Economic Energy
Re: Bitcoin is not a battery¶
Henry Magram @henrymagram kindly pointed me to an article by Elad Verbin, "Bitcoin is not a battery - it is a Sink" and asked what I thought of it.
Most of the article hinges on the following
... no matter how much electricity is poured into Bitcoin, the output is always the same — 6.25 Bitcoin per 10 minutes. And while the value of 6.25 Bitcoin is not fixed but fluctuating, the fluctuations have nothing to do with the price of electricity. In a battery, the more electricity you put in, the more you’ll get out. In Bitcoin, the output is constant regardless of the amount of electricity you put in.
What the author says is somewhat true in aggregate, but only in regards to the block reward - it doesn't include fees, which we expect to be more significant over time. Further it is not true for individual miners and over shorter periods of time. This is because the miner's reward is proportional to the amount of electricity expendenture relative to that of other miners. As a result, the amount of economic potential received by the miner is actually proportional to the amount of energy they expend (which is the opposite of what the author claims).
I use the term "economic potential" because I do agree that bitcoin is not literally a battery in the sense that BTC units are not the same as physical units of energy (the Joule), but they are related: the mining process converts physical energy into economic potential energy. As a savings instrument, Bitcoin acts like a battery, able store economic potential until it can be released into the economy as a money. From that perspective, money is the kenetic form of economic energy while savings is the potential form - both have the same monetary unit, but they represent different forms of it.
While we're on the topic of batteries, to say that "Bitcoin is not a battery" is like saying that voltage is not the same as current - while true, it ignores the physical relationship between the two. Consider Ohm's Law:
The voltage \(V\) is the electric potential (in units of J/Coulomb) between two points in a classical electric circuit. The Current \(I\) is the kinetic form of charge (measured in Coulombs/sec). We are not saying that Voltage and Current are the same, but that they are related by a factor proportional to the resistance \(R\) (the difficulty in moving charge). This may seem like a simple and obvious formula today but Ohm's law was quite controversial in it's time as well. Like Bitcoin, it was several years before Ohm's law was recognized for the law of nature that it is.