Who Gets To Decide?
Good morning! What are we mad about today?
Bitcoin uses a lot of energy. I don’t think this is really up for debate. What is apparently up for conversation is whether or not proof of work crypto mining is a good use of that energy. While not overtly questioned by some of the “thought leaders” who I follow on Twitter X, Bitcoin’s relationship with energy consumption has again entered the zeitgeist after an article from CNBC highlighted how Tier 1 Bitcoin miner Riot Platforms RIOT 0.00%↑ made more from selling power credits in Texas than from mining bitcoin in the month of August.
Riot said on Wednesday that it earned $31.7 million in energy credits last month from Texas power grid operator ERCOT. The company generated the credits by voluntarily curtailing its energy consumption during a record-breaking heatwave. The total value of the credits dwarfed the 333 bitcoin the company mined in August, worth about $8.9 million dollars as of the end of the month.
In response, Riot Platforms released a statement and defended its power curtailment strategy as beneficial to ERCOT and power stability in Texas. The company also pointed out an inaccuracy in the CNBC report and noted that only $7 million of Riot’s August energy credits came from ERCOT with the rest coming through a third party power provider:
Riot also sold approximately $24 million of pre-purchased energy to its energy provider, TXU, pursuant to its long-term power purchase agreements. TXU is a retail electricity provider and subsidiary of Vistra Corp., which is a publicly traded enterprise valued at over $12 billion. When economically efficient to do so, Riot does not use the energy it has purchased for business operations and instead sells it back to TXU in exchange for credits to apply to future energy bills.
The argument from most of the Bitcoin mining community has been that miners utilize energy that wouldn’t otherwise be used and turn mining machines off when its more economically viable to sell the power back to the market on energy price spikes.
Now, the bigger concern for RIOT holders, of which I am one, is that these energy credits lay bare the poor economics of currently mining BTC at today’s coin prices. From my latest SA article on Riot Platforms:
At $8.6 million in revenue from selling 300 BTC at an average of $28.7k, selling the energy back for $34.7 million instead was comparable to mining BTC at a nearly $2,000 premium. This is theoretically bad for Bitcoin because it disincentives network validation by one of the largest miners in the industry.
But in the interest of the broader argument against Bitcoin miners benefitting from energy price spikes, there was a somewhat entertaining debate between Riot’s VP of Research Pierre Rochard and a few tWiTtEr rAnDOs who take issue with Riot’s alleged position as a ‘grid savior.’ The issue seemingly stemming from the fact that Riot doesn’t actually produce the energy that it is selling back to suppliers and is acting more as an energy trader than anything else.
The debate ultimately led to this question from Rochard:
Are you ideologically opposed to all secondary markets? Grocery stores should not sell food that they did not grow?
Damn. Here we go…
When you take it even further, the idea that Riot Platforms shouldn’t be able to benefit from a market opportunity that it has legally created for itself seems preposterous. Whether you’re selling energy, healthcare, food, clothes, houses, or internet access; it’s almost like people forget that it’s the motivator of profit that drives economic activity. I can’t help but wonder if we have a decade of ZIRP supporting dead businesses and flawed models to thank for this. And to be clear, I’m not necessarily of the opinion that Riot’s model is sustainable with or without energy credits. Maybe that’s why critics are upset about this.
But the reason why this blog is tagged “society and finance for fellow renegades” and not just “finance for fellow renegades” is because there is often a social or cultural undertone to these pieces that may be unpopular with most people if those ideas are fully unpacked. Sometimes they’re overt, sometimes they’re much less obvious. But I’ll try to be pretty clear on this one.
No One Man Should Have All This Power
In the modern western world, we have generally enjoyed such an existence of comfort and convenience that we can’t even fathom the idea that electricity isn’t a right. I’ve said it before, I’ll say it again; if somebody else has to provide it for you, it isn’t a right. It’s a service and you pay for it. We could get into subsidies and overlord influences if we must, but it won’t change this basic principle; we’re not really entitled to much beyond life, liberty, and the pursuit of happiness - and even those are apparently up for debate depending on who you ask and where you live.
This is not to disparage the idea that we are better off today due to the improvements in efficiency, innovation, and abundance that have come from people working together toward a collective good. Compare my fairly simple life in the rust belt to that of a king’s in 14th century Europe, and I doubt I’d trade places. The successful economic systems we enjoy have been tested and developed by those who came before us. But at some point we just have to get over ourselves and recognize that we can’t control what others should or shouldn’t be doing with their time and wealth. I’ve had to learn this too.
It bothers me that Bitcoin has gone from being a “cryptocurrency” that was designed to be a borderless medium of exchange to something that PayPal PYPL 0.00%↑ co-founder and Bitcoin bull David Marcus doesn’t believe will be used to buy things. Guess what I can do about it? Nothing. Likewise, what I feel might be wasted energy usage might not be interpreted as such by someone else. It’s not up to me to choose for them or for you.
If the market decides that Bitcoin has no use, the miners will go out of business and this debate will reach its natural end. As I see it, whether we’re for or against Bitcoin miners participating in the energy market, I don’t think it’s wise for us to go down the path of picking and choosing which businesses or industries get to use energy and which ones don’t. For one, how are we determining social harm? Who gets to decide what is proper and what is improper use of energy? Are we to just accept “bItcOIn bAd, iNstaFaCe gOOd?”
Do we vote on it? Or is it based on the subjective whims of someone like Klaus Schwab and his legion of minions zat have penetrated zee cabinets?
Don’t answer that…
Maybe the better question is how quickly does the list of banned activities from energy usage transition to banned people from energy usage? Be careful what you wish for and always remember that the power you give your ally will inevitably be used by your enemy too.
Disclaimer: I’m not an investment advisor. I’m long RIOT and a handful of other Bitcoin miners. I’m not an energy expert or a policy wonk. I pontificate in my pajamas and probably get things wrong from time to time.