The Congressional Hearing, hilariously titled, “America on ‘FIRE:’ Will the Crypto Frenzy Lead to Financial Independence and Early Retirement or Financial Ruin?” is the gift that gives again and again. NewsBTC has already analyzed some aspects of it, but Peter Van Valkenburgh’s statement deserves an article of its own. The research director at the Coin Center put several important ideas on record, and we’d better register and memorize them.
The introduction of the previous article is still there:
The U.S. Congress Oversight and Investigations Subcommittee held a hybrid hearing on bitcoin and cryptocurrencies. The institution invited Alexis Goldstein, Director of Financial Policy at the Open Market Institute, Sarah Hammer, Managing Director of the Stevens Center for Innovation in Finance, Peter Van Valkenburgh, Director of Research at the Coin Center, and others.
Related reading | New FATF crypto guidelines for 2021 marked as bulk surveillance without a grant
Since we’ve already done the job at NewsBTC and covered Rep. Brad Sherman’s ridiculous testimony, it is time to pass the mic on to someone more skilled and informed. Let the minutes reflect that a full video of the entire hearing is not available at the time of writing. We will base our report on whatever we can find on the open internet.
US House of Representatives: “We have the #Bitcoin Lightning Network to bundle millions of transactions without any significant increase in energy” – @Valkenburgh pic.twitter.com/xXy9lCqAXN
– Documentation of Bitcoin 📄 (@DocumentingBTC) June 30, 2021
What we know about Peter Van Valkenburgh’s statement
Fortunately for us, Documenting Bitcoin has preserved the best of Van Valkenburgh’s presentation. The Director of Research at the Coin Center sets everything up by explaining why and how the Bitcoin network is censorship resistant.
“… We have the advantage of knowing everything that the peer-to-peer ledger tells us. It’s shared and open, it’s not a company’s proprietary standard. And the peer-to-peer ledger shows us how much work these miners are doing to make sure transactions are blocked and not censored by a third party or government that wants to force certain transactions or block certain transactions. It is this lively competition between miners that guarantees that the miner cannot form a cartel and that certain people are systematically excluded from this financial system. ”
To complete this idea, we quote Van Valkenburgh’s own paper “Understanding Bitcoin’s energy use”.
This competition is healthy because it means that the effort involved in securing the network automatically scales with the value of the transaction data on the blockchain – not the number of transactions. The more value the Bitcoin network has (because individuals value it more, which is reflected in its price), the more resources are devoted to its security.
This leads us to …
What about the energy consumption of Bitcoin and the Lightning Network?
This man is a veteran of the House of Representatives. He knew what he was doing. Van Valkenburgh has everything set up and then he goes to the meat and potatoes of the testimony. He goes for the throat and turns the establishment’s reasoning about Bitcoin’s energy consumption on its head. He changed the narrative, highlighting the well-known inefficiencies of the traditional financial sector.
“In terms of energy use, it should be noted that the traditional financial sector is estimated to use five times more energy than Bitcoin. Granted, the traditional financial sector moves more money. It is worth noting, however, that Bitcoin’s energy consumption does not scale per transaction. So most of the costs are the fixed costs of setting up an open, robust peer-to-peer system. And we have technologies like the Lightning Network that can bundle millions of transactions into this existing system without significantly increasing the energy. So it is possible that we have an open financial system that is censorship-resistant and uses a fifth of the energy of the current financial system. ”
So yeah, the Lightning Network and its miracles are on record for the US House of Representatives. And while Bitcoin’s goal is not to completely replace the “current financial system”, the bottom line shows that Bitcoin is more energy efficient and, as a bonus, is censorship resistant. Finally, it’s worth noting that “five times more energy than Bitcoin” is an extremely generous estimate in favor of the traditional sector.
BTC price chart on FTX | Source: BTC/USD on TradingView.com
What does Van Valkenburgh think about regulation?
The fine folks at Coindesk got Van Valkenburgh’s prepared testimony. In a current episode of their podcast “The Breakdown” they deal with a completely different area:
There are a couple of important perceptual changes he’s trying to make, first around the idea that crypto is unregulated, that’s wrong. It is regulated everywhere at the state and federal level. It’s just fragmented. Second, crypto is for crime: Again, it is wrong, in 2020 only 0.34% of the total transaction volume of cryptocurrencies with a criminal sender or recipient was associated with each year.
Related reading | Bitcoin Lightning Network is experiencing a storm of activity and adoption
This goes well with what was discussed above and with this direct quote from Van Valkenburgh:
“For every transaction that we want to block, there is a transaction that we should celebrate as unstoppable. Yes, there are criminals who make payments over the Bitcoin network because banks don’t transfer them. There are also pro-democracy activists and protesters from Belarus and anti-police violence in Nigeria who are accepting donations through the Bitcoin network because local banks are not paying them in. For every decentralized app that tries to scam investors. Another is testing ways to distribute the universal basic income, eliminate corporate control over social networks, or eliminate the hacking risk inherent in central identity solutions. ”
Suffice it to say, this man went into the beast’s belly and spoke the truth. The bitcoin movement will be eternally grateful to you.
Featured Images by Krystal Ng on Unsplash - Charts by TradingView