- Makoto Shibuya
How could Proof of Work blockchains change our cities?
An Energy Opportunity
I tend to believe that every challenge is also an opportunity. Cities developed over centuries, but the world is changing quickly. Though there is a healthy debate about what a city of the future may look like, we can imagine that it would not look like it does today if we were to design a city knowing what we know now.
Cities are highly complex. They constantly evolve under market pressures and are about to get blindsided by decentralized technology, autonomous vehicles, remote work, and the looming climate challenge. Each is notable and has significant implications on the city as we know it, but they become even more powerful when they compound over each other.
What happens when the greater population has better access to decentralized financial services?
What will we do with all of the parking once vehicles can drive themselves?
Where will people want to live and work?
How do we cut CO2 emissions from new and existing buildings?
How will all of this affect property value and infrastructure?
Architecture is difficult, complicated, and rooted in a lot of history and tradition. Yet, it is one of our oldest practices - we needed a roof over our heads before we could sit and think about anything else. Unfortunately, this combination of complexity, tradition, and permanence has historically kept the AEC (architecture, engineering, and construction) industry at the mercy of changing technology rather than its forefront. Change is difficult, especially for something built on centuries of precedent.
Whether we like it or not, that will have to change as the world recognizes what some have been warning about for decades. Though the numbers are evolving, we know buildings collectively contribute about 40% of global CO2 emissions.
What do blockchains have to do with any of this?
Like most breakthrough technology, we often do not know, or can't comprehend, the extent to which it will ultimately change the world. It can be so transformative that it is impossible to understand all the nuances before unleashing them. Blockchain technology was around for over a decade before Satoshi Nakamoto's Bitcoin white paper in 2008. Since then, it is becoming increasingly clear how blockchains will transform our current monetary system, but could it also change our cities?
As Proof of Work (PoW) blockchains like Bitcoin continue to garner trust within the financial system, one of the remaining controversies is the amount of energy they consume. The question is not about how much energy they consume, as that is undeniable, but whether the energy it consumes is worth the value it provides.
PoW blockchains that require energy are an inherent feature that makes them secure and immutable. Therefore, when considering the energy requirements of Bitcoin, it is crucial to quantify the cost of the entire system it is replacing and equally essential to identify where the energy is coming from.
"The Bitcoin ledger can only be immutable if and only if it is costly to produce." — Dan Held
When thinking about this, it is important to decouple energy from carbon emissions. Energy use is not inherently bad. Though we may see a decoupling between GDP and energy use going forward, energy is fundamental to our economy. Everything requires energy—it is the first law of thermodynamics. In his writing titled PoW is Efficient, Dan Held effectively explains how "the fact that Proof of Work (PoW) is “costly” is a feature, not a bug." Given our finite resources, a timely transition to renewable energy is imperative.
What if blockchains were part of the solution to the climate challenge, not part of the problem?
We know electrification is needed across many sectors to meet our goals of reducing energy-related CO2 emissions.
In the book, The Solar Revolution, Steve McKevitt and Tony Ryan explain:
"Capturing just one hour of the sunshine that hits our planet would enable us to meet the world's food and energy needs for an entire year, and each year the sun radiates more energy onto the earth than has been used in the whole of human history."
The problem with energy has never been about scarcity but rather intermittency, storage, and distribution. Energy is abundant but getting it to where we need it—i.e., a city—has always been a challenge as too much energy is lost in transit, and any surplus is difficult to store.
This is where it gets interesting.
The 2020 Stone Ridge shareholder letter was full of valuable insight; however, one caught my attention as an architect. In his letter, Ross Stevens admits the energy consumed to run all mining rigs to run Bitcoin is "absolutely enormous." However, he follows up by stating, "bitcoin mining is the only profitable use of energy in human history that does not need to be located near human settlement to operate."
Let's think about this for a second.
"Bitcoin mining is the only profitable use of energy in human history that does not need to be located near human settlement to operate." — Ross Stevens
This means geographic proximity is no longer a prerequisite for energy infrastructure. Instead, each miner can do the energy-intensive mining locally before synchronizing across the distributed ledger.
Doing so removes the need to transfer energy geographically, which has always been challenging. In addition, previously untapped or underutilized renewable energy sources like solar, hydro, geothermal, and wind can power the energy required to run blockchains like Bitcoin. This new global purpose, in turn, could improve the economics of renewable energy infrastructure.
Intermittency and Storage
Timing is an important concept when thinking about energy. Supply and demand do not always correlate, so storage is imperative.
You likely get home from work in the summer and turn on the air conditioner, lights, and appliances - so do everyone else - resulting in a "peak" load that puts a lot of pressure on our electrical grid. It is expensive and, more importantly, inefficient. Utility companies have introduced time-of-use pricing to encourage consumption away from peak hours. Our shift to a remote work economy can also alleviate peak loads as flexible work schedules naturally distribute our energy consumption.
Batteries help address our energy problem and are vital to reducing energy-related CO2 emissions by distributing intermittent energy and electrifying our future. However, these batteries can only store so much energy and are expensive to build out.
What can we do with the excess energy?
The mining process converts energy into a global digital asset. It can take the underutilized energy locally and store it as a global digital asset. This gives us a tool to capture what would otherwise be wasted renewable energy and monetize it, thereby improving the economics of underutilized renewable energy. Think of it as a buyer of last resort for energy—energy from anywhere.
Similarly, mining can improve the economics of renewable energy infrastructure by acting as a buyer of first resort. Renewable energy infrastructure can be monetized immediately rather than waiting for an entire energy grid buildout.
What does this mean for cities?
Before fossil fuels were available, favorable climates for agriculture, trade routes, and social structures were prerequisites for the major cities we live in today. If energy were available at the time, renewable energy sources would have likely also played a vital role in those early settlements.
Previously underutilized renewable energy sources have a new purpose by mining bitcoin, thereby attracting further development around those natural resources and ultimately leading to sustainable local economies.
This new global energy network could introduce a market-based economic incentive for net-positive energy projects, which in addition to reducing CO2 emissions, could help offset the embodied carbon of our infrastructure. Moreover, energy now has a buyer of last resort, which acts as a continuous inducement for low-cost renewable energy and further innovation.
"Tesla Solar + Powerwall battery enables consumers to be their own utility" — Elon Musk
Studies show mining adds a new tool to help consumers become their own utility by balancing their energy economics. Mining has the potential to augment energy storage and net metering by introducing a perpetual appetite for stranded energy regardless of geography.
In a white paper published by Square and ARK Invest, they offer an open-source model detailing this opportunity stating, "we believe the energy asset owners of today will likely become the miners of tomorrow." Property owners (individuals, organizations, and even countries) have already started to monetize their renewable energy sources, further improving the economics of renewable energy infrastructure.
People collaborate. One of the main reasons humans have thrived is because we understand that the collective sum can be better than the individual parts. Our ability to work together has set us apart. Together, we are more efficient. It is time our infrastructure follows suit. The climate challenge is a global, collective problem, and focusing solely on individual building metrics can distract from the climate impacts we can make on the overall system. We need, and now have the technology for, a better energy ecosystem.
By combining a global energy network with trade routes powered by the evolution of autonomous electric vehicles and the population's growing ability to work from anywhere in the world, we can see how we could migrate to an economy centered around renewable energy rather than fossil fuels.
A challenge or opportunity?
On its face, the energy consumption of a 'proof of work' system like Bitcoin may seem an inherent problem, but complex problems require looking at the entire system. Though somewhat counterintuitive, it could be the keystone to a solution.
A new building built on an old foundation risks collapse. Similarly, our cities' foundations need an amendment to avoid societal collapse. We know we must build our future on renewable energy. Blockchain technology may have a role in disrupting the foundational layer of our money and our infrastructure. It could be part of the complex solution to a sustainable future by improving the economics of renewable energy infrastructure and fixing misallocated resources. Still, those are only some of the many opportunities.
Time will tell how the compounding changes we collectively face will change our cities. The effects of a decentralized internet, global digital assets, energy storage, autonomous electric transportation, and the ability to create value from anywhere will change our cities exponentially faster than they were built.
For many, it is becoming inconceivable to purchase a gas vehicle now that there are electric alternatives. Will future generations consider the carbon footprint not only of their vehicle but also of the city in which they choose to live? If history is any indication of the future, the current demand for EVs suggests that the answer is yes once there is an alternative. Our cities play a significant role in global CO2 emissions, but they are motivated to be part of the change.
Never could we have imagined, as we looked down to trade our seashells, that we could someday look up and trade them in for the power of the sun.
Find a case study where I start to explore some of these energy opportunities here.