The tremors in the Bitcoin market are all the ears since the market crash. The famed cryptocurrency staggered from the April highs to almost half of its over Trillion-Dollar valuation in mere weeks as the halving event was followed by a ban levied on Bitcoin Mining by the People’s Republic of China. However, the series of unfortunate events draped a rather peculiar facet. The reaction of Mr. Elon Musk regarding Bitcoin. Earlier this month, the Tesla CEO pulled the cord from his unwavering support to the digital currency, citing environmental concerns and the inimical Mining procedures making up the mechanism of Bitcoin. However, the bizarre part of the whole scenario made news when a council was announced out of the blue that drove netizens into a storm of criticism and confusion.
The Mining process is an integral part of the ‘Proof of Work (PoW)’ framework embedded in the Bitcoin Protocol introduced in 2009. The process involves trusted users, also known as ‘Miners’, using copious amounts of electricity to compute complex mathematical problems, known as the ‘Hash Functions’, to authenticate each additional block of transaction data added to the initial ledger/blockchain. Simply put, the more computational power Miners utilize, the more blocks of transactions they could authenticate and, as a reward, the more Bitcoins they could mine. The process, however, by its very nature involves high energy usage to keep fraudulent transactions at bay as to corrupt a digital ledger, the fraudster would have to accumulate enormous computing power. Such a level of computation would require expensive resources that would simply render the fraud futile. Thus, the PoW protocol retains the authenticity of Bitcoin as a shared ledger.
However, Miners in existence continue to use high levels of electricity given the recent expansion and raging popularity of Bitcoin in recent years. This excessive usage sparked a debate between the environmentalists and the Bitcoin aficionados. It is estimated that Bitcoin’s electricity consumption surpasses that of Argentina. Moreover, the Cambridge Bitcoin Electricity Consumption Index (CBECI) reported that Bitcoin’s energy usage, as of 2020, also outnumbered the consumption of the The Netherlands. While the energy usage could be debated in the account of the technological boom that the world faces due to the pandemic, most of the energy used through the Mining process is generated via non-renewable resources like coal and oil which depletes the world resources whilst causing damage to the atmosphere. Recent research reported that China leads the chart of Miners with more than 75% of Bitcoin Mining being traced to the Mainland. That being said, roughly 40% of that exorbitant energy usage is leveraged through electricity mainly generated through coal mining and burning fossil fuels.
The environmental concern irked the SpaceX founder as Tesla suspended their newly introduced payment mechanism; subsiding from accepting Bitcoin as a mode of value for their vehicle purchases. The announcement wreaked havoc in the already ebbing market as billions of dollars were wiped off the market capitalization of the Cryptocurrency market in a matter of days. However, Musk still displayed hope in Bitcoin. He recently tweeted: “Spoke with North American Bitcoin Miners. They committed to publish current and planned renewable usage”. While the comments were possibly aimed to assuage the bearish sentiment lurking in the market, the following tweets befuddled the Bitcoin connoisseurs. Michael Saylor, the CEO of MicroStrategy, reiterated the meeting in a rather nuanced style, tweeting: “Yesterday I was pleased to host a meeting between Elon Musk and the leading Bitcoin Miners in North America. The Miners have agreed to form the Bitcoin Mining Council to promote energy usage transparency and accelerate sustainability initiatives worldwide”. Saylor rejoiced the members of the newfound council including reputed Mining firms like Argo, Hire, Galaxy Digital Holdings, Riot Blockchain, and a handful of others.
Within hours, however, the Bitcoin enthusiasts took the internet by storm, questioning the rudiments and merits of a council on a decentralized platform. Many started drawing comparisons to the Organisation of the Petroleum Exporting Countries (OPEC), insinuating a fledgling monopoly in the Bitcoin market. A small-scale Bitcoin miner expressed his dissent, stating: “Its extremely concerning that this group of Bitcoin Miners wandered into this meeting without any sense of self-awareness”. Adding more about his fears of a growing centricity, he stated: “Do they not recall the last time there was a closed-door meeting that involved industry stakeholders who attempted to speak on behalf of an entire industry? How did they think this would turn out?”. Moreover, the concerns revolving around the fungibility of Bitcoin were exacerbated by the council formation as Miners feared a disparity of value between a Clean Bitcoin (a Bitcoin mined using renewable energy) and a Dirty Bitcoin (a Bitcoin mined using non-renewable energy). The concerns were long present since the environmental shift allows US citizens an advantage of Mining Bitcoin through means of wind energy whilst Miners in countries like China and Russia would continue to resort to coal-driven energy production.
While the internet bustled with criticism and analysis, the fellow Miners of the newly formed council quickly came out in defense of their stance. Peter Wall, the CEO of Argo Blockchain, stated: “We’re not talking about Bitcoin code or block size or anything related to changing the nature of Bitcoin. We all love Bitcoin the way it is, as a decentralized, permissionless system”. This statement was aimed to placate the concerns lacing around the possibility of threat of a collusion and an end to the ideal ‘Leaderless Model’ of Bitcoin. Wall further added: “Discussions with the group so far have been very clear that 1 BTC = 1 BTC, and that the fungibility and essential properties of Bitcoin shouldn’t be changed”. While the comments did provide some level of comfort and relief to the low-end Miners, the question remains regarding the role and tools of the Bitcoin Mining Council since, without an authoritative position or a penalty to discourage the adverse usage of energy, the Council would be nothing but an entity of no value since despite their collective Bitcoin holdings worth billions of dollars, the mechanism would render the council powerless when it comes to regulating the Mining process in a decentralized medium.
The statements, however, did pump up the stumbling Bitcoin as it climbed from USD 34700.36 on May 24th to USD 38,994.09 on May 25th; a recovery of more than 12%. However, the market still reels with a negative sentiment. With looming ESG concerns and economies closing doors on Bitcoin, the newly formed council faces a series of dilemmas: How could an expanding group of small-scale Miners join hands with the industry veterans? How would the power and decision-making fall into equitable brackets? Especially in an industry that by design is leaderless.