Well, wouldn't you know.
There's a report in circulation, my friends, that seeks to debunk the much ballyhooed concern that Bitcoin is an energy guzzler and the harbinger of climate change. The report, Bitcoin: Cryptopayments Energy Efficiency, which, incidentally, is publicly accessible, was prepared by IT engineer, cryptographer and consultant, Michael Khazzaka.
In his report, he notes, "Bitcoin consumes 56 times less energy than the classical (banking) system, and that even at the single transaction level, a PoW transaction proves to be 1 to 5 times more energy efficient. When Bitcoin Lightning layer is compared to Instant Payment scheme, Bitcoin gains exponentially in scalability and efficiency, proving to be up to a million times more energy efficient per transaction than Instant Payments."
Huh. Go figure, right?
Khazzaka's report contradicts the Cambridge Bitcoin Electricity Consumption Index, which states that Bitcoin's annualized consumption is 122.61 TWh.
In his paper, Khazzaka noted that while most central banks do not recognize Bitcoin as legal tender, they are "convinced of the capabilities of the distributed ledger technology (DLT) in payments, banking and finance."
Nevertheless, he pointed out, that for all the criticism of Bitcoin's energy use, there has been no correct evaluation of Bitcoin's functions and their
energy consumption compared to that of their counterparts in the classical electronic cash and payments systems, which one would expect should have been the first thing to do, right? I mean, if you're going to complain about something your competition is doing and use that as your clarion call to eviscerate said competition, you'd want to be sure that you're not doing the same thing or even worse, right? I'd think so. Yet Khazzaka is arguing that this has not been done, at least not accurately.
Commenting on the Cambridge Bitcoin Electricity Consumption Index, for example, Khazzaka is insisting that its process and results are flawed.
The index, he said, "is based on a world average of electricity prices in USD and an average distribution of mining hardware leads to inaccurate results
varying between −50% (lower bound) up to +120% (upper bound)." Further, he said, it does not compare two similar systems efficiently.
Commenting on another paper published by the central bank of Netherlands, DNB, which compared Bitcoin's energy consumption to that of an entire country, he noted that the paper did not completely account for both monetary systems and payments systems. The DNB paper compared Bitcoin's energy consumption with the debit card payment system alone.
"Yet card payments are just an intermediary step of the payment transaction," Khazzaka stated in his paper. "They mainly provide an authorisation of a transaction and will at least require later inter-banking clearing and settlement to become final. On the other hand, a bitcoin transaction is final and covers end-to-end steps of the transaction, so the comparison is very incomplete. It’s essential to compare Bitcoin energy consumption with all the aspects of the classical monetary payment system. This covers: banknotes and coins cash management in ATM systems, card payments, point of sale (POS) payments, banking and interbanking energy consumption, etc."
Khazzaka proposes that today, at a single transaction level, "Bitcoin Proof of Work is, on average, 1.2 times more energy efficient than a classic electronic payment transaction and can go up to 5 times with more adoption or natural replacement of older mining units with more efficient hardware already available."
When Bitcoin Lightning and Instant Payments are included, he argues that a Bitcoin Lightning transaction is, on average, 345,000 times faster than the classical system and 14 times faster than an instant payment transaction. In his paper, he also noted that Bitcoin Lightning scales far higher than Instant Payments with "a theoretic capacity of 31 Trillion Tx per year for Lightning compared to 31 Billion Tx per year for Instant Payments".
Thus he concluded that "Lightning at a single transaction level allows Bitcoin to become 194 Million more energy efficient than a classical payment and
up to 1 million more energy efficient than an instant payment transaction."
Khazzaka's 27 page report is indeed a very interesting read and, I expect, will be a welcome one in the Bitcoin community and, I'm thinking, to the crypto community as a whole. Because let's be real, in this space, whether it's proof of work or a "more carbon friendly" solution, we know what a lightning fast transaction is and there is nothing in the traditional banking system today that can compare.
But, my friends, do you think that Khazzaka's arguments are credible and noteworthy? Do you agree with his methodology and conclusions? And do you think that this report will be given as much mainstream attention as some of the other critical reports that's been published about Bitcoin and the crypto space? I'd love to hear your views.
Well, I'm off again in search of another story to bring to you. Until we connect again, please remember to be safe.
