Dan Hedl Profile picture
Sep 14, 2018 25 tweets 10 min read Twitter logo Read on Twitter
1/ Most people think #Bitcoin’s PoW is "wasteful." I explore how everything is energy, money is energy, subjective use of energy, and PoW's costs relative to existing governance systems

For a deeper dive, my Medium post: medium.com/@danhedl/pow-i…

TL;DR - check out this thread 👇
2/ The idea of “work” being energy started when the French Mathematician Gaspard-Gustave de Coriolis introduced the idea of energy being “work done.” A long time ago, the work done in the economy was entirely human. That work was powered by food.
3/ Thousands of years ago, our energy usage increased when we domesticated animals which could labor in our place. Those new laborers also had to be fed. Large amounts of food were required to meet the energy demand, and our prosperity increased alongside.
4/ In the last few hundred years, we built great machines which produced work. Both machines and nature produce work through the utilization of energy (first law of thermodynamics). We have an economy based not on money, but on work and energy.
5/ All things in our lives are closely linked to the price of energy. The cost of any good largely reflects the energy used in producing that good. Money, which is the representation of the work required to generate goods and services, can also be viewed as stored energy.
6/ In the early 20th century, people were interested in replacing gold or the dollar with "the energy dollar” or “units of energy.” The concept was popular due to its sound money characteristics. The flaw? It could not be transmitted or stored easily.
7/ “that in order to make a man/woman covet a thing, it is only necessary to make the thing difficult to attain.” - Mark Twain

#Bitcoin’s PoW was originally invented as a measure against email spam. Only later did Satoshi adapt it to be used in digital cash. @hugohanoi
8/ What PoW mining does under the hood, is use dedicated machines (ASICs) to convert electricity into Bitcoins (via block reward). #Bitcoin has a capitalistic voting mechanism, “money risked, votes gained” through the energy/ASICs used to generate hashes (votes). @Truthcoin
9/ When Satoshi designed PoW, he fundamentally changed how consensus between humans is formed from political votes to apolitical votes (hashes) via the conversion of energy. It's the most simplistic and fair way for the physical world to validate something in the digital world.
10/ #Bitcoin is a super commodity, minted from energy, the fundamental commodity of the universe. PoW transmutes electricity into digital gold. The fact that PoW is “costly” is a feature, not a bug. @dergigi
11/ Historically, securing something meant building a physical wall around whatever is valuable. Bitcoin’s ledger is secured by the sum of all energy expended to build a digital wall. It would take an equivalent amount of energy to tear it down (unforgeable costliness)@NickSzabo4
12/ “Electricity consumption per transaction” is a poor KPI, here's why:

- The energy spent is per block, not per transaction
- The economic density of a #Bitcoin transaction is increasing (Segwit, Lightning)
- Should be defined by security of economic history @LaurentMT
13/ The rate of ASIC efficiency improvement is slowing. As efficiency gains slow we can expect an increase in manufacturer competition as margins narrow. All-in mining cost will shift from the upfront cost of ASIC hardware to the ongoing energy costs to operate @derek_hsue
14/ The cost of #Bitcoin mining becomes the lowest (excess) value of electricity. This may solve a problem with renewable energy sources that have predictable capacity that is otherwise wasted, like hydro and flared methane.
15/ Aluminum was a popular means of "exporting" electricity from a country with abundant renewable energy resources that are stranded (ex: Iceland). As aluminum manufacturing matured over the decades, the kWh per Kg of aluminum produced became more efficient.
16/ PoW is the buyer of last resort for all electricity, creating a floor that incentivizes the building of new energy producing plants around disparate energy sources that would have otherwise been left untapped. @TuurDemeester
17/ “Imagine a 3D topographic map of the world with cheap energy hotspots being lower and expensive energy being higher. I imagine #Bitcoin mining being akin to a glass of water poured over the surface, settling in the nooks and crannies, and smoothing it out.” - @nic__carter
18/ “Energy used for PoW will stop growing when marginal return from burning a kWh of energy through PoW = the marginal return from selling that kWh to the grid… the "Nakamoto point” which will use between 1-10% of the world's energy.” - @dhruvbansal
19/ Some complain that #Bitcoin mining doesn’t accomplish “anything useful” like finding prime numbers. Bitcoin is already doing something useful for society. It isn’t rational to ask miners to perform a function that is altruistic without incentives. @aantonop
20/ Everything requires energy. Claiming that one usage of energy is more or less wasteful than another is completely subjective since all uses have paid market rate to utilize that electricity. #bitcoin
21/ #Bitcoin’s utilization of the electrical capacity consumes magnitudes less electricity than existing fiat systems which not only have power requirements banking infrastructure, but the military and political machina. The energy tradeoff is a “net positive” outcome.
22/ With #Bitcoin mining as an incentive to find cheaper energy, it brings us closer to a Kardeshev Type I energy civilization (Curr: ~0.72). Reaching Type I increases the standard of living for everyone. @martindale
23/ The pressure to find cheap energy sources will accelerate the effort to build fusion reactors. The fuel for fusion (primarily deuterium) exists abundantly in the Earth’s ocean which could potentially supply the world's energy needs for millions of years.
24/ “Water, water, everywhere, Nor any drop to drink.” - Samuel Taylor Coleridge

Fusion power and other cheaper energy sources, will solve major problems for humanity like fresh water shortages. Desalination stations requires large amounts of energy.
25/ Via #Bitcoin, is the trustless settlement of $1.34T between counterparties annually with the added benefit of cheaper energy for all, worth the $4.5B in current mining costs? I think the answer is a resounding yes.

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More from @danheld

Oct 4, 2018
1/ Many people think Bitcoin’s distribution wasn’t fair, or that Satoshi “stealth mined.” Below I dive into early mining, inequality, distribution, and ethics.

For a deeper dive, my Medium post: medium.com/@danhedl/bitco…

TL;DR - check out this thread 👇
2/ Satoshi didn’t premine. Satoshi gave everyone a 2 month heads up before mining the Genesis block, reaching out to the only other people who would possibly be interested in experimenting with a sovereign digital currency at the time, the cypherpunks. @MartyBent
3/ The whitepaper was published on October 31, 2008, then Bitcoin 0.1 software was released on January 9, 2009. The genesis block (the only block specially minted earlier) has a timestamp of 18:15:05 GMT on January 3, 2009.
Read 25 tweets
Sep 25, 2018
1/ Bitcoin as Digital Gold: Information Theory of Money @GeorgeGilder

This tweet storm is my distillation/tweak of his narrative. A thread 👇
2/ Money is the central information utility of the world economy. As a medium of exchange, store of value, and unit of account, money is the critical vessel of information about the conditions of markets around the globe in both time and space.
3/ Wealth is knowledge and growth is learning, and that both are governed by the science of information. Knowledge expands through testable learning, proceeding through entrepreneurial experiments, with the outcomes measurable by reliable money.
Read 10 tweets
Aug 31, 2018
1/ Hodlers are the revolutionaries. A reflection on the important role hodlers play in developing Bitcoin’s network (and other cryptocurrency networks).

For a deeper dive please read my Medium post: medium.com/@danhedl/hodle…

For the TL;DR, check out this thread 👇
2/ “In the beginning of a change the patriot is a scarce man, and brave, and hated and scorned. When his cause succeeds, the timid join him, for then it costs nothing to be a patriot.” - Mark Twain
3/ Satoshi published the Bitcoin white paper on 10/31/2008, one month after the collapse of Lehman Brothers sent a shockwave through the financial system. Bitcoin was incepted in a time of absolute necessity. Trust had been lost in a world that ran on trust.
Read 25 tweets
Aug 24, 2018
1/ A complete debunking of top Lightning FUD claims:
2/ “Lightning is an IOU”

In no way are they transactions IOUs. The money you receive in a channel is under your complete control instantly. You may spend, or transfer back to the blockchain at your leisure
3/ “Lightning is fractional reserve”

Can you spend more Bitcoin inside the escrow than actually exist? Of course not, because it’s real bitcoin put into a real script that will execute as a real and valid transaction on the bitcoin network
Read 20 tweets
Aug 22, 2018
1/ Most people have misconceptions about PoW being "wasteful." Because this narrative is so popular, I've spent some time collecting my thoughts on its utility, efficiency, and morality. A thread:
2/ “that in order to make a man/woman covet a thing, it is only necessary to make the thing difficult to attain.” - Mark Twain

A ledger can only be immutable if and only if it is costly to produce. The fact that PoW is “costly” is a feature, not a bug.
3/ Until very recently, securing something meant building a thick wall around whatever is deemed valuable. The new world of cryptocurrencies is unintuitive and weird - there are no physical walls to protect our money, no doors to access our vaults.
Read 13 tweets
Aug 21, 2018
1/ Sending Bitcoin to the Cypherpunk mailing list on October 31, 2008 was the clear choice. This was the right group to gather feedback from, the right channel to engage with.
2/ The Cypherpunks were activists advocating widespread use of strong cryptography, as a route to social and political change. They had predicted the dawn of cryptocurrency years before in their many manifestos:
3/ “Therefore, privacy in an open society requires anonymous transaction systems. Until now, cash has been the primary such system... An anonymous system empowers individuals to reveal their identity when desired and only when desired; this is the essence of privacy.” - CM
Read 10 tweets

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