In Defense of a “Proof-of-Work” Model for Bitcoin Mining

Bitcoin mining is so costly precisely because it has a built-in barrier to discourage fraud. This mechanism is what allows the system to be decentralized and run smoothly by countless unnamed miners.

In “Should Central Banks Offer the Public Token-Based Digital Currencies?” (June 8, 2021), Nikhil Sridhar and Patrick Horan write, “A proof-of-work model could also be costly to implement. Bitcoin mining takes up approximately 121.36 terawatt-hours a year, which is roughly equivalent to the annual power consumption of the entire nation of Argentina.” This claim suggests proof-of-work has no benefit to offset the cost. Yet Bitcoin mining is so costly precisely because it has a built-in barrier to discourage fraud. This mechanism is what allows the system to be decentralized and run smoothly by countless unnamed miners. Despite the benefits decentralization could have, if CBDC mining is controlled directly by central banks, Bitcoin’s proof-of-work cost is less likely to exist in a CBDC since miners would be supervised, or “permissioned.”

This letter to the editor is cross-posted from Discourse Magazine.