Thursday, May 13, 2021

Cryptocurrency energy usage

This article says Tesla's CEO Elon Musk and former Federal Reserve chairperson Janet Yellen are concerned about the huge amount of energy used for cryptocurrency mining. Tesla has halted purchases of vehicles with bitcoin due to such concern.

The price of Bitcoin (BTC-USD) fell about 13% in the last two days. The price of Ethereum (ETH-USD) fell about 10% in the last two days. I suspect the amount of energy that mining consumes is a major driver for the price drops. The mining -- done by many miners -- is to verify transactions on the blockchain.

For many months I have suspected the amount of energy mining uses is a growing problem and will inhibit the growth of cryptocurrencies unless something is done to require less energy. On the other hand, some are less concerned. Professor Carol Alexander said: “Almost all the trading is not done on the blockchain. It’s done on secondary markets, centralized exchanges. They’re not even recorded on the blockchain.”

I assume Alexander refers to exchanges like Grayscale's trusts (e.g. tickers GBTC, ETHE). If somebody buys or sells shares in the trust, there is a counterparty selling or buying shares. The cryptocurrency per se, Bitcoin or Ethereum, is not traded and therefore the transaction doesn't need mined. Only the beneficial owner of the shares changes. The trust holds legal title to the Bitcoin the same way before and after. 

P.S. I didn't post for about two weeks due to selling our previous house, moving into our new house, and a vacation for several days to Zion National Park, Bryce Canyon, the Grand Canyon, and Phoenix. 

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