Crypto is an elegant way to destroy the world
I am in the process of getting a tattoo of one of my favorite mathematical statements on my left arm. I wish the ink were dry so that I could offer a picture as proof of my fondness for the subject, but until the local ink-wells open up a bit more you’ll have to take my word for it.
I have a fairly sizeable investment in Ethereum and a smattering of smaller investments in other coins. I have written my own crappy Bitcoin implementation using the whitepaper as my guide just to make sure I know how it works. I have written fan fiction about Satoshi Nakamoto. I currently have a twelve GPU mining rig in my basement, for which I needed an electrician to run a new circuit to handle the power draw, and on more than one occasion I have ripped the chalkboard off my wall to give friends and relatives a short lecture on how Bitcoin works: from mathematical building blocks to why it is has value in the real world.
You may be thinking, “this guy is an idiot,” and I honestly can’t disagree with you. However, I am attempting to establish some credentials here because I don’t have letters after my name that can establish those for me. I think Bitcoin is one of the most beautiful conceptual inventions in the last few decades, and Ethereum is a mind-blowing work of genius that expands upon it.
One of the pillars of Bitcoin is the concept of Proof of Work (PoW), which is a mathematical construct that anchors Bitcoin assets to reality. PoW is part of what makes Bitcoin so elegant: it uses extremely simple functions, called hash functions, to guarantee that someone did work. Unfortunately, and this is the real kicker, Bitcoin’s PoW scheme actually anchors Bitcoin assets, not just to work, but to energy consumption.
As the title suggests, Bitcoin is really an incredibly elegant way to destroy the world.
We‘ve known this for a decade
This is not a new idea but I want to take time to explore the validity of this claim. The environmental impacts of mining are well studied, so I‘m not going regurgitate studies here. While Biden recently pledged the US to reducing carbon emissions by half by 2030, the above study from the Sierra Club claims that “it is estimated that in 30 years Bitcoin could alone increase global temperatures 2 degrees Celsius.” That can’t be right… right?
Suffice it to say that many crypto-enthusiasts disagree. The Cato Institute claims that we’re measuring wrong. They claim that when you measure energy costs per transaction, you miss the point that Bitcoin was specifically not made for your fifty cent purchases: of course Visa is more efficient. According to Cato, we should be measuring total volume instead of energy cost per transaction. I cannot dispute this: the logic checks out.
Unfortunately, the Cato Institute omits two simple realities.
Firstly, there are emerging crypto solutions for micro payments, and in general they do not sufficiently address the energy problem. In any Proof-of-Work (PoW) system, the computation costs and therefore energy costs will be higher than in a solution like Visa.
Secondly, Cato has forgotten about incentives. When randos like me can consume energy and output value, the Invisible Hand gives a big ol invisible high five to all us miners (and we hope the environment can take one more for the team).
A new law
You see, Satoshi has written a new law: energy can be converted into more money via the crypto marketplace than via the energy marketplace. This is why idiots like me have not started energy companies, we have started mining. The market flocks to the path of least resistance.
The Ethereum Community, because they are smart and don’t ignore facts, openly admits that energy consumption is a problem. The Ethereum community, like me, gets power bills in the mail. Their power bills, much like mine, probably have a little bar graph that compares their consumption to the average consumer. They, just like me, can make a qualitative statement about the numbers. I am incentivized to consume more so that I can make more crypto-moolah. Don’t be silly, Cato.
This is why the geniuses over at Ethereum HQ (I actually do mean geniuses) are decoupling energy consumption from value by moving from Proof of Work to Proof of Stake (PoS). They are not the first to do this. PoS has been around since a whitepaper proposal four years after Satoshi’s original (this actually predates Ethereum altogether). However, Ethereum is the largest network to attempt this switch and they are such a gigantic player in the space (the second largest coin by market cap) that they set the standard for both developers and investors.
PoS carries with it some interesting new guarantees (among others: significantly reducing the requirements for a bad actor to control the network) and an enormous pile of extremely difficult to understand math / logistics / and programming. Polynomial commitments are much more difficult to get in your head than hash functions — and, if I’m understanding correctly (which I guarantee I am not), they are just a tiny part of the total proposed solution.
Herein lies my disappointment.
I want Eth 2.0 to solve the environmental disaster we have derived from elegant first principles: but I am pessimistic about both the implementation, and its influence over other networks.
With Eth 2.0, I can no longer whip out a chalkboard and derive it for my relatives, and that’s not just because I’m too stupid. According to Zaki Manian, “[Eth 2.0] is by far the most technically ambitious open community project that has ever been attempted.” Docker, Kubernetes, Java, Android, Linux — those are all easy. He said this two years ago, btw, and the fruits of “technical ambition” (i.e. “complication”) can be seen in the longer-than-expected-more-error-prone-than-expected rollout of Eth 2.0.
What’s more, the other unresolved problem of Eth 2.0 is that there are other networks. There will not be thousands of good proof of stake implementations. The complexity denies this possibility. When only four people in the world can understand the dumb thing, that means it may not be a good idea to build our hopes on it. There may only end up being a single good implementation of a secure, distributed proof of stake system in the world: Ethereum 2.0. And the kicker: unless there is a market reason that miners should switch to a proof of stake currency, why would we? To mix metaphors: the Invisible Hand needs carrots. This is why Bitcoin has no roadmap to a proof of stake system and it likely never will.
The only hope of saving crypto and the environment is to tack on obscene complication. I’m not saying Ethereum needs to come up with a better idea. I am simply… pessimistic about the added complexity.