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How much energy is spent securing conventional financial systems? You have to include everything: banks, minting, enforcement, physical security, even military

by api 8y ago

How much energy is spent securing conventional financial systems? You have to include everything: banks, minting, enforcement, physical security, even military and intelligence action.

gtirloni 8y ago
If/when cryptocurrencies reach the same size as conventional financial systems, they will require all of the same. Bitcoin is relevant for the US economy and a rogue state tries to have 51% of hashing power? Military and intelligence to the rescue. Someone is very rich in Bitcoins? Bunker services for offline storage, physical/computer security, etc. Too many scams with altcoins? Legal enforcement, more bureaucracy, education, etc. One could say that, somehow, the cryptocurrencies won't require as much of any of that, but I don't see this point being made as often (and not with any realistic estimations).
- api 8y ago
  The 51% scenario: just install more hash power. That would be cheaper and would not risk anyone's life. Protecting cryptocurrency: there are cryptographic ways to achieve very high security that are free or very inexpensive. Physical encryption keys cost under $100. Combine those with multiple signatures and offline storage in a safe deposit box and you have several physical and cryptographic layers of security for pretty cheap. Services that do those things do not need to be very expensive. Too many scams? Point taken. We will still need police. BTW there's a reason I said cryptocurrency and not Bitcoin. Bitcoin is one of the slower cryptocurrencies. Energy spent securing the chain is per block, and its block size limit and other aspects of its design artificially boost its energy per TX. That and in the long term I expect people to find less energy intensive ways to secure block chains.
root_axis 8y ago
Why is this argument repeated so often? How is that comparison not clearly absurd to you? The conventional financial system is very obviously many orders of magnitude more efficient than bitcoin.
- spuz 8y ago
  How is it obvious that conventional financial transactions are orders of magnitude more efficient than bitcoin? You can't use transaction price as a metric because it reflects a lot more than just the energy consumption of the system and even if you did, conventional transactions are not orders of magnitude cheaper than bitcoin transactions.
  - api 8y ago
    Quibbled: conventional transactions are cheaper, but not "orders of magnitude." Also Bitcoin is one of the slower block chain coins.
  - root_axis 8y ago
    I'm not talking about transaction price, I'm responding to > How much energy is spent securing conventional financial systems? You have to include everything: banks, minting, enforcement, physical security, even military and intelligence action. I really feel like I shouldn't have to explicitly point out why this reasoning is so flawed, but to start with, bitcoin does not IN ANY WAY obviate the need for banks, law enforcement, physical security, or "military and intelligence". There isn't some kind of "well, actually..." response to this, it's totally and obviously incorrect and we're living in two different fundamental realities if we can't agree on that base line.
TeMPOraL 8y ago
For conventional financial systems, energy spending is upkeep. Something that needs to be done (due to thermodynamics), but is best minimized, because it costs money. So banks, minting, enforcement, branches, ATMs, etc. - they all try to minimize their upkeep, per the regular ways markets optimize this. All of this also arguably represents the lower bound of what it costs to run a financial system. Cryptocurrencies, on the other hand, have energy use as a feature, not cost. Unlike conventional financial systems, cryptocurrencies try not to minimize energy expenditure, but maximize it, as a core function ensuring their integrity. (Also, military and intelligence action count to stability of both conventional and cryptocurrency-based systems. After all, you can't run a crypto economy without stable and secure nation states with rule of law that allow for development and availability of advanced microelectronics (for mining), electricity and the Internet. Crypto is much more dependent on that than conventional systems.) -- A tangentially related analogy that comes to mind: cryptocurrencies are like trying to build a city on a big hovering platform, kept aloft by great fans or jets. In order to keep the whole thing airborne, you'd find yourself constantly burning fuel just to counter gravity. Now we find this idea stupid because we can just build city on the ground and not waste any fuel at all - the surface of the Earth counters gravity for free. This is cryptocurrencies' relationship with trust. Trust works 99% of the time for free. Cryptocurrencies try to replace it with burning energy.
- api 8y ago
  I think the other reply about TX counts vs. people-hours of power convinced me that indeed cryptocurrency is much less efficient than conventional currency even if you put large error bars on that analysis. I do think it's a solvable problem. Your reply about trust though... Trust is massively less expensive until it's not. The trouble with trust is that when it breaks "fixing" it is immensely painful, often requiring major political upheaval or worse. In extreme cases people die when trust has to be "fixed." I do still wonder... what happens when you amortize the cost of trust across say two hundred years time? Reminds me of the cost analysis of nuclear power. Nuclear power is cheap until Fukushima happens, and one Fukushima amortized over even 50-100 years renders nuclear power more expensive than any other energy source. I do not think it's a coincidence that the cryptocurrency explosion happened right after the 2008 financial crisis. The level of corruption revealed by the crisis and by the nature of the state and financial sector response to the crisis (selective bailouts, bailouts only to the rich, bailouts that preserved the wealth of those responsible, etc.) showed that our trust in the financial sector and possibly in larger institutions is dangerous. People started looking for alternatives. I have doubts about whether cryptocurrency would have caught on to the level it has prior to 2008. What cryptocurrency needs to be successful is some alternative to proof of work mining. I'm not convinced proof of stake is it since it has a lot of other problems. What conventional economic systems need to be successful is a housecleaning and a restoration of public trust.
zaarn 8y ago
I've once worked out the CO2 output of Ethereum, which I think can be nicely worked over. Ethereum uses 191'000 people-equivalent CO2/year (1 PECO2 = 9 tons of CO2) or roughly 4 TWh per year (I'm using numbers from multiple sources and past comments from me, I apologize if it's not lining up perfectly) The average state employes about 300'000 people (324'000) to be exact (about 16 million in total, which includes teachers and similar). So already the Ethereum network uses half of an entire average US state to just secure it's network. The US state in question does a lot more and it includes education and similar. Bitcoin uses 68 TWh anually, about 17 times as much or about 8.5 average US states. To secure 200'000 TX per day. In contrast the US employees handle the entire state affairs, including taxes, education, etc. for 54 million people every day.

by api 8y ago

How much energy is spent securing conventional financial systems? You have to include everything: banks, minting, enforcement, physical security, even military and intelligence action.

gtirloni 8y ago

If/when cryptocurrencies reach the same size as conventional financial systems, they will require all of the same. Bitcoin is relevant for the US economy and a rogue state tries to have 51% of hashing power? Military and intelligence to the rescue. Someone is very rich in Bitcoins? Bunker services for offline storage, physical/computer security, etc. Too many scams with altcoins? Legal enforcement, more bureaucracy, education, etc. One could say that, somehow, the cryptocurrencies won't require as much of any of that, but I don't see this point being made as often (and not with any realistic estimations).

api 8y ago
The 51% scenario: just install more hash power. That would be cheaper and would not risk anyone's life. Protecting cryptocurrency: there are cryptographic ways to achieve very high security that are free or very inexpensive. Physical encryption keys cost under $100. Combine those with multiple signatures and offline storage in a safe deposit box and you have several physical and cryptographic layers of security for pretty cheap. Services that do those things do not need to be very expensive. Too many scams? Point taken. We will still need police. BTW there's a reason I said cryptocurrency and not Bitcoin. Bitcoin is one of the slower cryptocurrencies. Energy spent securing the chain is per block, and its block size limit and other aspects of its design artificially boost its energy per TX. That and in the long term I expect people to find less energy intensive ways to secure block chains.

root_axis 8y ago

Why is this argument repeated so often? How is that comparison not clearly absurd to you? The conventional financial system is very obviously many orders of magnitude more efficient than bitcoin.

spuz 8y ago
How is it obvious that conventional financial transactions are orders of magnitude more efficient than bitcoin? You can't use transaction price as a metric because it reflects a lot more than just the energy consumption of the system and even if you did, conventional transactions are not orders of magnitude cheaper than bitcoin transactions.
- api 8y ago
  Quibbled: conventional transactions are cheaper, but not "orders of magnitude." Also Bitcoin is one of the slower block chain coins.
- root_axis 8y ago
  I'm not talking about transaction price, I'm responding to > How much energy is spent securing conventional financial systems? You have to include everything: banks, minting, enforcement, physical security, even military and intelligence action. I really feel like I shouldn't have to explicitly point out why this reasoning is so flawed, but to start with, bitcoin does not IN ANY WAY obviate the need for banks, law enforcement, physical security, or "military and intelligence". There isn't some kind of "well, actually..." response to this, it's totally and obviously incorrect and we're living in two different fundamental realities if we can't agree on that base line.

TeMPOraL 8y ago

For conventional financial systems, energy spending is upkeep. Something that needs to be done (due to thermodynamics), but is best minimized, because it costs money. So banks, minting, enforcement, branches, ATMs, etc. - they all try to minimize their upkeep, per the regular ways markets optimize this. All of this also arguably represents the lower bound of what it costs to run a financial system. Cryptocurrencies, on the other hand, have energy use as a feature, not cost. Unlike conventional financial systems, cryptocurrencies try not to minimize energy expenditure, but maximize it, as a core function ensuring their integrity. (Also, military and intelligence action count to stability of both conventional and cryptocurrency-based systems. After all, you can't run a crypto economy without stable and secure nation states with rule of law that allow for development and availability of advanced microelectronics (for mining), electricity and the Internet. Crypto is much more dependent on that than conventional systems.) -- A tangentially related analogy that comes to mind: cryptocurrencies are like trying to build a city on a big hovering platform, kept aloft by great fans or jets. In order to keep the whole thing airborne, you'd find yourself constantly burning fuel just to counter gravity. Now we find this idea stupid because we can just build city on the ground and not waste any fuel at all - the surface of the Earth counters gravity for free. This is cryptocurrencies' relationship with trust. Trust works 99% of the time for free. Cryptocurrencies try to replace it with burning energy.

api 8y ago
I think the other reply about TX counts vs. people-hours of power convinced me that indeed cryptocurrency is much less efficient than conventional currency even if you put large error bars on that analysis. I do think it's a solvable problem. Your reply about trust though... Trust is massively less expensive until it's not. The trouble with trust is that when it breaks "fixing" it is immensely painful, often requiring major political upheaval or worse. In extreme cases people die when trust has to be "fixed." I do still wonder... what happens when you amortize the cost of trust across say two hundred years time? Reminds me of the cost analysis of nuclear power. Nuclear power is cheap until Fukushima happens, and one Fukushima amortized over even 50-100 years renders nuclear power more expensive than any other energy source. I do not think it's a coincidence that the cryptocurrency explosion happened right after the 2008 financial crisis. The level of corruption revealed by the crisis and by the nature of the state and financial sector response to the crisis (selective bailouts, bailouts only to the rich, bailouts that preserved the wealth of those responsible, etc.) showed that our trust in the financial sector and possibly in larger institutions is dangerous. People started looking for alternatives. I have doubts about whether cryptocurrency would have caught on to the level it has prior to 2008. What cryptocurrency needs to be successful is some alternative to proof of work mining. I'm not convinced proof of stake is it since it has a lot of other problems. What conventional economic systems need to be successful is a housecleaning and a restoration of public trust.

zaarn 8y ago

I've once worked out the CO2 output of Ethereum, which I think can be nicely worked over. Ethereum uses 191'000 people-equivalent CO2/year (1 PECO2 = 9 tons of CO2) or roughly 4 TWh per year (I'm using numbers from multiple sources and past comments from me, I apologize if it's not lining up perfectly) The average state employes about 300'000 people (324'000) to be exact (about 16 million in total, which includes teachers and similar). So already the Ethereum network uses half of an entire average US state to just secure it's network. The US state in question does a lot more and it includes education and similar. Bitcoin uses 68 TWh anually, about 17 times as much or about 8.5 average US states. To secure 200'000 TX per day. In contrast the US employees handle the entire state affairs, including taxes, education, etc. for 54 million people every day.