Thread
Electricity breaks our simple heuristics, rules of thumb like: “don’t consume scarce resources.”
Electricity is both deadly-scarce (looks at those rates in Europe, in Africa!) and at the same time overly-abundant (look at that curtailment, that negatively-priced power!).
Electricity is both deadly-scarce (looks at those rates in Europe, in Africa!) and at the same time overly-abundant (look at that curtailment, that negatively-priced power!).
How can the same thing be scarce and abundant? Electricity is a “good” that decays at the speed of light and cannot be cheaply stored. Nor can it be cheaply transmitted over long distances.
When we think of power, we think of the electromagnetic waves, the electrons themselves.
When we think of power, we think of the electromagnetic waves, the electrons themselves.
The economics of electricity is just as much about getting power when and where it needs to be as it is about the power itself. It’s as much like real estate as it’s like copper or pork bellies.
So we can simultaneously have two problems—scarcity and abundance—with no easy way to fix it. Transmission isn’t easy, storage isn’t easy, and new generation at the right spot that produces at the right times, also isn’t easy. Now through in a decarbonization agenda too. Hard!
Bitcoin mining falls right into the gap between our simple rules of thumb and the complex reality of the economics and engineering of electricity.
It uses a good that is scarce, but not at the places and times it is scarce. And electricity is all about places and times.
It uses a good that is scarce, but not at the places and times it is scarce. And electricity is all about places and times.
Bitcoin mining’s use of a scarce good, when and where it’s abundant, is keep to solving both the abundance problem and the scarcity problem, in fact!
Miners paying for wasted energy helps new generation pencil out while transmission and demand catch up. Miners are the arbitrageurs of electricity pricing. They will make electricity prices more even, globally, closing the gap between scarcity and over-abundance.
This holds for time as well as space. Those times when the grid demands power and prices are high? Miners will shut down, freeing up generation to meet temporary demand. Another way to think about this is bitcoin mining leveling prices across time.
This is what it looks like on the location front:
This is what it looks like on the time front:
In short, your rule of thumb—don’t waste scarce resources—was shaped and molded by thinking of durable goods, and goods that can’t be made very cheaply and easily, out of, for instance, sunlight.
Electricity breaks this heuristic badly.
Electricity breaks this heuristic badly.
It’s the very opposite of durable, and it’s pretty cheap to generate more of it. Yet it is scarce (in places and times) and also, weirdly, abundant (in places and times).
Once you see the ways electricity is different from oil or copper or pork bellies… bitcoin will make sense.
Once you see the ways electricity is different from oil or copper or pork bellies… bitcoin will make sense.
And now throw in one last feature: intermittent renewables make the abundance-scarcity paradox even worse, since generation cannot be controlled by turning a dial. Even nuclear makes it worse, by producing at a constant rate. The scarcity-abundance tension is only getting worse.
Bitcoin not only breaks the rule of thumb as a non-harmful user of “scarce” resources… once you see it, you get new heuristics: pioneer species, sell every watt, bitcoin doesn’t waste energy it keeps energy from being wasted, it doesn’t just use power, it pays for power, etc.
A final analogy. Electricty is like stadium seats. If it’s the superbowl, that seat is worth thousands. The following night you’re lucky to have a marching band competition and seats are nearly free.
#bitcoin is the marching band spectator, paying for that seat.
#bitcoin is the marching band spectator, paying for that seat.
None of this is to say energy efficiency doesn’t matter. It very much does!! And it matters exactly when and where electricity is scarce. E.g., heating and cooling, which create demand peaks. Using less power during a peak could save us tremendous amounts of infrastructure.
Mentions
See All
Lyn Alden @LynAldenContact
·
Jan 7, 2023
Excellent thread.