Thread by Troy Cross

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🧵developing an extended rug metaphor--I've been advised to use the word "carpet," but "rug" it is!--illustrating the effects of bitcoin's fixed schedule of issuance, ensured by the difficulty adjustment.

1. Bitcoin mining's total budget is like a BUMP in a rug.
2. The bump can be spread around however you like in the rug, but the total volume of the bump (or bumps) will remain unchanged. Block subsidy is about 900 bitcoin per day. That + fees is global mining revenue in BTC. It can't be changed by kings or committees.
3. To ban bitcoin in a state is to squish the bump down in that part of the rug. Fewer mining rewards will be collected there. Within 2016 blocks, more rewards will collected elsewhere. Total rewards collected will remain unchanged.

See: China ban.
4. Old news. But here is another way to move the mining bump: simply pull up in the carpet where you WANT the bump. You'll create a new bump and temporarily bump volume will increase. But within 2016 blocks, other bumps will shrink so that the total bump volume remains the same.
5. The size of the bump in the rug represents miner revenue denominated in bitcoin. The same bump size could correspond to radically different energy consumption amounts and radically different emissions profiles, depending on where the bump is.
6. If the bump is in cheap-electricity parts of the rug, the same block reward will buy a lot more energy than if the bump is is expensive-electricity parts of the rug.
All by itself-- this is not like ordinary rug bumps--this bump migrates to the cheap parts!
7. But the migration is slow, and complicated by a number of other factors (switching back to bitcoin now, it's things like jurisdictional risk, deep capital markets, available power infrastructure, that impede bump flow).
8. Another way we can think about areas of the rug are the high-emission areas and low-emission areas. The bump can be located, and is located, in both. High-emissions areas mostly overlap high-cost areas of the rug, and low-emission areas mostly overlap low-cost areas of the rug
9. So mining's natural migration to cheaper energy is mostly, but not entirely, a migration to lower emissions AND, as noted earlier, to higher energy use for the same budget.

Cheaper electricity->more mining->greener mining.
10. This is why a focus on bitcoin's energy use is stupid.

Here's how the normie mind works: emissions bad, energy use causes emissions, so energy use bad, so bitcoin should use less energy.

Works for most industries. Not bitcoin!
11. The only way to reduce bitcoin's energy consumption (by bump pushing) is to push it to the high-priced parts of the rug. Those are also high emissions. Whoops! You've done the opposite of your intention.
12. By contrast, when the bump moves in the direction of less emissions, it moves simultaneous in the direction of more energy, because it's moving in the direction of cheap energy, which entails both of these things.
13. By now you can see what policy makers and investors are getting wrong, but maybe also how they could get it right if what they actually care about is emissions.

A little tug on the right part of the rug and the bump will just go down everywhere else.
14. Underneath the sofa is behind-meter mining at a solar plant allowing DR participation.

Under the side table, a nuclear facility.

The love seat is special. Beneath it is a bunch of wasted methane from landfills, wastewater treatment facilities, farms, oil fields.
15. Burning methane to mine bitcoin actually produces CO2, but if the CH4 is otherwise vented, or even flared, burning it cleanly in a genset is equivalent to removing CO2.

Luckily, it's also cheap. (It's not super easy to get to, nor is it always a conveniently large scale.)
16. From @dsbatten's calculations and Coinshares' estimates of average carbon intensity, I calculate that if 1/30th of the bump is on vented methane, the entire network is carbon neutral, given existing bump distribution.

Concerned investor or state: pull up the rug THERE.
17. Notice that pulling up in these low-price, low-or-negative-carbon-equivalent places has another effect: it makes bitcoin mining non-rival as a consumer of energy. The high-priced energy is expensive because it has many buyers. The low-priced energy is cheap because it doesn't
18. So the bump's migration to low-price parts of the rug also frees up electricity that's in demand... WHILE increasing energy consumption.

Again, a norm confusion: consume more energy, you're TAKING it from other uses.

NO: we'll consume more when we take less from others.
19. Don't fight the bump. You can't defeat it. You can't even shrink it (in bitcoin terms). Work with it instead. Create it in the low-cost, low-carbon areas where bitcoin helps the grid, lowers electricity prices, speeds the renewable transition, and mitigates methane.
20. And stop talking about bitcoin's energy use! Given normie assumptions, all of the inferences will be wrong.

Thanks for reading. If you're a graphic artist, please take this as inspiration. It's all clear in my head, but you don't want to see my illustrations.
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