Late yesterday Microstrategy CEO Michael Saylor and Tesla CEO Elon Musk dropped a bombshell. They announced the formation, apparently spearheaded by Saylor, of something called the Bitcoin Mining Council (BMC). According to Saylor, the group’s goals are to “promote energy usage transparency & accelerate sustainability initiatives worldwide.”
Few details have been provided so far of how those goals will be pursued. And it’s no great surprise that many bitcoiners have filled that void with suspicion, seeing the group as some sort of cartel or attempt at “centralized” manipulation.
It is certainly slightly worrying that Saylor and Musk are taking the lead on this despite apparently lacking any substantial mining experience. We’re long past the days of plugging in a bare metal rack in your basement to earn bitcoin. This is a nuanced and technical business that involves treasury management, power arbitrage, and a lot of other subtleties.
David Z. Morris is CoinDesk’s chief insights columnist.
Saylor and Musk are best known, instead, as bitcoin investors and holders – a much simpler proposition. But in fairness, they would seem to be motivated by those experiences, particularly Tesla’s involvement in bitcoin, which Musk has paused because Bitcoin’s energy consumption doesn’t align with the company’s mission. Meanwhile, the group has looped in actual miners who know what they’re talking about, including Galaxy Digital, and Argo Blockchain. A representative for Argo Blockchain said that while Saylor and Musk were the public face of the initiative and had acted as conveners, the miners themselves would be in control.
All this matters whether or not you personally agree with the spreading narrative that Bitcoin is an environmental threat. It’s clear now that many people who might otherwise have some interest in cryptocurrency have been turned off by environmental concerns. If nothing else, Musk and Saylor’s initiative sends the message that the issue is being taken seriously, and may be solvable. That’s a message that benefits Bitcoin.
But whether it turns out to be more than a message, whether there’s a substantive impact on Bitcoin’s energy consumption – or on the other hand, blows up in everyone’s face – will depend on how the group pursues its goals. There are a few options, and some are much better than others.
A coordinated attempt to change Bitcoin’s code?
There is so far no evidence that this is part of the Council’s plans, and in fact, participants have explicitly denied any such intention. But many longtime Bitcoiners suffer from a sort of PTSD towards groups of influential people working together on Bitcoin “solutions.” When Saylor’s announcement arrived, some crypto longtimers immediately thought of the New York Agreement, which laid out a roadmap for scaling Bitcoin that ultimately ended in recrimination and the spinoff of Bitcoin Cash (Digital Currency Group, CoinDesk’s parent company, was a leading player in those events).
That chaotic outcome only cemented skepticism of such coordinated attempts by powerful players to alter Bitcoin’s code. That legacy has helped foster a wave of paranoia in response to the BMC, with some worrying it could become a similar attempt at exerting ‘centralized’ pressure for deeper changes to the nature of Bitcoin.”
But again, it seems pretty clear this is not part of Saylor and Musk’s plan. Far more importantly, if they tried it, they’d get absolutely rekt.
In 2017, the New York Agreement players successfully pushed code updates, but the landscape has changed drastically, with vastly more miners on the network who would need to be brought onboard to support any changes. Most of those are now in locales where the environmental concerns at the center of the BMC would be subordinate to pure profit calculations.
And that’s to say nothing of the resistance any changes would likely face from established Bitcoin developers. There’s no obvious technical way to make Bitcoin as a whole consume less electricity, or guarantee the use of renewable energy, so an attempt in that direction would be doomed.
In short, if they try to change the code, Saylor and Elon will almost certainly end up with several different kinds of egg on their face.
A truly independent standards body?
The best and most impactful approach for a coalition of Bitcoin miners who want to improve the sustainability of the system would be to create a truly independent regulatory and standards body that reviewed and certified miners’ use of clean energy. This would probably be easier to pull off if it focused on North America, which seems to be the game plan so far.
This organization would be funded by dues from member miners, and would probably find supplemental revenue streams. Certified miners would benefit from increased demand for their mined coins from investors or users specifically looking for cleaner coins, such as investment funds that market themselves as socially responsible. The BMC would be motivated to be transparent and have good standards to maintain the faith of investors who rely on it for certification.
This would open a significant new potential pool of bitcoin investors, and ultimately, users. It might be unclear thanks to the histrionics of certain crusaders who have decided that Bitcoin’s energy consumption is a conclusive reason that it shouldn’t exist, but there is a significant cohort who care about the environment and are simultaneously curious about cutting-edge technology (just look at Tesla).
But as Shark Tank’s Kevin O’Leary has already pointed out, the most interest would almost certainly come from big companies and institutions. Many large financiers, corporations, and investors who might be interested in Bitcoin also face real reputational pressure from shareholders, the media, and other public watchdogs to be environmentally responsible. Giving them an avenue for cleaner Bitcoin investment would be addressing a pretty clear market need.
A simple parallel would be the Better Business Bureau. Though somewhat obsolete thanks to internet reviews, the BBB still collects dues from member businesses, then awards a valuable seal of approval to members that meet its standards. Crucially, though the system is far from perfect, the BBB is formally independent from both the government and from its funding members, while its diversity of funding sources gives it more leverage to issue negative rulings to individual members.
There are some signs that the Council is headed this general direction, with Musk tweeting for instance that miners have “committed to publish current & planned renewable usage.” Saylor’s announcement also emphasized “transparency.” The broad goal seems to be visible and reputable measures of clean-energy bitcoin mining.
But simply urging transparency amounts to little more than a feel-good PR gesture (see below). If Saylor and Musk want to have an actual long-term impact, a BMC should establish its green certification as a standard for regulated investment funds who want to offer bitcoin, but also want their investors to feel good about their greenhouse impact.
This would involve investors paying a premium simply because clean energy is still often more expensive, or at least harder to get, than dirty juice. There might also be added administration costs associated with buying certified green bitcoin. But there are plenty of examples, especially in higher-end markets, of people choosing to pay a premium for a product or service because it’s less environmentally harmful than the alternative, without any regulatory pressure to do so (biodegradable disposable utensils are just one example). A green certification system would help the market find how much of a premium the market can bear, and create opportunities for investors who might not otherwise be willing or able to hold bitcoin.
This approach is important because it’s limited and subtle, based on influence instead of rules. It wouldn’t permanently “mark” coins or otherwise change the Bitcoin system. The focus would be strictly on influencing the most public and visible new coin onramps. It wouldn’t involve any government intervention, just voluntary signaling that provides consumers a clear and hopefully trustworthy way to exercise their choice to hold cleaner bitcoin.
Obviously that also means it wouldn’t be a perfect or complete solution that instantly makes Bitcoin green – but that’s by design. Everyone would still be free to do whatever they wanted on the network.
This is in general a good model for trying to influence Bitcoin at this point in its history. You’re going to have a hard time changing the underlying system in major ways, so you’re better off trying to leverage local conditions or specific circumstances to exert influence rather than trying to impose new rules. The growing involvement of mainstream, regulated institutions gives more opportunities for this.
This approach, crucially, doesn’t create “two bitcoins,” which was the ultimate fallout of the failure of the New York Agreement. Instead, it creates added value without tweaking anything on the blockchain.
Hopefully this also makes clear why “just let the market handle it” is not a viable alternative to addressing the public’s environmental concerns about Bitcoin. This is effectively a technical question. Carbon and other greenhouse gases are generally externalities, meaning that the true social cost of producing them is shifted away from the producer, and not efficiently reflected in market prices. It’s the sort of thing you need to engineer a bit more to get price and demand signals into the market. Voluntary certification is a light-touch, market-based, non-governmental approach.
A lobbying group or PR guesture?
If trying to change the code is the worst possible approach, trying to influence regulation would be a close second. Given his influence, Musk could probably bend U.S. government regulations to his will to at least a degree, and he’s shown limited real insight into why crypto matters or what it’s actually for. So letting him influence national policy on bitcoin mining would be a mistake, whether or not you believe such policy should exist in the first place.
This is the least ambitious possibility the BMC could become. It’s also by far the most likely. It will publish a transparency report from five or six Bitcoin miners every six months, fund a handful of upbeat ‘research reports’ on bitcoin and clean energy, and call it a day.
Without levers of real influence, it wouldn’t accomplish much, but it would make some rich guys feel like they were Doing Something. And I guess that’s what really matters, isn’t it?
UPDATE (5/27/21, 4:02 PM UTC): Added comment from Argo Blockchain.