Today at POLITICO’s Sustainability Summit, the Commodity Futures Trading Commission (CFTC) Chair Rostin Behnam, when asked about digital assets in the context of environmental sustainability, said there is a “…clear dislocation between the usage and generation that’s needed to mine these coins and the sort of economic output that we’re seeing from digital assets themselves. That may rebalance over time, but right now it’s clearly skewed.”
The CFTC is one of the key U.S. regulators that is regularly considered as potentially being a primary regulator of digital assets at the federal level, particularly as legislation in Congress is being formed to regulate the industry. The CFTC Chair made these focused comments on the energy usage of Bitcoin after describing how his agency would host the first-ever ‘Voluntary Carbon Markets Convening’ on June 2nd as well as announcing an upcoming request for public comment on regulating the markets for trading carbon offsets and carbon derivatives.
“I would give credit to a lot of folks in the industry – not all but many – [who] are starting to recognize this issue and starting to think about different ways of mining. You may be familiar with these terms ‘proof-of-work’ vs. ‘proof-of-stake’ and these are just methods of mining coins…proof-of-work becomes a lot more energy intensive than proof-of-stake and a lot of these coders are starting to work toward proof of stake,” said Behnam.
Rostin Behnam, chairman of the Commodity Futures Trading Commission (CFTC), during a Senate … [+]
Behnam suggested the idea of providing disclosures when purchasing digital assets showing how much energy each of the coins used as a way of pushing the digital asset industry to proof-of-stake. Behnam stated his belief that these disclosures would create, “…incentives or disincentives for users whether it is the end user who purchases the coin or the trading platform that facilitates the buying or selling of the coin to make clear the information that’s needed for the end user to understand what computing power, what energy usage is being used in order to produce and mine that coin…to make that market shift to a more proof-of-stake functionality or other functionalities that will reduce that energy consumption.”
Back in March, the Biden Administration issued an Executive Order on Digital Assets that includes the required development of a report by the The White House Office of Science and Technology Policy (OSTP) on the energy impacts of proof-of-work consensus mechanisms. OSTP issued an RFI soon after the Executive Order that asked about proof-of-work systems in the context of potential benefits to the environment. The RFI requested, “…information is sought supporting or rebutting claims made by some proponents of cryptocurrencies that the energy used by mining cryptocurrencies is a net climate positive, either because it occurs during demand lulls or because it increases demand for renewable electricity sources.”
I spoke with Jason Williams, General Partner at Morgan Creek Digital Assets (@goingparabolic on Twitter), what his thoughts were on trying to move the industry away proof-of-work. “Proof-of-work is fundamental to the security of the bitcoin network,” said Williams. “When we have solar-powered tanks I’ll be happy to opine on this but until then, stop moralizing power.”
Clearly passionate about his belief in proof-of-work and Bitcoin, Williams said, “We exchange energy to do work. I’ll plug my ASIC (a type of bitcoin miner) into whatever power source I want. This is America.” Williams further emphasized that as long as there is a reliance on the U.S. dollar as the global reserve currency, often referred to as the ‘petrodollar’ based on payments made to oil-exporting companies, it seemed a bit of a rush to judgment in determining what the value of Bitcoin’s economic output should be.
Behnam did not indicate whether his agency would formally explore the notion of requiring disclosures on energy use of digital assets. However, it is clear that Behnam’s focus on ESG reaches beyond just digital assets and will remain a top priority of the Biden Administration for the foreseeable future.
Disclosure: I own a small amount of Bitcoin and Ethereum, as well as minimal amounts of other proof-of-work and proof-of-stake digital assets as well.