Maybe you think bitcoin is silly, maybe you think it’s dangerous and socially irresponsible, maybe you’re a bitcoin millionaire (in which case, hi), or maybe you are desperate to join the blockchain party. Whatever your stance, it seems that you can’t escape bitcoin and the blockchain these days. And yet it feels like every time I try to understand it, I’m treated to some mumbly semi-confused version of the truth.
So in case you’re confused, here’s a little bit about the math behind bitcoin. Transactions in the bitcoin (or generally the cryptocurrency) marketplace are made very secure by a public ledger system called the blockchain. This works by using something called the elliptic curve digital signature algorithm. The blog The Mathematical Investor gives a really thorough rundown of the algorithm, but for anyone with a passing knowledge of elliptic curves, I’ll just mention that it’s related to the the modular arithmetic on the group structure of points on an elliptic curve. The point of the blockchain is that it acts as a decentralized digital public record of all bitcoin transactions and since its continually updated and there’s no master version, it’s thought to be unhackable. In theory this means it should be impossible for people to steal bitcoins, spend the same bitcoin twice, or just invent bitcoins out of thin air.
New blocks in the chain are created when miners solve certain computationally laborious but not particularly difficult hash functions. The Programster’s Blog gives an easy to digest explainer on hash functions and bitcoins. Essentially, the bounty for solving one of the hash functions is 25 bitcoins and a new block in the chain with your name on it. To solve the function you can’t do too much better than random guessing, so solving any particular one might take millions or billions of tries. This is why miners set up giant farms of CPUs cranking away at these problems all day until they hit a solution.
So basically there are two ways to get bitcoins and get yourself onto the blockchain ledger: you can mine them, or you can buy them. And mining them, in principle, is not illegal or bad any more than mining for gold or diamonds is illegal or bad. But much like diamond mining, it’s not without deeply troubling consequences.
The big problem that’s been hot in the news in the past week is the tremendous environmental cost of mining bitcoins. Mining for bitcoins uses tons of electricity – by some estimates more energy than the entire country of Ireland annually – and that is having a big global effect. Countries with cheap (or government subsidized) energy are sucking up electricity to the point of causing rolling blackouts. Some suggest that at the current rate bitcoin mining is poised to eat up more electricity than is available on planet earth by the year 2020. This is bad news for anyone interested in quitting fossil fuels and advocating for responsible energy usage.
It seems pretty clear that for any individual trying to mine bitcoins at home, there is no way you can make more money that you’re spending on electricity. This inspired one enterprising miner to rig up a mining operation in his Tesla with the goal of stealing free electricity from Tesla charging stations. One charity organization trying to raise money to help people pay bail – on its face a worthwhile charity – is advocating mining cryptocurrencies on the servers at your corporate day job to donate. You know, really stick it to the man. And the same charity recently doubled down and suggest that you use the electricity and networks at your local evil gentrifying coffee shop to mine for charitable cryptocurrency.
There has even been speculation about rich regime type North Koreans burning coal to mine bitcoins that they use to buy expensive sneakers. Truly the stuff of dystopian science fiction!
It’s crazy. I’m totally into it. And I just know there’s got to be a better way.