Preston Byrne Compares Bitcoin Efficiency to a Hungover Hippopotamus
He was pushed to write this post when he saw a comment on Twitter form the recognized lawyer @jchervinsky in which he says to Elon Musk that Bitcoin incentivises innovation and uses renewable energies.
We know you care deeply about advancing the world's transition to sustainable energy.
An untold amount of energy is wasted on metal & paper currency. Please help us transition to bitcoin, which incentivizes innovation & use of cheap renewables.
— Jake Chervinsky (@jchervinsky) October 5, 2018
Mr Preston Byrne said that Jake is a well-respected expert in the cryptocurrency and technology world and he respects his opinions. He explains that according to some experts, fiat currencies require massive military and bureaucratic apparatus in order to be secured and administered.
In a medium post, some time ago, Dan Held tied to quantify the costs of the proof-of-work (PoW) consensus algorithm used by Bitcoin and compare it with existing governance systems, which are linked to the economy, politics and military fields.
According to Jake Chervinsky, Bitcoin mining uses orders of magnitude less energy than producing precious metals and paper currency. However, Byrne believes that this is a fallacious reasoning.
It is very important to take into account efficiency, security and censorship tradeoffs as well. For Preston Byrne, at the moment, Bitcoin’s best comparator is the existing banking infrastructure. However, he makes a distinction and says that is not all the existing bank infrastructure, instead, he distinguishes the infrastructure that mediates either as an equivalent notional value to Bitcoin or as an equivalent transactional throughput to Bitcoin.
About it, he wrote:
“In terms of notional value, a good jumping-off point would be the Deferal Reserve System. In 2016, the Fed possessed a balance sheet of $5 trillion and managed it on a budget of $4 billion.”
These expenses were not related to the balance sheet, but instead they were associated with the Fed’s bank supervision function. But Bitcoin is different. It is worth around $113 billion dollars but it is very expensive to mine. In order to mine Bitcoin, it is necessary to spend over $4 billion dollars of electricity.
At the moment, Bitcoin cannot be considered the world’s money since it cannot process more than 7 transactions per second. And indeed, it transacts as much money as a single Bank of America branch.
Byrne says that as Bitcoin does not perform the function of gold, paper currency, banking system or governments, it cannot be compared in this way. He mentions that the chart published by Dan compares ‘apples with Tyrannosaurs.’
At the same time, he says that gold is not used as a medium of exchange. But of course, it is used in electronics and jewellery.
Furthermore, governments are not only trying to provide a P2P payment platform to all of us a all times. Instead, governments deal with complex bodies of law, policy, transport and communication. He explains that the same happens with banks. Bitcoin is not pretended to replace the functions of these financial institutions.
Perhaps, Bitcoin can be compared with paper money and printing, says Byrne. He then compares Bitcoin with the Federal Reserve. Byrne explains that the FED has a system that has an expenditure of $1 for every $1,000 dollar of notional since it has $4 billion in operating costs but $4.5 trillion in assets). Bitcoin instead costs $1 of mining for every $25 dollar of notional since it costs $4 billion dollars with a $100 (approximately) billion dollars market capitalization.
Then, Byrne compares Bitcoin with the UK’s Faster Payments system that is operated by Vocalink. He said that Vocalink has a very efficient service in term of payments. It has a revenue per year of £195 million and is able to move the entire country’s retail banking transaction for just 1/20th the annual cost of mining Bitcoin.
However, Byrne gives Bitcoin the credit of being ‘sui generis,’ since it is an alternative to centrally issued fiat currencies.
“What we shouldn’t do is get sloppy when we think about Bitcoin,” sais Byrne. “That includes not comparing the cost of operating Bitcoin to bloated strawmen such as,e.g., the total cost of world government, which, while more expensive than Bitcoin, also provide far more by way of services than Bitcoin does.”
He explains that Bitcoin should be compared to systems that have a similar throughput such as PayPal or similar companies.
After giving all these explanations he ended the article saying that ‘Bitconi is as efficient as a lame hippopotamus with a hangover.’ He says that he is waiting for the Lightning Network to be deployed and different scalability solutions that would make of Bitcoin a better asset, faster and less expensive to be transacted.
Byrne says that with time and a lot of effort, Bitcoin could one day become an efficient method to transact money. However, nowadays it is not and it will consume more energy as the price of this virtual currency rises.
Bitcoin is currently more expensive than existing systems and the POW has proven to be very inefficient. This is why other projects such as Ethereum (ETH) are moving toward a Proof-of-Stake (PoS) consensus algorithm. It would allow the network to process transactions in a fast and scalable way without having to spend important amounts of energy to power the operations.
Another thing he quoted from a Twitter user known as @Resuna is that without military and police apparatus the infrastructure necessary to mine Bitcoin would not exist, making Bitcoin be worth nothing.