Read now to learn how Bitcoin's energy use helps defines its value and how Bitcoin would be worthless without it.
Regulation of Bitcoin and Crypto have been on the minds of governments and regulators for the past several months. After the U.S. government released an executive order with questionable motives just last week, the European Union came out with its own proposal to further regulate the digital asset space. Unlike the U.S. government’s move however, the motives of the European Union’s proposal were not in question and represented a direct attack against Bitcoin and the Proof of Work (PoW) consensus mechanism on which its blockchain operates.
In short, the European Union’s parliament voted on language within its pending legislative framework governing digital assets, “Markets in Crypto Assets”, that by all appearances attempted to ban PoW cryptocurrencies. The proposed language read as follows:
[Digital assets] shall be subject to minimum environmental sustainability standards with respect to their consensus mechanism used for validating transactions, before being issued, offered or admitted to trading in the Union.
Thankfully, the EU parliament voted against the measure. PoW in the EU is still safe, for now.
Bitcoin Is More Than The Sum Of Its Energy Use
Now, there are a few important points to understand right off the bat. The first is that total bans of Bitcoin are downright impossible and prior attempts, even from large governments like China’s, have been wildly unsuccessful. After all, Bitcoin is a peer-to-peer decentralized network that doesn’t even require the internet in order to work. The idea that the European Union or any other government could completely stop all citizens from dealing with Bitcoin is laughable.
More important though, is the fact that proposing legislation to subvert the PoW consensus mechanism or strongarm Bitcoin users into supporting a switch to a different consensus mechanism totally ignores the many benefits brought on by Bitcoin’s status as a fully-decentralized network, benefits that would be diminished or outright lost if not for Proof of Work:
Bitcoin Is Censorship- and Confiscation-Resistant
Up until recently most people in first-world countries probably thought that censorship and confiscation of money would only be a problem in distant authoritarian regimes that they chose not to think about. Recent events in Canada and elsewhere though, have shown that people everywhere are at risk of their money being censored and confiscated, even by their own governments.
Perhaps you’re not convinced. Perhaps you support the government where you live and are confident that you’ll never step out of line with its wishes. If so, that’s all fine and good for you, but it’s not the reality for billions of people around the world who live under authoritarian regimes. Those people don’t have the benefit of hoping that their governments will at least try to work for their good. They need money that allows them sovereign control of their wealth and presents little risk of interference by governments or anyone else. Bitcoin on Proof of Work is that money.
Bitcoin Is Inflation-Resistant
At this point in time, it seems like the specter of inflation is hanging over our heads no matter what country we live in. Most of us engage with inflation in the context of spending our money on goods and services. Gas prices are up, food prices are up, housing prices are up, and our ability to buy things with the fiat bills we had in our wallets yesterday is down. This is typically known as price inflation.
Governments want their citizens to focus on price inflation, because it then becomes all too easy for governments to blame inflation on the companies who either by choice or out of necessity raise their prices over time. However, a far more pervasive type of inflation, that typically front-runs and directly causes price inflation is monetary inflation, which is an increase in the supply of a currency. Who controls fiat currencies? Governments. So who is a far more culpable suspect when it comes to monetary and price inflation? Governments.
Bitcoin is in the process of eliminating its own monetary inflation altogether. The issuance rate of new Bitcoin halves around every four years and is set to completely stop around the year 2140, although the amount of new Bitcoin released during each ~4-year cycle will reach inconsequential levels long before that point. Money whose value can’t arbitrarily be inflated away by self-interested and self-absorbed governments is money that will allow its users to maintain their wealth and use it however they want, now or long into the future.
Decentralization Through PoW Is Key To The Equation
Proof of Work is in a league of its own when it comes to true decentralization. Critics will try to tell you that mining on the Bitcoin blockchain requires rows of ASIC mining machines, but that couldn’t be further from the truth. All that’s required to operate the software is a computing device, basic or advanced, and an energy source, two things to which a majority of the world’s population has relatively easy access these days.
PoW critics find themselves in the increasingly untenable position of unknowingly or blatantly ignoring the variety of benefits brought on by decentralized, unassailable money as represented by Bitcoin. They will attempt to limit the ability of others to access and benefit from Bitcoin, but only succeed in excluding themselves from the network. After all, the Bitcoin blockchain knows no masters and acknowledges no barriers.
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This is not financial advice. This newsletter and related content are for informational purposes only. Cryptocurrencies and digital assets can be risky. Always do your own research before making any sort of investment.
