In Defense of Bitcoin

When Bitcoin was first designed by the mysterious Satoshi Nakamoto, it had two key features. First, unlike paper money which can be debased by overprinting, the total supply of Bitcoin cryptocurrency units was capped at 21 million. To ensure this number is never exceeded, the mathematical task necessary to make it intentionally grows progressively harder, like an asymptotically rising cliff, until no more than the limiting quantity can be produced. Second, validating the newly mined Bitcoin was itself computationally expensive to the network so that once it was registered, it was ruinously costly to counterfeit it.

Together the two computational exercises comprised "proof of work," which supported the integrity of the concept. You couldn't make Bitcoin without expending a lot of real physical electricity; nor could you demonetize a coin and replace it with one fashioned by a politician. Chiseling out and altering a single Bitcoin or consummated transaction would change the mathematical signature of the whole blockchain of which it was part, invalidating the whole, a fantastically difficult task. That resistance to alteration made it real.

These were deliberate design choices picked to mimic the physical properties of gold. Like gold, an element which is present in only small quantities in the earth's crust, Bitcoin rarity was thus guaranteed. Like gold, which could be assayed against dilution and forgery, Bitcoin could be exactly verified and its bits engraved in the public, distributed blockchain so there could be no doubt about its authenticity.

Miner at work.

The purpose of these design elements was to insulate it from attempts at manipulation. By emulating the properties of gold, Bitcoin became attractive to the financial industry. According to Susan Arbetter of State of Politics, "The allure of cryptocurrency is that by using blockchain technology, financial transactions are instantaneous, secure and very difficult to trace."

But its success has attracted the very attention it had hoped to avoid. Environmentalists, who are always looking for some new activity to denounce, noticed that Bitcoin mining consumes more electricity than Finland, and began to condemn the process. Before long, their political lapdogs took the hint and got to work. And here's their biggest success thus far -- New York Gov. Kathy Hochul recently signed a law "banning Bitcoin mining operations that run on carbon-based power sources." According to CNBC,

For the next two years, unless a proof-of-work mining company uses 100 percent renewable energy, it will not be allowed to expand or renew permits, and new entrants will not be allowed to come online.

Some lawmakers saw Hochul restrictions as missing the boat to the future. These include Republican Assemblyman Robert Smullen, who argues "that New York is a world leader in financial services, so why shouldn’t the state lead when it comes to cryptocurrency as well?" Smullen's concern is that even Hochul's two-year moratorium will leave New York woefully behind, and push the fast-changing finance industry out of the state.

Until recently Hochul's restrictions would have been largely irrelevant since most Bitcoin mining was done in China with cheap coal-derived electricity. Then China cracked down on mining in the summer of 2021, driven by the Chinese Communist Party’s (CCP) suspicion of anything outside its control. At its 2019 peak, China was mining 76 percent of all the Bitcoin on the planet. (America by contrast, was mining only 4 percent.) But crypto miners proved ready to move anywhere convenient. Even before China banned the practice, miners were already leaving in droves for Russia, Kazakhstan, Canada and the United States. America steadily overtook China, and by 2022 accounted for 37.8 percent of all mining, and is now the biggest player. (China remains in second, at just over 22 percent, due to the prevalence of underground miners.)

America's appeal to Bitcoin miners lies in its institutional stability. While American electricity wasn't the cheapest in the world, nothing could beat the U.S.'s combination of advantages: the large hosting capacity, ease of financing, attractive living standards. Says Darin Feinstein of crypto firms Blockcap and Core Scientific, "If you’re looking to relocate hundreds of millions of dollars of miners out of China, you want to make sure you have geographic, political, and jurisdictional stability. You also want to make sure there are private property right protections for the assets that you are relocating." In other words you want to be in America.

Good as gold?

The Bitcoin mining industry now claims to be greener than the average industry: 59.5 percent of the total bitcoin mining global energy comes from renewable sources. Much of its claimed sustainability comes from rapidly rising computational efficiency. While output was up 137 percent, energy usage was up only 63 percent. What other industry could say that? The message is unmistakable: Bitcoin miners are willing to play ball with the Kremlin, the majilis, the mandarins and the Woke, for as long as they don't ask for too much.

Today, New York produces 9.8 percent of the U.S. total, behind Kentucky (10.9 percent), Texas (11.2 percent) and Georgia (30.8 percent), a real, though still-minor, a player. New York's electricity is significantly more expensive than the other three, but since New York's powergrid has the lowest carbon intensity of the top four states it can try to highlight the greenness of its electricity. And while there's a push to make "green" energy part of a scorecard to determine investment decisions, the truth is that it doesn't matter much; the authenticity of a Bitcoin does not depend on its origins. Once a particular coin is validated, it doesn't matter whether the pool which computed it was in China, Kazakhstan, Ireland or New York State. They are all equal.

One day the mining will stop, forever. After the maximum number of bitcoins is reached no new bitcoins will be issued. "Bitcoin transactions will continue to be pooled into blocks and processed, and Bitcoin miners will continue to be rewarded, but likely only with transaction processing fees." By then no one will remember Kathy Hochul. In that sense, despite its recent woes, it will also be like gold. No one holding a bar of bullion today knows who originally wrenched it from the earth, by what roads it traveled, through whose bloodstained hands it passed. Sufficient is the fact of its existence. Bitcoin in that at least aims to be like all true money.