Microstrategy CEO Michael Saylor and Tesla CEO Elon Musk announced the formation of a group called the Bitcoin Mining Council (BMC), spearheaded by Saylor. The group’s mission is to “promote energy usage transparency and accelerate sustainable initiatives throughout the world,” according to Saylor.
There have been few details provided so far about the steps that will be taken to achieve those goals. In many bitcoiners’ eyes, this group is something of a cartel or a central act of manipulation, which explains their suspicion.
Although Saylor and Musk seem to be leading in this, their lack of mining experience is alarming. We’re no longer earning bitcoin by plugging in bare metal racks in our basements. A lot of subtleties go into this kind of business, from treasury management to power arbitrage.
A shared history of bitcoin investing
Both Saylor and Musk are known more for investing in and holding bitcoins. But in fairness, they would seem to be influenced by those experiences, especially Tesla’s participation in bitcoin, which Musk halted because of Bitcoin’s high energy consumption. In addition, Saylor says that the group has connected with actual bitcoin miners, like Galaxy Digital and Argo Blockchain.
Whatever you personally believe about Bitcoin, whether you like it or not, all of this matters regardless of your opinion. Environmental concerns have convinced many people of the immorality of cryptocurrency. By nothing else, Musk and Saylor’s initiative sends a message that the issue is being taken seriously and maybe solvable. That’s a message that’s beneficial to Bitcoin.
If it turns out to be more than a message, whether it has any impact on Bitcoin’s energy consumption – or if it blows up in everyone’s face – will depend on how the group pursues its objectives. Several options are available, and some are better than others.
A coordinated attempt to change Bitcoin’s code?
The Council has so far denied any such intention, and participants have explicitly denied any plans to do this. Some long-time Bitcoiners are afflicted with PTSD from being around influential people who work on Bitcoin-based solutions together.
Many crypto longtimers immediately thought about the New York Agreement, which laid out a roadmap for scaling Bitcoin and ended in recrimination and the spinoff of Bitcoin Cash (Digital Currency Group, CoinDesk’s parent company, was a leading player in those events).
Such a chaotic outcome only reinforced skepticism of such coordinated attempts by powerful players to alter Bitcoin’s code. It has been that legacy that has fueled a wave of paranoia towards the BMC, some arguing it could become another attempt at exerting centralized pressure on Bitcoin.
In 2017, the New York Agreement players successfully pushed updates, but this landscape has changed dramatically, with an unprecedented number of miners on the network now calling for a change. Now, most of those are in places where the environmental concerns at the center of the BMC would be subordinated to pure profit calculations.
Furthermore, the Bitcoin developers would likely be resistant to any changes. An attempt to reduce Bitcoin’s electricity consumption or guarantee that it’s powered by renewable energy would fail due to the technical limitations involved.
A truly independent standards body?
For a coalition of Bitcoin miners that wants to improve the system’s sustainability, the best and most impactful course of action would be to create a truly independent regulatory and standards body that reviews and certifies miners’ use of clean energy. As it appears to be the game plan so far, a focus on North America would probably make it easier to pull off.
The organization would be funded by dues collected from member miners, as well as other revenue sources. The miners would benefit from increased demand for their mined coins from investors or users looking for cleaner coins, such as socially responsible investment funds. For investors who count on the BMC for certification, the BMC should remain transparent and have high standards.
This would create a large pool of new bitcoin users and investors. It might be unclear due to the histrionics of some crusaders who think bitcoin’s energy consumption makes it a bad idea. Still, there are a significant number of people who care about the environment (just look at Tesla) and want to learn about cutting-edge technology.
Kevin O’Leary from Shark Tank pointed out that big companies and institutions would almost certainly be the most interested. Prominent financiers, corporations, and investors who might be interested in Bitcoin also face real reputational pressure from shareholders, media, and other public watchdogs to be environmentally responsible. Offering them a way to invest in Bitcoin that is cleaner would be meeting a pretty obvious need in the market.
In simple terms, the BBB is a simple parallel. It still collects dues from member businesses and grants a seal of approval for companies that meet its standards, despite being somewhat obsolete thanks to internet reviews. Despite this, the BBB is formally independent from both the government and its members and can issue negative rulings to individual members on the strength of the diversity of funding sources.
As a result, Musk tweeted recently that miners have “committed to publish current & planned renewable usage.” Saylor also stressed “transparency.” The Council’s broader goal seems to be establishing reputable measures of clean-energy bitcoin mining.
While urging transparency is a good PR gesture (see below), if Saylor and Musk genuinely want to have an impact, they should establish the BMC certificate as a standard for regulated investment funds that want to offer bitcoin while also wanting to make their investors feel good about their climate impact.
Investors would be paying a premium because clean energy is still frequently more expensive, or at the very least more complicated to obtain, than dirty juice. There may also be additional administrative fees associated with purchasing certified green bitcoin.
There are plenty of examples, especially in higher-end markets, of people paying a premium for a product or service because it’s less environmentally harmful than the alternative, without being forced to do so by the government (biodegradable disposable utensils, for example). An eco-certification system could help determine how much of a premium the market can bear and create opportunities for investors who might not otherwise own bitcoin.
Does it change the existing system?
It would not permanently impact the Bitcoin system as it would be based on influence instead of rules. It would be primarily focused on influencing the most public and visible new coin onramps.
Government intervention would be absent, just voluntary signals that provide consumers a clear and hopefully trustworthy way to exercise their choice to hold cleaner bitcoins.
In addition, it would not be an immediate and perfect solution to turn Bitcoin green – but that’s by design. Everyone would still be free to use the network however they choose.
The growing involvement of mainstream, regulated institutions provides more opportunities than trying to impose new rules. It is difficult to change the underlying system in major ways, so it is more effective to leverage local conditions or specific circumstances to exert influence.
Crucially, this approach doesn’t result in “two bitcoins,” which was the ultimate fallout of the failure of the New York Agreement. Instead, it creates additional value without tampering with the blockchain.
Also, this should highlight why it doesn’t make sense to let the market handle Bitcoin’s environmental concerns. This is actually a technical question.
A lot of greenhouse gases and carbon are externalities, which means that the cost of producing them is not efficiently reflected in market prices. Voluntary certification is a light-touch, market-based, non-governmental approach to get price and demand signals into the market.
A lobbying group or PR gesture?
Trying to change the code is the worst possible approach. Trying to influence regulation would be second-worst. Due to Musk’s influence, he can probably bend U.S. government regulations toward his will to at least some degree, and he has little insight into the real purpose of crypto. Consequently, it would be a mistake for him to set a national policy on bitcoin mining, regardless of your beliefs.
A BMC of this type would be the least ambitious and most likely. Every six months, this institution will launch a transparency report, fund a handful of upbeat ‘research reports’ on bitcoin and clean energy, then shut down.
It wouldn’t accomplish much without levers of real influence, but it would make some rich guys feel like they were doing something. In the end, isn’t that what really counts?