Last week, Tesla announced they will no longer accept Bitcoin as payment for vehicles. In a timely episode, Alex Gladstein, chief strategy officer at the Human Rights Foundation, and James McGinniss, CEO and co-founder of David Energy, come onto the show to discuss Bitcoin, the petrodollar, and how to contextualize the energy usage of the first cryptocurrency (BTC) versus the leading fiat currency (USD). Show highlights:
- their backgrounds and how they became interested in the intersection of currency and energy usage
- why Alex and James really think Tesla stopped accepting BTC as payment
- why James thinks Bitcoin’s energy intensity is a “feature, not a bug”
- Alex on the history of the petrodollar and how the USD in recent decades has been tied to fossil fuel production
- comparing the carbon cost of a dollar to Bitcoin’s energy consumption
- what both James and Alex think of the Square and Ark Invest research paper saying renewable energy production could be tied with Bitcoin mining
- why measuring Bitcoin’s energy usage is difficult
- how Bitcoin mining in China is changing for the better
- how the Biden administration might impact Bitcoin
- where to find more information on Bitcoin and energy consumption
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- Alex Gladstein
- James McGinniss
- “Uncovering the Hidden Cost of the Petrodollar” by Alex Gladstein
- “Think BTC is a Dirty Business? Consider the Carbon Cost of a Dollar” by Susan Su
- “Bitcoin is Key to an Abundant, Clean Energy Future” by Square and Ark Invest
- Elisabeth Steyn thread on Tesla and energy credits
- “Tesla seeks entry into U.S. renewable fuel credit market” by Reuters
- “Debt” by David Graeber
- Bitcoin energy consumption index
- Cambridge study on cryptoassets
- Triffin Dilemma
Alex Gladstein’s Recommended Follows:
- Nic Carter
- Lyn Alden
- Susan Su
- Luke Gromen
- Michael Hudson
Hi, everyone. Welcome to Unchained, your new hype resource for all things crypto. I’m your host, Laura Shin, a journalist with over two decades of experience. I started covering crypto six years ago and, as a senior editor at Forbes, was the first mainstream media reporter to cover cryptocurrency full-time.
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Today’s topic, due to the recent events that Tesla would stop accepting Bitcoin as payment because of its environmental impact, is going to be Bitcoin, fiat currencies, and their energy footprints. Here to discuss the issue are Alex Gladstein, chief strategy officer of the Human Rights Foundation and James McGinniss, CEO co-founder of David Energy. Welcome Alex and David.
Alex, you’ve been on the show before, but why don’t you briefly describe what it is that you do and how you came to research and compare fiat currencies, in particular the petrodollar, against Bitcoin from a human rights and environmental impact perspective?
I’ve been working at the Human Rights Foundation since 2007. So almost 15 years in the human rights field. About five years ago, I really started looking at finance and currency from a human rights point of view, and really started to explore why people around the world were using Bitcoin in authoritarian regimes, in emerging markets, and in high inflation environments. That has driven a lot of my thinking and a lot of HRF’s work ever since. As far as my article “Unconvering the Hidden Cost of the Petrodollar,” it was really inspired by these like continued comparisons of Bitcoin’s energy use, it’s carbon footprint, and how people really are interested in looking at the negative externalities of Bitcoin without looking at the positive externalities. Meaning, you know, usually when I’m hearing stuff in the mainstream media, it’s heavily focused on the negative and very little on the positive, which is the opposite for fiat currency.
The dollar system — people argue about how to run it, but like very few people talk about what powers it and what are the negative externalities of of essentially dollar hegemony. When you make that swipe on your Visa card, versus making a Bitcoin payment, the Bitcoin payment wears everything on its sleeve. You can literally see how much energy it’s using essentially by making a couple of calculations. Whereas that Visa swipe is rests on this enormous infrastructure of not just that company, but the entire financial and banking system and, ultimately resting on what some people call the dollar or the treasury bill standard, which is like the world reserve currency. And there’s a lot that goes into propping that up over the last 50 years since the US and the world went off the gold standard in 1971.
And I wanted to explore that. A lot of it has to do with human rights because, basically, to keep the dollar in its primacy sort of status, the US has done a lot of supporting dictators, for example, or instigated foreign conflicts. And then on the environmental side, of course, helped prop up the fossil fuel industry. This has led to actually a lot of like domestic consequences as well with regard to inequality and wage stagnation. That’s where I came from and why I’m interested in talking about this.
All right. And James, why don’t you tell us about your background, David Energy, and also your interest in crypto?
Thanks for having me. My background, actually, I did kind of physics and math as an undergrad and was always interested in the energy transition and climate and then energy within sort of the climate change movement and how we could decarbonize our electricity system in order to fight climate change. Then that sort of culminated when I went on to do my masters in mechanical engineering and, while doing so, got very tied up in what you would call the distributed energy resource space. So these new technologies like EVs, solar, battery storage, smart thermostats, backup generators, energy devices that go in homes and buildings — the grid is becoming very distributed in a lot of ways because of these assets. And they’re also digitally native, which is very new compared to, say, a coal plant.
So I was looking at doing my PhD in battery storage science, so we could have better technologies that bring batteries down the cost curve, which are important to sort of ensure that we can run a grid with lots of renewables, like solar and wind, because when there’s no solar, there’s no sun out and there’s no wind blowing, you don’t have power. So we need things like batteries in order to make sure our lights stay on, even with lots of renewables. I was also working actually in local solar plus storage design and engineering work — like doing installations kind of from the ground up. And ultimately just got very obsessed with how to integrate these devices into energy markets. Energy markets, because these assets are distributed, are changing in a very fundamental way.
I just got very interested in that problem and how to leverage a battery in someone’s garage into an electricity market versus a coal plant that’s 200 miles away from that garage. It’s very, very, very different processes. So I’d say just if you’re hearing words like distributed, you’re probably thinking crypto. So as part of that, actually, while I was doing my masters I think, around 2016, just when Bitcoin started one of its big run-ups, I got very interested in just the sort of general idea around decentralization and distributed systems. I have been sort of a follower of the space since. As for David Energy, we founded that out of that sort of exploration of that problem. And what we do is we actually buy electricity for customer homes and buildings.
A lot of people think utilities do this, but actually, in 20 states, you can be a private company that does that. And we have a technology platform that integrates with these devices — like smart thermostats batteries, EVs, and we control them in real-time with our software. Very simply, we’re out-buying supply, and we can control demand. When prices are running up in the market, we can tell your EV to stop charging. We can discharge a battery in your home so that your demand is lowered on the grid. I think sort of bringing this full circle, we’re actually sort of looking to start offering a product in the market, where, as you guys have probably heard, Bitcoin miners can stop their mining operations as prices go up. This is a very valuable resource to the grid, in our mind.
And so we could effectively offer Bitcoin miners cheaper power if they let us tell them when to turn on and off essentially. So you know, I think some way or another, all of those interests intersected over time in Bitcoin and distributed energy resources. And I’d say, on top of that, I like to say that that energy systems are not fungible. Meaning as we shift from this very heavily fossil fuel and oil-based sort of institution in a lot of ways over that we’ve built up over the last century, it’s going to have massive downstream consequences for our politics, our currency systems, trade, who has hegemony — whether it’s the US and China and all the Euros, or like European Union, like all these nations sort of getting on board with this energy transition. So I spend a lot of time thinking about just what that’s gonna look like and the role that things like Bitcoin will play. I loved Alex’s article on the petrodollar system. I’ve been reading a lot about that lately, and I’m just excited to try and wrap all these things together.
Yeah, actually what you were saying about the idea of how you can easily turn and off Bitcoin miners and have them run when the electricity prices are lower. This goes to that white paper that Square and Ark Invest published, which we’ll cover later. But first, let’s dive into the news.
Last Wednesday, Elon Musk, the CEO of Tesla, tweeted an announcement saying that Tesla has suspended vehicle purchases using Bitcoin. And his announcement said, “we are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel. Cryptocurrency is a good idea in many levels and we believe it has a promising future, but this cannot come at a great cost to the environment.” Then he said, Tesla would not be selling any Bitcoin, because, as you may recall, it owns more than a billion dollars worth of Bitcoin on its balance sheet. And said that it would use Bitcoin for transactions as soon as mining transitions to more sustainable energy. And then he finished with, “we are looking at other cryptocurrencies that use less than 1% of Bitcoin’s energy per transaction.” So, given the fact that it’s probably unlikely that Bitcoin payments for Tesla were filling Bitcoin blocks or anything, why do you think Tesla really stopped accepting Bitcoin as payment?
So for me, it’s pretty clear. I think that Elon and his team, his Master of Coin, correctly assessed that it would be smart from a corporate perspective to have a percentage, a small percentage at least, of Bitcoin on the balance sheet, as we enter these like very unpredictable times that we’re watching now where people are acknowledging there’s going to be some level of inflation in America. You know, not to the extent that we see in emerging markets perhaps, but certainly it’s happening and everybody’s admitting it now. So in February, they said, look, let’s put a couple percent of our cash in this. And I think that was a correct move. However, I think what happened, probably afterwards, was a big backlash by people who believe Bitcoin is bad for the environment — PR led sort of backlash probably towards the corporate structure at Tesla.
To respond to that, I think they sold a little bit of Bitcoin as well as made this announcement. And I think the whole Dogecoin thing has just sort of been this like fun distraction for you on the whole time. I mean, all of it is literally a joke. I mean, Dogecoin was created as a joke. He was joking on Saturday Night Live about it. I mean, it is surreal. And now he’s tweeting about the fact that they’re going to try and look into other coins for accepting payments and moments later, he tweeted that they’re working with Dogecoin developers. I mean, he’s taking the piss. I mean, there are no Dogecoin developers, so he continues to have this like kind of running joke, which is helpful for him because it distracts from whatever drama is happening on the backend.
*Quick note: After recording, Decrypt reported that Elon Musk has been in touch with Dogecoin developers. See the full article here: https://decrypt.co/70945/exclusive-dogecoin-developers-say-theyve-been-working-with-elon-musk-since-2019
My interpretation of that is pretty simple. They went into this move from a financial strategy, a strategic perspective. It was a good call. But he’s getting a lot of backlash. That is my take.
I actually couldn’t agree more. I find it very hard to believe that, I mean, you said a small percentage, but I think it was like 10% of their balance sheet.
Yes, more than a billion dollars.
So yeah, it was still a billion dollars, there’s a lot you could do with that. And that took a lot of conviction. And to think that a couple of weeks later, they’re just reversing on that, and Elon hadn’t properly thought through the climate implications here as someone who spends his time in climate, I mean, this has been sort of all over the news for years if you’ve been following Bitcoin. So I mean, I definitely see it as when you look at them recently applying for renewable energy credits or just how much ESG capital is out there and not wanting to kind of anger or make yourself look less ESG friendly, or just hurting their brand in general. It just really seems like it was all this political pressure and doesn’t really have to do with how Elon or Tesla thinks about Bitcoin.
And it’s also worth James mentioning the fact that they don’t make money from selling cars. I mean, they make money from this sorta credit scheme, they made money from Bitcoin. And then they make money from like selling credits to, to manufacturers like Chrysler, right. And then those manufacturers may not be needing to do that anymore, right?
I actually have this tweet storm that you sent me earlier, Alex. So this woman, Elisabeth Steyn, hopefully I’m pronouncing her name right. I tried to reach out to her to find out what her title was, but I don’t know it. So I’m just going to say that her Twitter bio says “ESG, impact investing, sustainable finance, FinTech, comments, and content.” So clearly she has some knowledge in this area. She tweeted that the environmental impact of Bitcoin isn’t news.
She said that Elon Musk was reacting to changes in the renewable energy credit market, which is REC. Then she said that Tesla makes most of its money from RECs, not cars. And I guess Tesla made $1.5 billion from sales of RECs to gas powered to auto companies, which those companies have to buy in order to offset their CO2 emissions.
And she said, “Tesla has actually never been profitable without REC sales.” But that’s about to change because one of the biggest companies, Stellantis, a multinational automotive manufacturer, will meet carbon emission rules this year. And so it won’t need to buy RECs from Tesla anymore. And she said that this group, which includes Fiat Chrysler accounts for $2.4 billion of Tesla REC sales from 2019 until now, and 55% of Tesla sales since 2008.
So her hypothesis is basically Tesla now wants to switch to the renewable fuel credit market. And it has an application with the EPA out for electric vehicles that qualify for these tradable credits. Her thinking is like environmental regulators, aren’t big fans of Bitcoin. I think there’s a lot to be said for that because if we just look at the fact that Tesla did buy more than a billion dollars worth of Bitcoin, it’s sure has not sold more than a billion dollars worth of Teslas using Bitcoin or being paid for in Bitcoin.
So if they really, really cared about the environmental impact, then like that’s the part of their actions around Bitcoin that they would have probably curtailed or done something about, but instead they did kind of the window dressing side
They would have divested.
Right, exactly. So let’s maybe just kind of zoom out a little bit because I think what we’ve also seen this year is like, there’s been this influx of kind of what I would call normies, you know, not kind of diehard crypto people that were into crypto from the start, or even just from a few years ago. And we saw with that NFT craze that when all these non-crypto people kind of got interested in the technology, then there was a backlash against proof of work consensus algorithms at that point as well. And so I just wondered — I was curious — James, like you’re an energy person you are into crypto. And I just wondered, like, how do you view this kind of like so-called environmental problem about proof of work consensus algorithms? Why are you not saying, “I would only support proof of stake coins” — what’s your take on that?
First leading with just my understanding, it’s not as extensive as either of yours of cryptocurrencies. I haven’t come across a coin or a cryptocurrency where — the energy intensity is a feature, not a bug, right? It’s what creates security. And if you’re to start reducing energy intensity, you’re probably going to start reintroducing like trusted third parties. So when it comes to Bitcoin, I don’t put out there like, oh, well, why don’t we just find a coin with less energy intensity, and we can use that.
Because I understand that from a technology standpoint, that’s actually what makes Bitcoin so fantastic. On the other side of it, from like the climate aspect of this, at the end of the day, I don’t think we should be making value judgments really on discriminating against one form of electricity consumption or another — like you could get mad at pool heaters, right?
Bitcoin exists. I don’t think anyone should be out there saying, go ban it. So if you’re in the climate community, you have to understand that this is here to stay. It should stay. I don’t think we should be censoring this. So the question, then, is what do we do about it and how do we make it sort of as a value add as possible? What are the positive externalities here, as Alex had had mentioned?
And that’s when you start looking at like what the petrodollar system looks like today. If you compare it to US dollars’ emissions track record, it starts looking a lot more favorable. I think at the end of the day, in debate, there’s really only two things that matter.
One, this comes down to whether you think Bitcoin has utility or not. And what I see happening in the debate is on the sort of anti-Bitcoin side, they’re kind of grasping at energy consumption as a way to discredit Bitcoin. And then on the pro-Bitcoin side, there’s now a lot of talk about how it’s good for the grid as a way to combat that narrative. So, as an energy person kind of sitting in the middle, I think a lot of times it’s actually people arguing about whether Bitcoin has utility or not. They’re just finding things that can support an argument.
The second piece is we should be decarbonizing the grid anyways. Like that’s just a fact, or my perspective. If Bitcoin is to be using electricity, well, let’s focus on the root problem here which is decarbonizing the grid. There’s a lot of layers there, but, ultimately, I’m pro-Bitcoin and I’m pro decarbonizing the grid. So I don’t see those things as mutually exclusive, whatsoever.
As we were discussing before the show, Tesla cars often plug themselves into outlets that are probably drawing from fossil fuel energy.
But, Alex, so in a different form of zooming out, let’s look at the other type of currency that Tesla accepts for its cars which is obviously dollars. You wrote a very extensive piece on the petrodollar and it was really an amazing deep dive. Can you kind of compare the impact of the petrodollar versus Bitcoin?
So I’ll try to do a very abbreviated overview. But before I do that, it’s worth just dwelling on this point that James made, which is excellent, which is: if you don’t think Bitcoin is worthwhile, of course, then you see the whole thing as a waste, right? So I think that’s kind of where the debate should really be right now is informing people that it is a tremendous value to many around the world who don’t have the same financial privilege that people have in Europe or Japan or the United States.
Just remember, there’s like 1.2 billion people out there who live in double and triple digit inflation. There’s 4.3 billion out there living under authoritarianism. It’s not so easy for them to transact, save, open up a credit line, send money to family and friends. Everything’s a struggle.
And their local currency literally depreciates very quickly. Their time and energy and the fruits of their labors are disappearing in front of their eyes. So let’s be a little careful here. My suggestion to those who basically say Bitcoin has no social value. I’d love to see them commit to using the Sudanese pound for one year as their store of value and payment rail. And then come back to me and say that Bitcoin’s value is overblown or doesn’t exist. I mean, it is literally a lifeline for people out there.
Where I came from on the zoom out here, is that with Bitcoin, you start to understand it in layers. So even Elon gets at the surface level, its actual value proposition is as an inflation hedge, right? I think a lot of people are starting to understand that, even if they don’t believe it. That’s at least the narrative that people are beginning to understand, largely sparked by Michael Saylor and MicroStrategy.The sort of corporate sort of an inflation hedge.
Dig down a little deeper, and then you start seeing it as like this tool for individual freedom and human rights. And maybe a lot of people won’t go further than that. But when you keep digging, you actually start to see that it’s a geopolitical disruptor. I think the important thing here and the irony of Elon saying, we’re not going to take Bitcoin anymore for payments, but we’re going to keep taking the dollar, is that Bitcoin is not a competitor to Visa. It’s not a competitor to Ethereum. It’s not a competitor to a PayPal or Venmo or WeChat. Bitcoin is actually a competitor to the world reserve currency, which I will call the petrodollar.
That’s what its ultimate mission is, is to replace the petrodollar. And you can look at all of Satoshi’s early writings and you can confirm that is what he or she was really trying to do. He was basically trying create this parallel system that had a different rule set at the very base.
Now, just real quick, as far as the history of what is the petrodollar… We had the British who were dominant in the 19th century financially, the British pound, but after World War 1, the fate of war-torn Europe was difficult. And the United States emerged as like the largest creditor nation. So that gave us a lot of negotiating power heading into Bretton Woods.
So at the end of World War 2, all the Allies got together, and they said, what are we going to do with the gold standard? And you know, the British, under John Maynard Keynes, they wanted to come up with this thing called Bank Core and have everybody be part of like making decisions together on a unit of account called Bank Core. But the US had so much leverage, because we had so much gold, and we had so much credit vis-a-vis other nations, that we could push through our plan, which was that everybody would hold dollars or, or US debt, as their savings at other central banks which would be convertible to gold at $35 an ounce.
And that largely was the Bretton Woods system. It lasted for decades. But after JFK was assassinated, the US took a very different turn with its spending. It’s commonly referred to as Guns and Butter, right? So you had both the ramp-up of the Vietnam war, which was the first war ever fought on credit. Usually, wars were fought significantly with taxes, but the American government didn’t want to raise taxes. They wanted to continue to expand this war against essentially what was the Soviets. So they kept leveraging it up. And this created a deficit issue in conjunction with Lyndon B Johnson’s Great Society programs. So the rest of the world was looking at this, and they were saying, wait a second, we don’t think the US can hold the peg to gold. And the French and the British were both really upset about this de Gaulle and what his cabinet called the US as having like the exorbitant privilege, essentially of being able to mint the world reserve currency.
They were upset by that. And it came to a head in August of 1971 when the French sent a battleship to New York City to try and reclaim their gold. A couple of days later, Nixon, went on TV and ended the gold standard, essentially closing the gold window and telling the American people that no other government would be able to redeem dollars for gold any longer. Now, this was a period of intense economic crisis, high inflation. About 18 months later, we had the Yom Kippur War.
Obviously geopolitically relevant to what’s happening now in the Middle East, and as punishment for us supporting Israel, the Saudis and the other OPEC oil-exporting nations dropped an embargo on the United States and oil essentially quadrupled in price. This was very bad for the US in many different ways.
President Nixon at the time and Kissinger, who was his most powerful kind of deputy, tried to figure out a solution to keeping the dollars value up while it was no longer attached to gold. So after we went off the gold standard, the dollar devalued by 10%. So we started entering a lot of inflation in this decade. So the creation of the petrodollar was like a solution to this issue, of how do we keep everybody else wanting to continue to buy dollars in US debt?
Well, the solution was to tie it to the export of oil, right? So, Saudi Arabia, which had just become the world’s sort of swing oil exporter, the most important one in OPEC, and they controlled 80% of the world’s oil reserves, what they were able to do was have this negotiation with the US.
The Crown Prince came to Washington DC in June of 1974. Nixon went to Saudi Arabia a week later, and the new Treasury Secretary Simon went to Jeddah later that year. And they ironed out, which is essentially this sort of pact, where what the Saudis would do was export oil in dollars. So if you want to buy oil from the Saudis or OPEC nations, you had to do it in dollars. And number two, they would recycle that income back into US debt. So that’s what they had to do.
And on our side, we would sell them tons of weapons, like not in a market way, but like in a non-market very political way and also protect and defend them. So that was like the deal. And we’re still in that deal today. So like the influence of the petrodollar has waned over time, but it was extremely strong in the seventies, extremely strong in the seventies and eighties.
It really helped with the fight against the Soviet Union. Soviet Union had to dig oil out of the ground. We could print it, literally. But there was no other Bretton Woods after 1989. So after the Soviet Union fell, we didn’t get together as a world and say, hey, let’s figure out a new system. No, the US pressed on with this unipolar moment.
And you know what, the threat actually to the dollar was the euro. So that was like the idea at the time was that maybe we could go into this bipolar world, again, like in the 1920s, where you kind of had the pound and the dollar. The euro was seen as a real serious threat by US policymakers. And I think in my thesis, in my article, is that the US fought really hard to protect dollar primacy throughout the 2000s.
And, you know, just to state some facts and the audience, you all can can have your own opinions on what they mean, the biggest threat to the dollar came in the form of something called the petroeuro. Saddam Hussein, in October of 2000, announced he was going to sell oil in euros. By 2002, he was selling 5% of the world’s oil in euros to France and Germany. In March, 2003, the US, aided by the UK, invaded Iraq threw out Saddam. By June of 2003, Iraq was selling oil for dollars again. So there’s a lot of ways to interpret that. But look, the Iraq war was like the fundamental thing of my life as an American who grew up at that time. And there is no consensus on why we invaded. It’s kind of crazy that people call it a war in search of a reason still.
Everybody agrees it wasn’t for human rights. And it wasn’t for WMDs cause those didn’t exist. And it wasn’t because of 9/11, because there was no connection between Saddam and Iraq. So, there’s a lot of reasons, but at the end of the day, I think this is a compelling one. I think America had the power to protect the dollar against the Euro. But I think that has started to wane. So in the last decade, I think our influence has started to wane. 2013 was the big year when China stopped sort of buying US treasuries. So this petrodollar system that was kicked off by the oil exporters buying all of our debt and allowing us to finance all these social programs and invasions around the world and our fight against the Soviets that was, they sort of handed the baton to the Europeans who bought all our debt. And then the Japanese bought all our debt. And then the Chinese started buying all our debt after 2001 when they entered the WTO.
But after 2013, everybody was like, wait a second, kind of like vibes from the late sixties, we don’t think the US can hold this together anymore. So the world has been like unloading US treasuries since that year. And now the US government is the major purchaser of our own debt. So that brings us to today, where I think the petrodollar system is in like a decline. But still, I mean, the dollar is 60% of the world’s foreign exchange reserves. Something like 40% of all the world’s debt is issued in dollars. It’s down from its apex, which I would say was probably anywhere from five to ten years ago. And Russia and China are now starting to do a lot of trade in their own currencies and in the Euro. This is just going to continue to expand, and the dollar is going to continue to slide.
So my thesis essentially in the paper is that we could be heading towards a Bitcoin standard. So it may not be the Yuan standard. It may not be the Euro standard. It may not even be a like a multipolar world. It could very well be that you have this lineage essentially from the gold standard to the treasury bill or dollar standard to the Bitcoin standard. And I’m very intrigued by that from a human rights point of view, because, you know, today 4% of the world’s population gets to make the decisions for everybody because we, as Americans, control the reserve currency.
This creates like really big stressors on other countries because they have to design their economies in a way where they can accumulate dollars. They also have to go like get dollars to like advance and industrialize themselves, whereas we can literally just print it. So this privilege, this exorbitant privilege, has allowed the US to do exorbitant amounts of spending on social programs and military stuff. But I think that is like kind of coming to an end and maybe even good for us, though, because I think that the Bitcoin standard, it’s kind of interesting this idea of like the world settling all of its balance of payments, different nations, on this neutral open asset. What’s cool about it is that dictatorships, the people that I fight against in my day job, they don’t mix very well with open and neutral open capital markets, free speech, property rights. That’s not good for them. And Bitcoin literally is free speech, property rights, free expression, open capital markets.
So I think the US is actually dynamically placed really well to capitalize in a Bitcoin standard, without all the downsides that have come with our — not just our privilege — but also our burden of having to support the Saudis, throughout all these decades, these monsters who destroy Yemen, torture female political prisoners, murder. We don’t have to do that anymore. We don’t have to like invade other countries to protect the dollar primacy. We don’t have to prop up the fossil fuel industry and attack nuclear energy and prevent other countries from becoming energy independent. We don’t have to keep pushing the financialization of the world, which has led to massive inequality in the United States, where defense, finance, real estate, services, technology has exploded, but the industrial class has completely disintegrated because when the dollar is so strong, we can’t export anymore.
So I see actually hope in this system. I think it’s rich that people are attacking Elon for taking Bitcoin as payments when they should be a lot more critical of him taking the dollar for payments.
And we’re going to dive into that in a moment because what you were saying about how our dollar is really so tied to energy and fossil fuel energy… I think it’s fascinating. I think it’s something a lot of people don’t think about or aren’t even aware of. And just the way that you tie it all together with the full kind of social impact, it really goes to the heart of that term ESG, which I had to google for this show. But it’s environmental, social, and governance impact. And I was like, oh, wow, so Alex’s thesis here about the petrodollar, it kind of encompasses all of those things. And so I find that really fascinating, but first we’re going to take a quick word from the sponsors who make this show possible, and then we’ll discuss more of that.
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Back to my conversation with Alex and James. So as Alex described, the US dollar is really a petrodollar. There was this great piece that Susan Su, who’s head of portfolio and growth at Sound Ventures, wrote, and it was called: “Think BTC is a Dirty Business, Consider the Carbon Cost of a Dollar.” And so she says things like, “it is important to note here that this connectivity between the dollar and oil is not an abstraction,” just as Alex described. She said, “the US dollar literally owes its continued reserve currency status and resulting global economic hegemony to oil, via a series of implicit and explicit agreements that make up the petrodollar system.” She then goes on to explain that the US military uses more than a hundred million barrels of oil per year. And that that generates the equivalent 59 million tons of CO2. And then she said, “this doesn’t even begin to account for the carbon cost of the global banking system, or of printing and maintaining physical currency.” And so can you just kind of expound a little bit more on this comparison between Bitcoin and fiat currency when it comes to its environmental impact?
I think what’s interesting there is… I mean, even if you ask an economist like what backs the US dollar, if we can just print it, they will answer, well, the US military, of course. Which I think is actually the largest user of oil or something, or one of them in the entire world actually.
It’s the single largest customer. Like the DOD or something like that.
Sort of even zooming beyond the US petrodollar itself, is like thinking about US hegemony in general. I think sort of the lifeblood of our dominance has been oil — sort of over the past that we’ve built up over the past century. Standard Oil at its peak controlled 80% of global oil supply. Global!
So not even domestic. Like they were exporting. All the original oil discoveries were in the US. It was a massive feedstock for like booming automobiles and our entire industrial base. And then coming out of World War 2, a lot of the sort of continued supply of cheap oil was done through concessions with OPEC nations. Like these were originally, the US had all the expertise on how to get oil out of the ground, all these larger companies, which we still recognize today, like Shell and Exxon, they all have the roots in this sort of long history,
A lot of that was done through these deals in the Middle East where we got access to cheap oil supply. It massive for national security reasons and stuff like that.
And it was this sort of cheap lifeblood energy of sort of American dominance for a very long time. And actually, I don’t remember if it’s in your article actually Alex, or where I pulled this from, but I do wanna read Vaclav Smil‘s “Energy and Civilization,” which he says energy is the only universal currency.
As I said earlier in the podcast, energy systems are not fungible. As we move to an entirely new energy system, which I’ve tried to describe in this article series I’m writing. I’m trying to get article four out, which is basically this podcast. It’s been tough to write, but I call it — forgive the name, it’s terrible — The Age of the Electron. Because if you look at just transitioning to electric vehicles from internal combustion engines and residential heating and commercial heating to electric heating, like heat pumps, we’re gonna double our consumption of electricity in our lifetimes.
So right now it makes up about 38% of US consumption, electricity. So by the time we’re on our way out, it may be more like 76 or 80%. So we’re going to be feeding off the electricity grid. And so if you think of this in the context of like, well, oil was the most important feedstock for the US economy and US hegemony, as a result, as we transition to an electricity-based system, that’ll have implications for trade for our dominance, our hegemony, and maybe the currency system itself. So if Bitcoin is like electricity money. The US dollar was the petrodollar. I think I want to do more studying, even going back to like the Brits. Coal was their dominant energy supply that almost like in these energy transitions in the past, we’ve seen a reorientation in actual like global power structures. And so Alex, when I read your piece, and I think it’s too early for me bet on a horse, I do love Bitcoin. But I’d say I’m very intrigued at this idea of this tie between Bitcoin and electricity. And then thinking about that in the context of like the US petrodollar and all these systems and how that could emerge over the next few decades.
And just to add on that. When we think about Elon, and the pressure for him to stay ESG compliant, I mean, can the dollar be green? That’s a very good question. You know about this more than me, but like the US and the World Bank and the IMF have really fought, over the decades, emerging market economies from becoming energy independent. We’ve fought them from becoming agriculturally independent. We’ve wanted them to be dependent on the US. We have like pushed away at nuclear development. The world could be a lot more nuclear today if we weren’t trying to protect the sort of petrodollar system. We’ve also fought a lot of renewables ever since the seventies — remember the whole Carter administration thing. We’ve been fighting the renewables and nuclear in a big way to keep the system afloat.
And, you know, we ask, could Bitcoin be green? Well, I mean, you know, all we have is the data we have. The most conservative data, from Cambridge, says that something like 39% of all of Bitcoin’s energy comes from renewables and something like three quarters of all the miners have it in their mix. Where could we go from here in a world, where, as you know, and you can explain, renewable energy tech is just getting cheaper and cheaper and cheaper and cheaper. Could you imagine a world where Bitcoin in 20 years is running like all on coal? Like, does that make sense?
I mean, you look at coal declining just because of solar, wind, and natural gas right now and I don’t see that. Just as a slight aside on that, when you look at like Kentucky using this tax subsidy to entice Bitcoin miners to come into Kentucky. You could, if look at it, it looks like trying to prop up the coal lobby basically. Like keep those coal plants functioning.
So there’s certainly like an immediate concern about, yes, this could absolutely help coal plants continue to run. It could help nuclear too, which is clean. In climate circles they’re like, well, why couldn’t we just transition the US dollar to back renewables?
I’m like, well, technically you could… but it’d be naive to ignore the institutional inertia behind how intertwined the US dollar is with petroleum, to the extent that I even grow concerned that as we electrify the economy and we use more and more electricity and less and less petroleum… as demand for petroleum goes down, actually demand for US dollars globally goes down. It’s not just sort of the threat of trading pairs between countries instead of them having to buy from OPEC in US dollars from OPEC nations. It’s also like, well, if there’s less sales in general of oil, there’s less demand for the US dollar globally. As you’ve said, like the petrodollar, it’s been waning. I’ve seen a new sort of emerging debate in different spheres on Twitter where it’s the Eurodollar now.
So dollars that are in like European banks and stuff like that. Like the US dollar has become so ubiquitous that petroleum doesn’t even really matter anymore. That may very well be true. But at the end of the day, like the US petrodollar system started as an explicit quid pro quo between OPEC and the US. As in, you sell for US dollars, we’ll back you with our navy. And then now, if we’re transitioning away from that, it’s more of this implicit — there’s definitely a higher risk of becoming this multipolar world. And in that case, the US dollar would suffer.
I explain it to my climate friends, it’s just like you see Bitcoin miners actually wanting to go co-locate with solar and wind farms to like relieve transmission. We can get into all the benefits it may or may not offer like with the Square crypto paper. But there’s just so much inertia behind the US petrodollar system that I don’t see us suddenly figuring out that the US dollar is actually going to emerge and be great explicitly for renewables or electricity in the way that Bitcoin could. It just seems more unlikely.
Let’s talk about that Square and Ark Invest paper, because I found this just incredibly fascinating. And so the title was, counterintuitively, “Bitcoin is Key to an Abundant, Clean Energy Future.” And so the basic thesis was that Bitcoin miners are location agnostic, but they’re also highly flexible energy buyers, and they have an easily interruptible load — meaning they can be turned on and off kind of at will. Basically, the paper concluded, Bitcoin miners have this extraordinary asset, which is this combination of qualities, and that makes them an energy buyer of last resort that can be turned on or off at a moment’s notice anywhere in the world. And their suggestion was essentially that because a lot of renewable energy is kind of like far from where energy is needed, that there’s a lot of renewable energy that gets produced, but then maybe isn’t used as well.
Or that the timing of when the energy is being produced, doesn’t really match up to when people are actually needing the energy. And so they were saying that Bitcoin mining equipment could be used to kind of offset some of these like inefficiencies in the way that renewables are produced. So I wanted to hear what you guys thought of this paper. It sounds like, James, you have a positive view on it. Susan Su, who wrote the petrodollar piece that we mentioned earlier, she actually mentioned to me that climate people sort of looked askance at this paper. So it’s kind of curious to me that you actually view it positively. So if you feel comfortable kind of explaining what the skeptical view is but then also your own view, I’d be interested to hear both.
I’d say I have sort of mixed feelings on it, and it comes from I think a lot of the analysis and the reality in the cogency with which they talk about the grid is all actually pretty great. And we even dug into the model with some of my climate friends, like who are project financiers, who develop assets on the grid. There’s an underlying model that I think Ark built about kind of justifying a lot of it. And we thought it was like a novel, cool experiment. But they ultimately viewed it as cynical in that the evidence to support the nameplate claim of “it is key” is a little thin. The evidence they provided was was interesting, but you can’t connect it to just being like the key unlock to a renewable future. So that was a lot of the pushback that I heard and honestly kind of supported.
But I think the other piece of it is the analysis itself, which they do quite well. I think that that there’s two main values that Bitcoin miners may potentially bring to the grid. One is energy liquidity for stranded assets. I’ve heard it happening anecdotally in the Texas market. Actually, there’s such a huge interconnection queue for more solar, more wind, more batteries that we’re actually kind of overloading the amount that we can build on the grid. Like there’s more available. It is such a great region for cheap wind and solar, because there’s a lot of wind and there’s a lot of sun. And so people have seen Bitcoin miners actually, in order to get sort of interconnected into the grid, the Bitcoin miners will co-locate to the wind and solar and off-take enough of that power that they can actually help these resources get interconnected. So it actually leads to like net new generation of solar and wind. If that’s true, that’s very compelling. On the flip side of it, like I mentioned in Kentucky, it can also be used to prop up stranded coal assets.
I think if we look at over the next decade or two, I’m not as worried about the coal piece of that.
The second piece, which I find extremely interesting about Bitcoin, and they do mention in the paper, is this idea of it as like a capacity reserve margin or backup generator for the grid. So, because it’s creating net new generation, if you take that as an assumption, when there are these so-called like tail events on the grid, like you saw in Texas where prices went through the roof, there wasn’t enough supply, Bitcoin miners can shut down because it’s less profitable to mine when prices are going up. Which means that if their demand created this new supply source, the solar and wind, when they turn off, it’s around and available for the grid in these, like very kind of dire moments on the grid where we need extra supply. It’s not like actually creating power itself. Obviously, it’s only a consumer of power, but it is a very interesting property of Bitcoin miners that I find it very positive for the grid, as it’ll lead to more power plants being built. Just to sort of summarize how I overall viewed the paper, is bless his heart, how many articles can Nic Carter write on energy consumption? Like another debunking article?
Just one man against the world.
So what I said to my climate friends is that I don’t support necessarily the title where “Bitcoin is Key to a Clean Energy Future.” Like there’s a lot of unknowns. We’re probably gonna build a lot of stuff anyways. There’s interesting properties. There’s a lot of nuance here. It was a very effective counter-narrative that they kind of landed on and created because they’ve been getting the crypto community beat to death by this energy consumption narrative for six years. And so it just kind of makes sense to me that this counter-narrative emerged.
So it’s not that I necessarily like support that, but I understand there’s a reality here where it can be very helpful to the grid. And then there’s also this like narrative that exists in the context of people who are bashing Bitcoin. Overall, I think it’s interesting that it’s out there. I thought they did a great job. But I personally wouldn’t go as far to say, like, it is the key to unlock our renewable energy future, even though I’m very intrigued about this idea of like, to Alex’s point, a Bitcoin electricity standard emerging kind of emerging in our lifetime.
I just would add one other thing just for the audience that we don’t know yet. Like basically measuring Bitcoins, energy footprint, carbon footprint, and mix is very hard to do and happens at a kind of academic level only once every year or two. I think in 10 years there will be probably a dozen organizations doing this, and we’re going to have tons of data and like a lot more transparency into the situation. But today we have, I mean, there are corporate people doing it who have a really big self-interest, and then we kind of have Cambridge, right? So the, the Cambridge Center for Alternative Finances is kind of like the best we have as sort of a neutral-ish academic institution. And we haven’t seen that paper out of them since 2019.
And Bitcoin has changed a lot since then. As we look to the future of Bitcoin and the dollar, I think it’s worth looking at some trends that are happening in the last six months to twelve months with Bitcoin. We don’t have very recent data on Bitcoin’s global energy mix, but from events that just happened in Western China, miners have said that a) it looks like a lot less mining is taking place in China than we thought. Potentially less than 50%. F2Pool has mentioned that for the first time ever, they’re getting less than half of their hash rate that’s pushing towards their really, really large pool from China. So it looks like we’re seeing a decentralization of mining out of China, which is very interesting. We’re also seeing like a lot more renewables in these places than previously thought.
Everybody keeps saying, you know, coal-heavy provinces in China, but the second-largest coal-heavy province in China, inner Mongolia, \they’re banning Bitcoin there. So that’s going to move to more renewable areas. And then in Xinjiang, miners there, I spoke to one as I was trying to research what’s going on there, and this person told me that the fact that they were able to close it all down is very bad for business, and they’re going to be looking to move elsewhere. So I wouldn’t be shocked if you saw miners get out of there. And in addition, that grid is more renewable than people thought.
So I would just say that the future of the mix is changing and potentially in a way that that could be a lot more renewable. And the last point I want to make for the audience is just to think about this from a humanitarian point of view.
If you consider that you can turn solar, and wind, and hydro resources into a very valuable asset that can benefit the local population, then you start to have a different incentive structure for consultants and a sort of foreign mega-corps, who usually participate in extractive industries. And this is sort of the thesis of “Why Nations Fail, a famous book that like basically countries that have these extractive industries fall into disrepair and a small group of elites control everything. But if you’re actually having like Halliburton or whoever, who normally come in and like loot the country and leave, if they’re coming in to build Bitcoin mining equipment for like the local people or the government to like accumulate well, all of a sudden, now these other countries that are maybe like Sudan or Ethiopia or whatever, who might be naturally rich in resources, but don’t have good dollar access, all of a sudden in a world where maybe Bitcoin is the reserve currency, they’re able to be independent.
And that’s a really interesting future. Again, very different from the one today where Americans are completely privileged with having this ability to run up these massive deficits on social spending and war and for everybody to continue to want to buy our debt. That’s the trick. Normally you have the Triffin dilemma type thing, which this economist Triffin mentioned in the sixties that, normally, when a country has a big balance of payments issue, essentially the currency devalues and it starts exporting more and there’s like a natural balance and all the world’s economies operate in this way. But when you have a reserve currency that you’re printing, you don’t have this balance. And the only way you can kind of keep the system running is by printing more and more and more and more debt. And eventually, eventually that thing’s going to collapse. So that’s kind of maybe what we’re seeing here with the end of the petrodollar system. And it’s interesting to think about a future where other nations can participate in an equal way, given their national resources. And it’s something that I always think about,
Alex, I did just want to actually add onto one thing when you bring up the Triffin dilemma, which I’ve started sort of injecting into the climate conversation as much as I possibly can. So when I mentioned earlier that like Standard Oil actually owned 80% of the global oil supply. If you actually look at — so while the US is creating a tremendous amount of green jobs with solar, wind installations, and stuff like this and we have tremendous resources in say the panhandle and Arizona, and a lot of solar and wind resources. Actually, 70% of the supply chain, or even more in certain cases, is currently dominated by China for the equipment itself. So not only just solar panels, but also the like silicon and sort of the entire supply chain leading up to the panel, as well as batteries, I think its like 80%. Wind is only 30%.
I do sort of offer up there, like in the Triffin dilemma, that the structure of the US dollar is actually oriented against us, sort of on-shoring supply chains, because the way you fund the US dollar as a reserve currency system is by running a trade deficit. That is the Triffin dilemma.
So I kind of always offer up to people, like if we continue to run the system as is, basically, at any moment, and I’m not saying they will, or like trying to put forth an antagonistic view of China, I’m not going there whatsoever, but we do completely depend on them for our clean energy future. If they were to stop sending us solar or batteries, as we try and ramp up and do things really quickly over the next 10 years, we won’t have another source for the equipment itself.
Beyond Susan Su, I just wanted to make sure people here follow the work of like Luke Gromen and Lyn Alden, who are also really good at underlining what James is saying here and explaining it in a very academic and very clear way that this is a vulnerability for the US that we’ve outsourced everything and that our supply chains are based in these like rival risk countries. And that the natural correction to that would be to be bringing this stuff back so we can make it ourselves and possibly export it. But that will mean the correction in the deficit. And that will mean like a weaker dollar. These are the trade-offs we have to think about, but we’ve really sacrificed a lot to have this like sort of dollar primacy that gives us the ability to finance all of these social spending and wars.
I mean, again, we’ve hollowed out our manufacturing middle-class and, and put all of that infrastructure in China and other countries, and all of a sudden, those other countries that have been selling stuff to us for the last few decades, they’re not willing to reinvest that profit back into US debt anymore. China’s investing it into their own plan. They’ve got other plans now, and other countries are investing in other stuff there, Russia stocking up on gold. And, you know, I think people are gonna start stocking up on Bitcoin in the next five years — central banks.
American policymakers have to be really careful here. But I think if they’re smart, and they understand what’s happening with Bitcoin, we can be so dynamic in a Bitcoin future and America as the country built on the Declaration of Independence, and on these very values that Bitcoin empowers and, and sort of vibrates with private property and free speech and freedom, we can really dominate, I think in that future. And so I think that Bitcoin is, in many ways, a way to bring us to like a more patriotic and more reasonable American future. That’s my argument.
Yeah, actually on that note, I did just wanna ask one last quick question, even though we’re basically at time. I was just wondering, because obviously the Biden administration is going to be more environmentally friendly than the Trump administration was. And obviously also we’re coming out of this pandemic. So I think there’s going to be kind of like these new initiatives — already we’re seeing like in infrastructure and stuff. So I just wondered if you thought that that would have any particular impact on Bitcoin or on maybe increasing mining here in the US, or the energy mix of mining, et cetera?
I think what the Biden administration seems like they’re definitely going to do as a lot of incentive money towards renewables, which will obviously help. I am honestly not the best person to comment on this because, from like an entrepreneurial entrepreneurial view, as someone starting a company in this space, I try to avoid politicians as much as possible because we don’t want to bet our future on policy going one way or the other. We’re trying to build an environment where no matter what happens, like we’re going to be fine. So I think what was interesting is that the Trump administration, for all the talk, didn’t do that much to actually… I mean, if anything, the clean energy industry accelerated during the Trump administration.
Now I’m not saying to his benefit, but it just does seem to be this unstoppable movement at this point. So I think the Biden administration can certainly do things to help. I like that they are starting to talk more about supply chains and on-shore manufacturing and stuff like that, which I do think is a really critical piece of the clean energy piece of this — is making sure we have access, secure access, to clean energy technologies.
But again, it remains to be seen because there is just so much institutional inertia against that. If we’re not going to go at the US dollar system in general, which doesn’t let us build things here as well, I don’t know how much that they’re actually going to accomplish on that front. And again, this is coming from a pretty uninformed view. I think it’s probably going to be good overall. I’m not saying that it’s not. But I never kind of put my hopes on the narratives that politicians are putting out there. We’ll see how it how it goes.
Look, if they want to subsidize clean energy, they can, and I think they will. And I think you will see pressure on Bitcoin miners in America who are using natural gas. They’re buying offsets. I think you’re going to see that for any Bitcoin miner, they’re going to have to be like any other industry. They’re going to have to comply with the structure, the society, and the politics in America right now, which is under Biden and pushing towards this renewable future.
And obviously that advantages miners. I was on the phone with a miner this morning who builds wind and solar only farms out in West Texas, where you get some of the cheapest energy on the planet, and they’re going to do very well over the next few years here.
So I’d like to see more American mining done geopolitically, let’s put it that way, to balance out China and to maybe advantage us as a country moving forward. Of course, I’d love to see that be more renewable. I think an unintentional byproduct of some of the Biden administration’s language here is going to probably be the force that, even if it comes at the cost of a state subsidy, which is kind of ironic that they’re going to be like burning these petrodollars to help bring us to a more clean Bitcoin future, but maybe that’s the case.
Something I would love to see is a concerted effort to bring clean energy supply chains to the US. I think that could be a very impactful way for the Biden administration of spurring the clean energy movement along.
So on top of the sort of national security viewpoint that you had Alex on mining Bitcoin in the US and how that could be beneficial is also just: let’s not forget where all of these clean energy technologies come from. That would be probably the policy that I see kind of discussed, but not like really, you know, I haven’t seen a concerted effort behind it, and I’d love to see it more prevalent in the conversation.
Alex, when you brought up Lyn Alden, I think, and I read this so long ago, I don’t remember exactly, but I think she was talking about how, because of the pandemic, it’s going to bring up resiliency as a feature. She was talking about the supply chains and yeah. I totally agree with you. And when you were saying that it’d be great to see more mining in the US, I do think if that happened, then it would naturally be more clean because already that Cambridge study showed that in Europe and in North America, the median percentage of renewables is 70% in 66% respectively. But in Asia, and this is Bitcoin mining, the median is 25%. So clearly, you know, if we had more mining here, I think the mix would definitely be more shifted toward renewables. All right. Well, this has been a super-comprehensive conversation. I’m so glad we were able to pull this together last minute, to talk about some fun news. Where can people learn more about each of you and you work?
I would say actually check out the DER Task Force, dertaskforce.com, if you’re interested in kind of the distributed energy topics that I discussed here, we view it as the go-to community for distributed energy enthusiasts. We have meetups, we have a podcast, there’s like a network of very motivated, plugged in folks who you can get direct access to through our slack. And then, you know, myself, I’m on Twitter. That’s my platform of choice. Check out at @James_McGinness or @davidenergy. If you want to learn more about the company or just davidenergy.com.
I’m focused on the S part of the ESG here at the Human Rights Foundation. You can follow HRF.org. You can follow me at @gladstein on Twitter.
My article that sparked a lot of this conversation is called the “Hidden Cost of the Petrodollar” on Bitcoin magazine.
And then for further reading, I’d really recommend that people follow five people.
Definitely Susan Su, read her article. Definitely follow Lyn Alden, and Luke Gromen. They’re very informative on this. Nic Carter, of course, is worth following on this side of things. And then one other person I would bring up is Michael Hudson, who is quoted a lot in David Graeber’s book, Debt, which is kind of a masterpiece. Michael Hudson is quoted quite a bit in David’s very, very good section on the petrodollar system, which everybody I think should read. David, of course, passed away unfortunately, rest in peace, but Michael is still around and doing some interesting work. He’s been a searing critic from the far left, I would add, of the petrodollar system. So I think reading his stuff is really interesting. I hope that gives folks some more rabbit holes to go down.
Great. All right. Well, thank you both so much for coming on the show.
Thanks so much for joining us today to learn more about Alex, the Human Rights Foundation, James and David Energy, check out the show notes for this episode.
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