Crypto Stocks Bounce After $6 Billion Drop as Bitcoin Churns

Crypto Stocks Bounce After $6 Billion Drop as Bitcoin Churns

Benzinga

Authors Rob Chang and Brittany Kaiser Recently, Elon Musk announced that Tesla’s purchases and transactions with Bitcoin would be paused until the network “transitions to more sustainable energy.” Though Musk is one of the blockchain industry’s biggest advocates, his criticisms of the Bitcoin network’s energy usage are joining a growing choir of voices pressuring industry leaders to take action. Accompanying every large crypto boom, and the renewed financial industry and public attention it inspires, comes the hand-wringing about what this future of finance is ultimately reaping and wreaking. The litany of naysayers reflexively return to their list of talking points against blockchain technology: it is mostly used by criminals (false), it is too volatile to be trusted (also false, especially when comparing it to other more finicky and “trusted” legacy assets that can crash or boom at a moment’s notice), and most of all, bitcoin energy consumption is what will drive the inevitable climate change that will toast the planet and all of humanity with it (also false, and usually accompanied by hyperbole). No less an authority than U.S. Treasury Secretary and former Federal Reserve Chairwoman Janet Yellen has once again joined the chorus, recently saying, “[Bitcoin is] an extremely inefficient way of conducting transactions, and the amount of energy that’s consumed in processing those transactions is staggering.” Unsurprisingly, the Federal Reserve does not seem to have published any figures on the energy costs of managing the U.S. dollar, nor have they opined on how they seek to manage energy consumption of the blockchain-based digital dollar they are reported to be introducing this coming summer. Of course, while the headlines about Bitcoin’s energy usage isn’t a story nearly as old as time, it is an unsustainable argument that has been reductive, reused, and recycled since the earliest days of the Bitcoin hype cycle. In 2013, noted Bitcoin skeptic Mark Gimein provided some of the first foundations in this convenient argument that has been repeatedly deployed by Yellen and others: “The trade-off here is that as virtual value is created, real-world value is used up. About 982 megawatt hours a day, to be exact. That’s enough to power roughly 31,000 U.S. homes, or about half a Large Hadron Collider. If the dreams of Bitcoin proponents are realized, and the currency is adopted for widespread commerce, the power demands of bitcoin mines would rise dramatically.” Yes, Bitcoin and other cryptocurrencies that rely on mining computer hardware can use large amounts of energy, just as the 5 billion views of viral music video “Despacito” burned as much energy as 40,000 U.S. homes in a year. Bitcoin has probably financially liberated more people than “Despacito'' though, to be fair. Still, energy consumption comparisons to the dollar or consumption of other digital content are no excuse for virtual currency’s usage of dirty energy. We have to do better and we know we will. Just as we are in the infancy of the digital finance future, we are also in the infancy of finding effective ways to offset and even circumvent the wastefulness of first-generation mining practices. To continue with that effort, leaders inside and outside of government and finance need to realize and address the problem effectively, not use it as an easy straw man to dismiss a booming industry that is quickly gaining global mass adoption. Quick read: BTC vs ETH Price Predictions Cleaning up legacy mining issues To help solve the problem, we need to first recognize the true scope of the problem beyond the vaguely framed “staggering” amount of energy. According to a recent Cambridge University study cited by Decrypt, Bitcoin’s non-renewable electricity consumption is about 78.7 TWh, which is equal to 61 billion pounds of burned coal, electricity consumption for 9 million homes, or 138 billion miles driven by an average passenger vehicle. For scale, it might be more helpful to think of Bitcoin as its own country, as long as we are comparing apples to oranges. Decrypt’s math also shows that Bitcoin consumes more energy in a year than the country of Argentina, making it a top 30 “country” for consuming energy. However, that’s not so bad if you consider how another Bitcoin metric compares to other countries: if you ranked Bitcoin’s $1 trillion market cap against world GDPs, it would rank an even higher 17th, between Mexico and the Netherlands. Recently, Deutsche Bank even noted that it could “no longer ignore Bitcoin, as it has become the third largest currency in the world by total value of circulation.” Even so, we shouldn’t excuse these environmental downsides with the same vigor naysayers do to promote them. The industry has already started on the solution of creating significant offsets and surely there will be more to come. Crypto has two things going for it: its underlying efficiency-first math and a sort of innovation-based “law of attraction.” As Bitcoin and other cryptocurrencies become a more feasible way of creating both value and access to finance, it attracts more talent to not only innovate on the fundamental technology, but to also reduce its environmental impact and carbon footprint. One such area that the industry is focusing on is increasing renewable energy sources, which also provides its own cost benefits to miners. There is also no telling what effect next-generation blockchains or whole technologies like quantum will have on reducing the industry’s carbon footprint. And full disclosure: at Gryphon Digital Mining, we are also working on this problem, finding partners to help create the world’s largest fully integrated pure-play Bitcoin miner with a zero-carbon footprint. We are using 100% renewable energy, not greenwashing with offsets for dirty energy usage, but of course open to options like carbon credits to make sure our overall operational carbon footprint is always neutral, if not negative. Read also: What is Bitcoin Mining? We can’t do it alone It is natural for politicians to critically engage with these issues, especially when they don’t come from a background in blockchain technology, or may not be well-briefed about the industry. If you have watched a congressional hearing with any Big Tech CEOs, you’ve seen the varying levels of digital literacy enjoyed by our leaders, some of whom struggle to keep up with the quickly moving innovation in emerging technologies like the blockchain industry. It is much easier for politicians and bankers to reflexively look for the problems with blockchain technologies as a means of easily dismissing it, rather than realizing the public demand for digital assets, and finding solutions to make it more sustainable and less environmentally wasteful. While it might go against the natural instinct of some legislators and regulators to be open-minded to such innovations, it will best help the public interests they serve if they start the process of engaging with the industry and its real problems in earnest, such as the forward-thinking officials in the State of Wyoming who have engaged since 2017, and who have now brought tens of billions of dollars worth of digital asset businesses into the state’s economy. Bitcoin, cryptocurrencies and other digital assets are in the midst of another global boom, so it is in everyone’s interest both inside and outside of the industry to make it more friendly to the environment. Blockchain is one of the most innovative spaces in all of technology, so we cannot wait for Elon Musk’s new solution, Kevin O’Leary’s investments, or a quantum breakthrough to solve the problem for us. Rather than the crypto industry ignoring its carbon footprint problem, or legacy government and finance thinking it can dismiss, or regulate blockchain technology out of the economy, it will take real cooperation from both industry and public sector leadership to continue reducing our carbon footprint through demonstrably effective measures like increased investment and innovation in renewable energy sources. We still have time, but we need to focus on adding sustainable infrastructure to digital asset networks so that the industry’s continued carbon footprint is small, and not a reason for excess regulatory scrutiny. Only then can we rid the industry of the legacy baggage that currently holds us back, and continue to rapidly scale the building blocks of this technological and financial revolution. About the authors: Rob Chang is the CEO of Gryphon Digital Mining, former CFO of Riot Blockchain, and former Managing Director of Cantor Fitzgerald, widely regarded as a top commodities and mining expert. Brittany Kaiser is the Chair of Gryphon Digital Mining, as well as a Director at the Blockchain Center Foundation, and is considered a global expert in blockchain technology and digital assets. See more from BenzingaClick here for options trades from Benzinga5 Ways Real Estate May Provide Income And Diversification In A COVID-19 RecoveryBenzinga Unusual Options Data to be Leveraged by Bulltrades.net in their Mission to Simplify Wall Street Trading© 2021 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

Sustainability issues a hurdle to crypto enthusiasts

Elon Musk, founder of Tesla, recently christened himself “techno-king”, or king of tech. A better moniker might be “Wizard of Oz”. The entrepreneur possesses a startling ability to tug the strings of the crypto world.

In February, bitcoin prices leapt when Musk revealed that the company had bought $1.5 billion worth of the cryptocurrency. So did the price of dogecoin following similar Delphic tweets.

But last weekend dogecoin tumbled when Musk admitted on an American comedy show that the asset might be a “hustle”. And now bitcoin has tumbled too after yet another tweet, this time one revealing that Tesla will no longer accept bitcoin for purchases of electric cars.

“We are concerned about rapidly increasing use of fossil fuels for bitcoin mining and transactions, especially coal,” Musk said.

Activists and journalists have, of course, been highlighting this issue for months. Two striking statistics encapsulate the problem.

First, it seems that two-thirds of bitcoin to date has been mined – created through computing algorithms – in China, using data centres reliant on electricity generated by coal.

Indeed, bitcoin’s link with the black stuff is so tight that Alex Lipton, a crypto expert, notes that bitcoin prices move whenever accidents occur in Chinese coal mines.

Second, the $2 trillion crypto market has expanded so fast that it is gobbling up vast quantities of energy. Mining bitcoin, which accounts for half of all crypto, currently uses the same amount of energy annually as the Netherlands did in 2019. Scientists warn this threatens the Paris climate goals.

Bitcoin enthusiasts such as the entrepreneur Anthony Scaramucci point out that statistics need context and that traditional finance is energy-intensive too.

So are other types of technology. As a paper co-authored by a former researcher from Google’s artificial intelligence ethics unit notes, some of the AI processes behind Google search are “estimated to require as much energy as a trans-American flight”.

Carbon footprint

Even with such caveats, the fact is that bitcoin’s carbon footprint is embarrassing, not just for Tesla but for millennial crypto investors who care about green issues. And that in turn highlights three big lessons for all investors.

First, nobody can afford to ignore environmental, social and governance concerns today, even in stocks labelled as ESG (environmental, social and corporate governance). Tesla is featured in many ESG funds because investors have focused on the electric-car point and ignored other issues.

However, digital transparency is now enabling activists to monitor companies’ activities more effectively than ever before. This means that investors need lateral vision when they value companies, since ESG risks are rarely static or binary and often involve trade-offs that constantly shift.

Second – and leading from this – investors need to watch the debate around tech’s carbon footprint as an example of this shifting landscape. A scramble is under way to tackle bitcoin’s carbon issues.

The Rocky Mountain Institute, a clean-energy non-profit, recently joined forces with United Nations officials and fintech leaders to explore solutions. One might entail changes to the computing processes around crypto to cut energy consumption; last week a “green” cryptocurrency which uses less processing power, called chia, was launched.

Another option is to use green electricity sources, for instance by switching Chinese coal for Icelandic hydroelectric power. Enthusiasts such as Scaramucci think this could solve the issue if there was a registry that enabled investors to track the provenance of bitcoins.

Unregulated sector

Which idea might work is unclear. But the debate probably explains why Musk dispatched his tweet. And why the veteran investor Stanley Druckenmiller said this week that it is unclear which cryptocurrency will eventually dominate (assuming you think, as Druckenmiller does and I do, that crypto is here to stay). Few people predicted 15 years ago that Facebook, not MySpace, would come to dominate social media.

The third point is about regulation. The reason Musk can act like the Wizard of Oz of crypto, with impunity, is that the sector is opaque and largely unregulated.

Financial policymakers are now threatening a crackdown. But as a report from the Bank for International Settlements notes, “the vast majority of jurisdictions in the world” have not implemented controls to stop money-laundering, let alone market manipulation. Plus there is “significant variability in the definition of the regulatory perimeter across jurisdictions”. In plain English, oversight is a mess.

Libertarians like it this way. So might Musk. But if crypto is going to become more mainstream – with whatever token – it badly needs more accountability and transparency.

Maybe that will be impossible to achieve given crypto’s anti-establishment origins. But the fight over green standards might, just possibly, start this process by providing a cause for young crypto-enthusiasts to rally around.

If so, that could turn out to be the most consequential impact of Musk’s tweet and a reason for investors and regulators to conduct some belated scrutiny of the Chinese mines, both of the coal and computing variety. – Copyright The Financial Times Limited 2021

Solana, a blockchain platform followed by top crypto investors, says it’s far faster than Ethereum – TechCrunch

Solana isn’t widely known yet outside of the crypto community. But insiders think the blockchain platform is interesting for a wide variety of reasons, beginning with its amiable founder, Anatoly Yakovenko, who spent more than a dozen years as an engineer working on wireless protocols at Qualcomm and who says he had a lightbulb moment at a San Francisco cafe several years ago following two coffees and a beer.

His big idea centered on creating an historical record to speed along “consensus,” which is how decisions are made on blockchains, which are themselves peer-to-peer systems.

Right now, consensus is reached on various blockchains when members solve a mathematical puzzle, a mechanism that’s called “proof of work.” These miners are rewarded for their efforts with cryptocurrency, but the process takes an hour in Bitcoin’s case and a minute in the case of Ethereum, and it’s insanely energy intensive, which is why neither Bitcoin nor Ethereum has proved very scalable. (Bitcoin’s heavy reliance on fossil fuel is the reason Elon Musk cited earlier this week to explain why Tesla is no longer accepting Bitcoin as payment for the company’s electric cars.)

But there is another way. Indeed, crypto watchers and developers are excited about Ethereum and other currencies that are transitioning to a new system called “proof of stake,” wherein people who agree to lock up a certain amount of their cryptocurrency are invited to activate so-called validator software that enables them to store data, process transactions, and add new blocks to the blockchain. Like miners, “validators” take on the role to earn more cryptocurrency, but they need far less sophisticated equipment, which opens up the opportunity to more people. Meanwhile, because more validators can participate in a network, consensus can be reached faster.

Yakovenko is enthusiastic about the shift. We talked with him yesterday, and he’s certainly not rooting against Ethereum, saying it would be “devastating for the entire industry” if Ethereum weren’t able to pull off its transition to proof of stake given its mindshare and its roughly $500 billion market cap.

Still, he argues that not even proof of stake is good enough. The reason, he says, is that even with proof of stake, miners — and bots — have advance access to transaction information that allows them to exploit users, or front run transactions, because they can control transaction ordering.

Enter Yakovenko’s big idea, which he calls “proof of history,” wherein the Solana blockchain has developed a kind of synchronized clock that, in essence, assigns a timestamp for each transaction and disables the ability for miners and bots to decide the order of which transactions get recorded onto the blockchain. Yakovenko says doing so allows for greater security and “censorship resistance.”

According to a new explainer of Solana in the outlet Decrypt, Solana has innovated other ways, too, including by forwarding transactions to validators even before the previous batch of transactions is finalized, which reportedly helps to “maximize confirmation speed and boost the number of transactions that can be handled both concurrently and in parallel.”

“Basically, the speed of light is how fast we can make this network go,” says Yakovenko.

Certainly, Solana — which has sold tokens to investors but never equity in the company — has many excited about its prospects. In recent interviews with both investor Garry Tan of Initialized Capital and CEO Joe Lallouz of the blockchain infrastructure company Bison Trails, both mentioned Solana as among the projects they find most interesting right now. (We assume both hold its tokens.)

Others say on background that while they understand the developer benefits and need for more scaleable blockchains than Ethereum, Solana still needs to more developer mindshare to prove its long-term worth and it’s not there yet. According to Solana itself, there are currently 608 validators helping secure the Solana Network and 47 decentralized applications (or “dapps”) powered by Solana. Meawhile, they were reportedly 33,700 active validators helping to secure “Eth 2.0” as of late December and 3,000 dapps running on the Ethereum blockchain as of February.

In fairness, the Ethereum network went live in 2015, so it has a three-year head start on Solana. In the meantime, Solana has a lead of its own, says Yakovenko, who is based in San Francisco and has assembled a distributed team of 50 employees, including numerous former Qualcomm colleagues. Asked about other projects that have embraced a proof-of-history approach, he says that while it’s “all open source” and “anybody can go do it,” there “isn’t a set of our biggest competitors saying they’re going to rework their system and use this.”

One likely reason is that it’s almost comically complicated. “It just takes a lot of work to build these systems,” Yakovenko says. “It takes two to three years to build a new layer one, and you can’t really take an idea for one and stuff it in the other one. If you try to do that, you’re going to set yourself back by six to nine months at the least and potentially introduce bugs and vulnerabilities.”

Either way, Solana, which itself has a $12 billion market cap, isn’t interested in competing with Ethereum and other cryptocurrencies on every front, suggests Yakovenko. All it really wants is, well, to completely disrupt Wall Street and the rest of the global markets.

He knows it sounds crazy. But the way he sees it, what Solana is building is “an open, fair, censorship-resistant global marketplace” that’s better than anything inside of the New York Stock Exchange or any other means of settling trades. It’s certainly a much bigger opportunity than he imagined backed at that cafe.

“Everything that we do to make this thing faster and faster results in this better censorship resistance and therefore better markets,” he said yesterday. “And price discovery is what I imagine is the killer use case for decentralized public networks. Can we be the world’s price discovery engine? That’s an interesting question to ask.”

He’s far from alone in pondering the growing possibilities. Pointing to the wild swings in cryptocurrency prices right now, he says he suspects that “part of that is just developers and folks discovering the network and building cool applications on it.”

It’s exciting when people can “self serve and build stuff that they want to go to market,” he adds. “It’s the secret weapon of decentralized networks versus any incumbents like Bank of America or Visa or whatever. Those big companies can’t iterate and move as fast as a global set of engineers who can just come together and code whenever they want to.”

He saw very similar dynamics play at Qualcomm, in fact.

“Working in a big company, it seems like there’s a ton of resources and they can accomplish anything. But you saw us working on proprietary operating systems while the Linux guys were just working first for fun, right? And it seemed like it was just a weird hobby that people had; they were coding operating systems at night; they were coding over the weekend. Then all of a sudden, Linux is the de facto mobile iOS of Android.”