Whenever the topic of Bitcoin's energy usage comes up, there's always a flood of hastily-constructed comments by people claiming that their favourite cryptocurrency isn't like Bitcoin, that their favourite cryptocurrency is energy-efficient and scalable and whatnot.
They're wrong, and are quite possibly trying to scam you. Let's look at why.
There are plenty of intricate and complex articles trying to convince you that cryptocurrencies are the future. They usually heavily use jargon and vague terms, make vague promises, and generally give you a sense that there must be something there, but you always come away from them more confused than you were before.
That's not because you're not smart enough; that's because such articles are intentionally written to be confusing and complex, to create the impression of cryptocurrency being some revolutionary technology that you must invest in, while trying to obscure that it's all just smoke and mirrors and there's really not much to it.
So we're not going to do any of that. Let's look at what cryptocurrency really is, the fundamental concept, in simple terms.
A cryptocurrency, put simply, is a currency that is not controlled by an appointed organization like a central bank. Instead, it's a system that's built out of technical rules, code that can independently decide whether someone holds a certain amount of currency and whether a given transaction is valid. The rules are defined upfront and difficult for anybody to change afterwards, because some amount of 'consensus' (agreement) between the systems of different users is needed for that. You can think of it kind of like an automated voting process.
Basically, a cryptocurrency is a currency that is built as software, and that software runs on many people's computers. On paper, this means that "nobody controls it", because everybody has to play by the predefined rules of the system. In practice, it's unfortunately not that simple, and cryptocurrencies end up being heavily centralized, as we'll get to later.
The idea of a currency that can be entirely controlled by independent software sounds really cool, but there are some problems. For example, how do you prevent one person from convincing the software that they are actually a million different people, and misusing that to influence that consensus process? If you have a majority vote system, then you want to make really sure that everybody can only cast one vote, otherwise it would be really easy to tamper with the outcome.
Cryptocurrencies try to solve this using a 'proof scheme', and Bitcoin specifically uses what's called "proof of work". The idea is that there is a finite amount of computing power in the world, computing power is expensive, and so you can prevent someone from tampering with the 'vote' by requiring them to do some difficult computations. After all, computations can be automatically and independently checked, and so nobody can pretend to have more computing power than they really do. So that's the problem solved, right?
The underlying trick here is to make a 'vote' require the usage of something scarce, something relatively expensive, something that you can't just infinitely wish into existence, like you could do with digital identities. It makes it costly in the real world to participate in the network. That's the core concept behind a proof scheme, and it is crucial for the functioning of a cryptocurrency - without a proof scheme requiring a scarce resource of some sort, the network cannot protect itself and would be easy to tamper with, making it useless as a currency.
To incentivize people to actually do this kind of computation - keep in mind, it's expensive! - cryptocurrencies are set up to reward those who do it, by essentially giving them first dibs on any newly minted currency. This is all fully automated based on that predefined set of rules, there are no manual decisions from some organization involved here.
Unfortunately, we're talking about currencies, and where there are currencies, there is money to be made. And many greedy people have jumped at the chance of doing so with Bitcoin. That's why there are entire datacenters filled with "Bitcoin miners" - computers that are built for just a single purpose, doing those computations, to get a claim on that newly minted currency.
And that is why Bitcoin uses so much energy. As long as the newly minted coins are worth slightly more than the cost of the computations, it's economically viable for these large mining organizations to keep building more and more 'miners' and consuming more and more energy to stake their claim. This is also why energy usage will always go up alongside the exchange rate; the more a Bitcoin is 'worth', the more energy miners are willing to put into obtaining one.
And that's a fundamental problem, one that simply cannot be solved, because it is so crucial to how Bitcoin works. Bitcoin will forever continue consuming more energy as the exchange rate rises, which is currently happening due to speculative bubbles, but which would happen if it gained serious real-world adoption as well. If everybody started using Bitcoin, it would essentially eat the world. There's no way around this.
Even renewable energy can't solve this; renewable energy still requires polluting manufacturing processes, it is often difficult to scale, and it is often more expensive than fossil fuels. So in practice, "mining Bitcoins on renewable energy" - insofar that happens at all - means that all the renewable energy you are now using could not be distributed to factories or households, and they have to continue running on non-renewable energy instead, so you're just shuffling chairs! And because of the endless growth of Bitcoin's energy consumption, it is pretty much guaranteed that those renewable energy resources won't even be enough in the end.
You'll often see 'proof of stake' mentioned as an alternative proof scheme in response to this. So what is that, anyway?
The exact implementations vary and can get very complex, but every proof-of-stake scheme is basically some variation of "instead of the scarce resource being energy, it's the currency itself". In other words: the more of the currency that you own, the more votes you have, the more control you have over how the network (and therefore the currency) works as a whole.
You can probably begin to see the problem here already: if the currency is controlled by those who have most of it, how is this any different from government-issued currency, if it's the wealthy controlling the financial system either way? And you'd be completely right. There isn't really a difference.
But what you might not realize, is that this applies for proof-of-work cryptocurrencies too. The frequent claim is that Bitcoin is decentralized and controlled by nobody, but that isn't really true. Because who can afford to invest the most in specialized mining hardware? Exactly, the wealthy. And in practice, almost the entire network is controlled by a small handful of large mining companies and 'mining pools'. Not very decentralized at all.
The same is true for basically every other proof scheme, such as Chia's "proof of space and time", where the scarce resource is just "free storage space". Wealthy people can afford to buy more empty harddrives and SSDs and gain an edge. Look at any cryptocurrency with any proof scheme and you will find the same problem, because it is a fundamental one - if power in your system is handed out based on ownership of a scarce resource of some sort, the wealthy will always have an edge, because they can afford to buy whatever it is.
In other words: it doesn't actually matter what the specific scarce resource is, and it doesn't matter what the proof scheme is! Power will always centralize in the hands of the wealthy, either those who already were wealthy, or those who have recently gotten wealthy with cryptocurrency through dubious means.
The only redeeming feature of proof-of-stake (and many other proof schemes) over proof-of-work is that it does indeed address the energy consumption problem - but that's little comfort when none of these options actually work in a practical sense anyway. This is ultimately a socioeconomic problem, not a technical one, and so you can't solve it with technology.
And that brings us to the next point...
While Bitcoin was not originally designed to be a pyramid scheme, it is very much one now. Nearly every other cryptocurrency was designed to be one from the start.
The trick lies in encouraging people to buy a cryptocurrency. Whoever is telling you that their favourite cryptocurrency is the real deal, the solution to all problems, probably is holding quite a bit of that currency, and is waiting for it to appreciate in value so that they can 'cash out' and turn a profit. The way to make that value appreciation happen, is by trying to convince people like you to 'invest' or 'get in' on it. If you buy the cryptocurrency, that will drive up the price. If a lot of people buy the cryptocurrency, that will drive up the price a lot.
The more hype you can create for a cryptocurrency, the more profit potential there is in it, because more people will 'buy in' and drive up the price before you cash out. This is why there are flashy websites for cryptocurrencies promising the world and revolutionary technology, this is why people on Twitter follow you around incessantly spamming your replies with their favourite cryptocurrency, this is why people take out billboards to advertise the currency. It's a pump-and-dump stock.
This is also the reason why proponents of cryptocurrencies are always so mysterious about how it works, invoking jargon and telling you how much complicated work 'the team' has done on it. The goal is to make you believe that 'there must be something to it' for long enough that you will buy in and they can sell off. By the time you figure out it was all just smoke and mirrors, they're long gone with their profits.
And then the only choice to recoup your investment is for you to hype it up and try to replicate the rise in value. Like a pyramid scheme.
Cryptocurrency as we know it today, simply cannot work. It promises to decentralize power, but proof schemes necessarily give an edge to the wealthy. Meanwhile there's every incentive for people to hype up worthless cryptocurrencies to make a quick buck, all the while disrupting supply chains (GPUs, CPUs, hard drives, ...), and boiling the earth through energy usage that far exceeds that of all of Google.
Maybe some day, a legitimate cryptocurrency without Bitcoin's flaws will come to exist. If it does, it will be some boring research paper out of an academic lab in three decades, not a flashy startup promising easy money or revolutionary new tech today. There are no useful cryptocurrencies today, and there will not be any at any time in the near future. The tech just doesn't work.
Moderation note: Because of the hype and manipulation issues explained above, I will be very strictly moderating these comments. Anything that vaguely looks like shilling or bad-faith arguing will be deleted unceremoniously, and the poster reported. That includes complaints about the moderation policy. It's up to you to make it obvious that you are discussing in good faith.
"they each represent the productivity and credibility of their issuing nations" And, how would this be different from the productivity and credibility of the issuing individuals, small businesses, etc. ?
"What you are proposing is just more cryptocurrencies." I am proposing cryptocurrencies backed by the productivity and credibility of issuing entities - much the same as how credit cards have been issued for 40+ years, but this go around without the mega-corporations, court systems, and police involvement - that's a lot of overhead to cut out, and while that overhead gives people the "warm fuzzies" that bad actors will be punished, so they can trust the system, who are the real bad actors in this world: the people you trade with every day, or the mega corporations, courts, and police?
"Cryptocurrencies are just random numbers." "Cryptocurrency is the equivalent of the serial number on a gold bar. Minus the gold." If this is what you think then you should stop raging against them and go learn something about how cryptographic hashes and key pair signatures work. If they were just random numbers, all the Bitcoin ever mined would have been stolen and spent thousands of times over. It's easier to print counterfeit U.S. currency than it is to spend somebody else's bitcoin, or forge your own outside the accepted protocol.
"Stock represents a creative concern, which is paying salaries and creating goods and services and often pays dividends" At least it is supposed to. Since the advent of online trading most popularly traded share valuations have become completely unhinged from actual valuations, future prospects or anything more tangible than the name Monkey Jizz.
"By your logic, a Ponzi scheme has intrinsic utility. It does have value - because people believe it" and it does, right up until people quit believing in it. If people lose faith in the value of the U.S. dollar, make a run on the banks, pull all their deposits at once, what happens? We have regulations and systems in place to slow that down now, prevent it from happening as quickly and dramatically and long lasting as it did in the 1930s, but essentially the system is still vulnerable to a loss of confidence crash, because that's all that backs a fiat currency: confidence. Confidence that if you don't pay your taxes the courts will strip you of title to your real estate, garnish your wages, seize your assets, etc. and if you don't follow the court orders, the police will enforce them. There's no value there, only threat of pain. When people lose their confidence in the value side of any currency, it becomes worthless.
"A slip of paper with a portrait and some numbers on it directly represents a creative concern, producing goods and services and backed and insured by that creative concern." That's your delusion, not mine.
"Intrinsic utility comes FIRST." - that's your delusion, somewhat shared with Karl Marx, and we all see how well his theories have turned out in real world practice. Yes, intrinsic utility has value - but only when people want it. Witness the value of a tanker full of crude oil in March 2020, all the food with all that intrinsic value which was left to rot in the fields or otherwise disposed of due to failures in demand forecasting during the weirdness following the pandemic. Asparagus may be a valuable commodity, nutritious, some say delicious, but when there's more of it than people want at a particular moment in time, that intrinsic utility doesn't just go to zero, it becomes a liability with a cost of disposal. Canadian maple syrup is the opposite - it has little more intrinsic value than beet sugar with a bit of flavoring and coloring in it, but people want it and will pay huge multiples of that intrinsic value to get it. This is literally the basis of all business success and failure: matching a supply of goods or services with a demand for them that exceeds the cost of delivery - and what is that cost of delivery? Not so much about any intrinsic value or expense as it is: what the suppliers can get away with charging their customers. Capitalist price competition is mostly a delusion - collusion, price fixing, fat margins, market protection legislation - those are far more common in the real world.
"However obviously that's not scalable and would still not be decentralized because in order to do business with others one would have to get an exchange to be willing to accept my EricTokens for your tokens - and charge a fee for every transaction." You've got Eric tokens, I've got Joe tokens, we exchange them for value with others who recognize the productivity and credibility with which we have backed those tokens over time, just as they recognize a credit score and extend credit in the current system, except: Eric, Joe and every other token out there is open for anyone to audit, anyone to judge for credit score, not just three mega-corporations who provide tiny little pictures of a credit history. If, for whatever reason, you want some Joe tokens and you have Eric tokens that I would value for exchange, we can do that trade directly, without central exchanges. We would need some mechanism to evaluate the value of each other's tokens, but that can be anything at all, not just a giant central database. It's absolutely distributed, decentralized, scalable, and the required fees for exchange to support the technology are tiny fractions of a cent. But, as long as you think cryptographic signatures are nothing but random numbers, you'll never understand how this could be.
"The Tether fraud is going to be uncovered." - No doubt there's plenty of that going around right now, just like insufficient backing funds in banks, accounting fraud in publicly traded companies, outright Ponzi schemes in mutual funds, and there always will be: as long as there is a lack of transparency in the system. That doesn't mean that every stock, bond, mutual fund, or investment proposal is crooked and corrupt, and it doesn't mean that every cryptocurrency need be either. For all the scary garbage that we are fed by mainstream media at every opportunity, the bulk of people are actually good, mostly honest, particularly when they think other people are watching, and society runs as well as it does because of that fact.