Anita and I talked with Sequoia Capital’s Shaun Maguire on our Chain Reaction podcast this week about why gamers are dubious about NFTs and where decentralization actually counts. More information is provided below. We discussed the adjustments Twitter may make to boost its crypto business in our first newsletter last week. At the time, I — like many others — believed that a Musk Twitter deal would ultimately fail, but lo and behold, we’ve reached an agreement. Everything has been authorized up to this point, but I have a sneaking suspicion that something will go wrong at the last minute.
If that happens, the board of directors of Twitter or Musk will be liable for a $1 billion penalty for abandoning the transaction, but I suppose we’ll see… This week, I’m taking a look at a contentious Bitcoin mining ban that’s making its way through New York regulators, as well as what laws like it may imply for Bitcoin’s political reputation. You may subscribe to TechCrunch’s newsletter page to receive this message in your email every Thursday morning. While you’re at it, follow me on Twitter! The most popular viewpoint, The industry’s most vocal critics see lots of reasons to condemn it, but the perception that crypto contributes relatively little to society while using vast quantities of energy is at the heart of most concerns.
While crypto enthusiasts may argue about the former until they’re blue in the face, the latter is a little more difficult to dismiss. According to the oft-cited tracker constructed by Digiconomist, Bitcoin uses an estimated 204.50 terawatt-hours (TWh) of electricity each year at present rates, which is equivalent to Thailand’s power usage. Ethereum’s energy footprint is half that of Bitcoin, yet it’s still similar to Kazakhstan’s electricity use. In 2018, the United States reported a total power usage of 4,222.5 TWh.
Those figures are difficult to take for some politicians. The New York State Assembly approved a law last week that enraged the crypto community. The measure prohibits the development of crypto mining companies in the state that use non-renewable energy sources. It is worth noting that it does not apply to existing facilities. A measure to that effect is presently being debated in the state senate, which is controlled by Democrats.
This is intriguing for a variety of reasons. For one thing, cryptocurrency is becoming increasingly polarizing. Republicans are usually leery of regulating uncontrolled companies, thus a number of prominent Republicans have thrown their complete support behind cryptocurrency with minimal compromises.
This includes potential future party leaders such as Texas and Florida governors. Meanwhile, the majority of crypto’s most vocal opponents tend to be Democrats, but that doesn’t mean it’s a partisan issue. Industry sources praised President Biden’s latest bitcoin executive order as “extremely supportive” to the space. For many agencies considering blanket bans, energy use appears to be the most significant sticking point.
Another reason this is intriguing is that this measure only affects a few significant crypto networks, including the two most important ones — Bitcoin and Ethereum. To protect their networks, these networks employ a proof-of-work approach. In this case, the work is mining, which entails computers working around the clock to essentially solve math problems that protect the blockchain’s integrity, making it extremely costly and technically difficult for hackers to overwhelm the network and make unauthorized transactions and steal tokens. The overall trend in crypto appears to be away from proof-of-work, and Ethereum is in the midst of converting its network to a less energy-intensive consensus technique.
However, Bitcoin is unlikely to make its own shift, implying that regulatory maneuverings like as New York’s proposals will become increasingly hostile to Bitcoin (and a few smaller networks) in particular. This might create an interesting scenario in which the crypto sector gains mainstream acceptance among its opponents, but Bitcoin becomes increasingly politically isolated.
Bitcoin is already more open about its libertarian leanings than other blockchains. It’s becoming evident at recent industry events that, in the midst of a developing developer environment for blockchains like Ethereum and Solana, the Bitcoin network’s architecture philosophy is fast being its most unifying factor. Bitcoin’s continued defiance of criticism and requests for reform may empower its fans, but criticisms about the network’s power consumption aren’t going away, and more use might make it a more prominent target for harsh regulation. Some politicians may learn to embrace cryptocurrency, but they still despise Bitcoin.