An open letter to Senator Warren

Bitcoin is not a threat to progressive values, it is an opportunity for America.

In this issue:

Senator Elizabeth Warren is a deeply thoughtful and intelligent leader and someone I respect, so it pains me to hear her speak out against Bitcoin when I think it is actually totally compatible with her political ideals - many of which I share. What follows is my best attempt to convince Senator Warren and those who share her perspective that far from being concerned about Bitcoin, they should be excited to embrace it.


Dear Senator Warren -

I’m a fan! I’ve followed your work since you proposed the Consumer Financial Protection Bureau. I voted for you in the 2020 primaries - my personal dream ticket was Warren / Klobuchar (I grew up in Minnesota):

I value your leadership in limiting the power of banks and protecting the American poor and middle class from systems that often exploit them or leave them behind. So when I say that I would like to change your mind about Bitcoin, I hope that it is clear that it comes from a place of common cause. I believe Bitcoin is a technology that advances both of our ideals.

I specifically felt compelled to write to you after seeing this video:

There are some things that came up in the video that I would like to clarify.

1. Bitcoin is a tool for freedom, not for criminals.

It’s a common misconception that Bitcoin is mostly used by criminals, but that isn’t an accurate description. Blockchain analytics company Chainalysis’s whole business model is detecting criminal activity on the blockchain and they estimate ~0.34% of Bitcoin transactions were used for illicit activity in 2020. Bitcoin transactions are permanent and public - leaving a trail on the Bitcoin blockchain is like leaving DNA evidence at the scene of a crime. It’s not a good practice for criminals. In fact, that’s how the ransom from the Colonial Pipeline attack you mentioned was seized - they were able to track the movements of the bitcoin. Criminals can use Bitcoin, because anyone can use Bitcoin - but they prefer to use USD.

Banning Bitcoin would not stop ransomware, or particularly inconvenience criminals generally. It would be a disaster however for dissident politicians like Alexei Navalny or protestors like the Feminist Coalition in Nigeria or unbanked women in Afghanistan. Alex Gladstein of the Human Rights Foundation has a great video overview of the many ways Bitcoin is empowering activists worldwide:

To those of us living in developed countries with representative governments and stable currencies Bitcoin can seem like a frivolous plaything of the wealthy. But to people struggling against corrupt governments or unable to access traditional banking infrastructure Bitcoin is a lifeline.

2. Bitcoin is good for the environment.

You mentioned in your video that Bitcoin is projected to consume more energy than all the world’s data centers sometime this year - but as you consider that, also consider this Newsweek article from 2017:

Predicting the future of new technology is hard to do. You can find similar dire predictions about the environmental footprint of personal computers or the Internet itself. The same kind of doomsday predictions were used to argue that the gold standard would cause gold-mining to take over the world. I think XKCD put it best:

Bitcoin uses a lot of energy, but it also creates a lot of value. You described Bitcoin’s energy use this way:

"One bitcoin transaction - a single purchase, sale or transfer - uses the same amount of electricity as a typical US household uses in … 53 days."

Total Bitcoin energy use divided by total number of raw Bitcoin transactions is a metric that was popularized by Digiconomist and it implies a number of things about the system that are not true.

First, it implies that more transactions on the network would create more energy use which isn’t necessarily true. Bitcoin’s energy use is proportional to the value of the reward paid to the miners. I went into the system in greater detail in this article, but the tl;dr is that the dominant factor in Bitcoin’s energy use isn’t how often people use it but rather how much it is worth. Any prediction about the future of Bitcoin’s energy use is basically just a prediction about its future price - and no one knows the future price of Bitcoin.

It also implies that a single Bitcoin transaction corresponds to a single economic transaction - a single "purchase, sale or transfer" as you put it. But that isn’t the case at all - Bitcoin transactions are routinely bundled together, such as exchanges batching withdrawal requests together to save on transaction fees. At time of writing the average transaction has eight outputs. Payment channel technologies (most famously the Lightning Network) can effectively also funnel an unlimited number of payments through only a handful of on-chain transactions. We don’t know for sure how many economic transactions happen per Bitcoin transaction, but it is orders of magnitude more than the "energy use/on-chain transfer" metric would imply.

Finally and most importantly it implies that all energy is interchangeable and that Bitcoin’s energy use is similar in nature to that of a typical US household. That is not the case. Bitcoin’s energy use is ~74.1% renewable and growing. By comparison the typical US household energy use is ~6-7% renewable. That’s because electricity is much easier and cheaper to produce than it is to store/transport - so a typical US household (which is using electricity at peak hours in populated areas) is using the most expensive possible electricity.

Bitcoin miners by contrast competitively seek out the cheapest possible electricity. Bitcoin serves as a buyer of last resort for energy that would otherwise have been wasted. Today Bitcoin is mined using vented gas from oil drilling, overprovisioned hydro dams, off-peak production from solar facilities and from electricity made artificially cheap through government subsidy. Tomorrow it will subsidize the development of a renewable energy grid by making the revenue streams from renewable power more dependable. In the long term it will be powered by things like volcanic geothermal plants and deep tidal power stations where power generation is extremely cheap but too remote to be useful for other things.

Far from being a disaster for the environment, Bitcoin actually serves as an enormous subsidy towards the development of sustainable, renewable power. It is a stepping stone towards a better environmental future.

3. Bitcoin mining is not "useless"

You described Bitcoin mining as a competition to solve a "useless puzzle" but that isn’t the case at all - Bitcoin mining isn’t useless, it is currently securing ~$600B worth of wealth for millions of people around the globe. The process is esoteric but it is exceptionally useful, it is the exact reason bitcoin has value. It is a powerful technology for protecting people from governments and banks.

You asked Dr. Nerula on your video "Could we have a Central Bank Digital Currency (CBDC) that didn’t exacerbate the climate crisis and undermine environmental justice?" and she answered in a very cagey way: "I think you could build a Central Bank Digital Currency in such a way as it does not consume vast amounts of energy."

Did you catch her hesitation there? She knows that it isn’t as simple as the question makes it seem. It’s easy to make a CBDC that doesn’t use much energy and can still transact like Bitcoin because Bitcoin isn’t using its energy for transactions. It is not as easy to build a CBDC with no implications for environmental justice.

Bitcoin uses its energy to defend the rules of the system. If the United States decides to issue a CBDC it will need to use energy to defend the rules of its system as well, just as it defends the dollar. America defends the rules of our monetary system with military force:

CBDC systems look like they use less energy because they are free-riding on the energy use defending the monetary system. Bitcoin does not have or need an army to defend it - it defends itself with math. The result is not energy-free, but it is quite a bit more energy-efficient than any alternatives.

4. We need Bitcoin more than Bitcoin needs us

You conclude the video like this:

"One of the easiest and least disruptive things we can do to address the environmental crisis is to crack down on environmentally wasteful cryptocurrencies."

With respect, I have to disagree here. While it is perfectly within America’s ability to cripple our growing strategic lead in Bitcoin based industry and to make the opportunity less accessible to ordinary, everyday Americans - it is very much not possible to actually interrupt Bitcoin as a payment network. There is no center where we can exert control, no authority we can co-opt or depose. Much more authoritarian regimes than ours have already failed trying to prevent Bitcoin usage.

Bitcoin adoption is already underway. More Americans own Bitcoin than live in California. Bitcoin is being adopted by cities and states, by unions and companies, countries and continents. Bitcoin is freedom and freedom is winning. America cannot stop Bitcoin, we can only choose to limit our ability to be a part of it. The choice is not "Bitcoin or no Bitcoin" it is "Bitcoin with us or Bitcoin without us." I submit that letting Bitcoin happen without us is a grim choice.

Bitcoin ultimately helps the poor, the unbanked and the disenfranchised. It limits the power of banks and central banks. It promotes freedom by its very nature. It encourages sustainability and long-term planning. It is the most elegant tool of cooperation humanity has ever invented and I believe as you come to know it more you will love it as much as I do.

I would love the opportunity to help address some of your concerns about the space and get you excited about the opportunities it is creating. I know that many in the community share that enthusiasm with me. Give us a chance to show you why.

Sincerely,

Tyler Odean