, interruptible, and portable, a threat to the green transition? Could it be that the government doesn’t believe their own incantations around Net Zero? Could it be that their motives have more to do with using ESG to politicize the electricity sector and determine politically acceptable uses of energy, like an electrical version of Operation Choke Point?

Reading the report, and in particular the section on miners using renewables, it is very clear that the current administration views electricity as a good that only politically favored firms should have access to. If they are able to “choke point” electricity, they won’t stop with Bitcoin mining. They will move on to demanding that utilities shutter electricity used by politically disfavored entities like firearms manufacturers, religious institutions, and right-wing educational facilities.

The government already politicizes access to finance, and in a ghastly partnership with big tech, politically determines who has access to internet infrastructure. Why should electricity be any different? The totalizing state doesn’t know any restraint. Obviously their political enemies should be deprived of any resources, whether financial, communications, or literal energy. Bitcoin just so happens to straddle all three of those sectors.

From a practical point of view, a domestic ban on PoW would be counter-productive. I’ve already pointed out that policymakers in Western countries concerned about Bitcoin’s emissions should convince miners to stay domestic. A ban would be massively counterproductive to the US’ ability to influence both Bitcoin and the network’s emissions trajectory. If the US were to successfully ban industrial Bitcoin mining, miners elsewhere — almost all of them dirtier than US miners — would immediately receive a massive dividend. Naively assuming the 30–40% of BTC mining (the current US total) comes to a complete halt, non-US miners would almost immediately be producing 42–66% more units of Bitcoin with their same level of exertion. US miners experienced this when China banned the vast majority of domestic mining and ex-China miners were rewarded a bumper crop.

Regulating Bitcoin mining is like squishing the water inside a water balloon and expecting the balloon’s volume to decrease. Squeeze hard enough, and it just goes to the other side of the balloon. Xi Jinping, the great dictator of our time, wasn’t able to stamp Bitcoin out when he forced miners out of China. They just packed up and left — Bitcoin was completely unaffected, and western miners profited greatly. (Sidenote: if even the most powerful man in the world, Xi Jinping, was unable to eliminate mining — not even within his own borders — how does the generally hapless Biden admin expect to achieve anything different?) It’s also worth noting that there is still ‘black market’ mining in China.

If you hate the ecological impact of gold extraction, you don’t ban gold mining domestically — that simply advantages competing producers (in case you’re wondering, that’s China, Russia, and Australia). Gold will still be mined and make it onto global markets, so a ban does nothing to affect the gold mining industry overall.

Instead, you regulate the industry and ask participants to please not dump mercury in rivers. The same could be done with Bitcoin miners. Ask them to disclose their energy mix and be transparent with regards to their emissions and participation in grid stabilization. You could easily request that they stay away from populated areas given the noise pollution. You’ll find that miners are very willing to play ball.

In a sense, the naïve approach the Biden admin is taking around mining echoes carbon accounting generally. American pundits like to celebrate our declining emissions while ignoring that this is a consequence of America’s deindustrialization and offshoring of almost all heavy industry to places like China. Not to mention that the green revolution built on wind turbines, photovoltaics, and batteries is almost entirely dependent on emissions-intensive Chinese heavy industry.

Yes, you can “decarbonize” by decommissioning nuclear and coal plants and substituting them with wind and solar (albeit at the cost of a more unstable grid). But you are now importing new emissions from China via those PV panels and batteries. You can eliminate energy-intensive aluminum smelting or industrial manufacturing and import the finished goods from coal-heavy China. You haven’t reduced the CO2 molecules in the atmosphere. The sky doesn’t care about the borders between countries and your fancy country-based carbon accounting.

Equally, pushing mining outside of the US doesn’t help the climate (most likely, it makes things slightly worse by putting mining in the hands of Russia, Iran, Venezuela, and North Korea). It might make western policymakers feel better, but it raises the carbon intensity of the network. The U.S. is the most capacious energy grid in the world, is adding renewables at a rapid clip, and has many pools of stranded energy, which are only growing, as generation (especially of new renewables, generally not located near population centers) outpaces transmission. This is empirically observable.

On the more insidious side, the report is definitely infected with this sentiment that perhaps PoS could be a plug and play replacement for PoW, and maybe this problem will solve itself. (Note again that the government is citing non-academic lobbyist work funded by PoS protocols in this paper.) Partly I ascribe this to naivete, but you could also point to more sinister motives, given how much more controllable PoS networks are than PoW. It’s very much in the interest of the government (that seeks to politicize all of finance) to advocate for PoS over PoW. I’ve pointed this out before: PoS is simply more capturable, because coins tend to accumulate in large financial institutions, which are trivially influenced by the State. Miners are far more resistant to capture and control. Empirically, hashrate is far, far more distributed among a diverse, global set of miners than capital held by stakers is.

The envisioned substitution of PoS for PoW the Biden admin hints at is simply a move to outlaw an asset the US government can’t control and replace it with one it can.

Ultimately, what the administration thinks of Bitcoin mining is a reflection of whether it’s willing to embrace a high-energy, pro-American dynamism, energy-independent future in which we reshore our industrial capacity, or if it would rather take a neo-malthusian scarcity mindset and play political games about who is entitled to which resources.

Think of it this way. If a new industry came along tomorrow with the following properties:

  • It consumes energy, but it doesn’t matter where that energy is produced
  • It is fully digital, so requires no physical infrastructure aside from electricity, transformers, and a datacenter
  • It is completely interruptible, and can be curtailed fully at any time, so it could be fully offline whenever the grid needs it (a feature that renewable grids increasingly require)
  • Because it’s fully digital, it can be rendered as sustainable as its electricity inputs, and indeed, by most measures, it appears to be more sustainable than any single other heavy industry in the US
  • It renders a service giving property rights to the entire world
  • It buys up low or negatively-priced renewable energy, vastly improving the economics of new and existing renewable projects that would otherwise not be able to monetize
  • If the industry goes away, the infrastructure built could be repurposed for other location-agnostic uses, like the generation of green hydrogen, a key part of the renewable transition
  • It mitigates emissions associated with unavoidable gas flaring, a byproduct of oil extraction
  • It rebuilds a high-energy infrastructure in the heartland of America, laying the groundwork for a desperately needed reshoring of industrial capacity
  • If you ban it, its aggregate emissions will go up. If you embrace it, its aggregate emissions will go down
  • If you ban it, you empower your enemies, like Russia, Iran, Venezuela, and North Korea. If you embrace it, you directly hurt them, and give their citizens tools to free themselves from those oppressive regimes.
  • It represents tens of billions of equity value and offers a massive tax windfall to states that can sell their otherwise unsold energy to the producers of this product

… would you ban this industry? Or would you embrace it?

I know my answer.

I only hope that the White House can eventually come to their senses and reach the same conclusion.

Comments on the White House report on the climate implications of crypto mining
As part of President Biden’s executive order, the White House Office of Science and Technology Policy (OSTP) conducted a study into the…

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