Abstract

This paper examines the dynamics of legitimacy and delegitimisation in relation to distributed ledgers, using Bitcoin mining’s role in climate change as a case study. It finds that legitimacy becomes harder to maintain when moral questions are invoked if Bitcoin is viewed as a single power (the algorithm). However, when Bitcoin is analysed as a self-organising network where multiple actors behave as free agents, then local information comes into play, including Bitcoin’s entanglement with energy markets and infrastructures. These two opposing viewpoints, both of which emerged over the course of 2021-2022, demonstrate the role of discourse and rhetoric in the process of delegitimization, as well as the possible absence of norms related to distributed systems. The outcome for Bitcoin is that regulators in some jurisdictions are imposing constraints on Bitcoin that would not normally be applied to self-organising systems and networks (including markets), and which could be considered as overreach if the distributed nature of Bitcoin was accepted.

Keywords: legitimacy, delegitimization, Bitcoin, distributed ledgers

Introduction

Over the course of 2021, a wide variety of actors – governments, corporations, media commentators and activists – expressed concern about the environmental impact of Bitcoin, citing models that equate Bitcoin’s carbon use to that of a small to medium sized country [1] [2]. Some analysts challenged these models and argued that Bitcoin is a crucial piece in sustainable energy markets, akin to an ‘economic battery’ [3][4][5]. At the heart of this debate was the issue of whether Bitcoin is legitimate and, if so, what can cause it to become illegitimate.

My aim in this paper is not to judge whether Bitcoin is legitimate or not, but to use the case of Bitcoin to reveal two important aspects of legitimacy itself. Firstly, the legitimacy of distributed computing networks is impacted by whether it is perceived as a single power or a self-organising system. The Bitcoin energy use debate of 2021-2022 demonstrated that while distributed computing networks are built with economic incentives, and work by way of market dynamics, they are often judged differently to markets or other self-organising systems. At the heart of this assessment is the notion of ‘the algorithm’ (the proof-of-work consensus mechanism) as an object that can or should be constrained, suggesting weakness in norms around decentralisation generally. This is at odds with how Bitcoin miners see themselves – as a network of free agents making decisions about the terms of their cooperation. Secondly, I show how information (including academic research) plays a significant role in depicting Bitcoin as a single power, particularly when local information is ignored or not readily available.

In the first part of this paper, I introduce the concept of legitimacy and provide a background to the Bitcoin energy debate and its relationship to the proof-of-work consensus mechanism. I then discuss how miners consider various information and market inputs in their mining practices and why these are important in understanding the legitimacy of Bitcoin from the point of view of a self-organising system.

How does Bitcoin derive legitimacy?

In an early article on Bitcoin, Maurer, Nelms and Swartz (2013) wrote that the value of Bitcoin depended on a shared belief among its supporters: “The monetary value of Bitcoin rests as much in the future potential that its users imagine for it as on its current, relatively limited capacity to act as a medium of exchange” [6]. Since that time, the monetary value of Bitcoin has increased dramatically, along with its capacity to be a store of value through an elaborate network of services and infrastructures. Despite this, the legitimacy of Bitcoin remains disputed if not fragile, with energy use being one significant site of contestation.

The concept of legitimacy has been applied to political authorities, institutions, organisations, and markets. In the domain of political authority, legitimacy is the right to rule [7]. Extending this to other forms of power, Suchman (1995) defines legitimacy as “a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions” [8]. For Beetham, a power derives legitimacy by conforming to rules where those rules are derived from norms and beliefs [9]. Others focus on consent, seeing acquiescence to a power’s right to govern as central to legitimacy, noting that while a power can rule by force alone, it would need to expend continuing resources to maintain rule based on coercion. Legitimacy therefore “reduces the transaction costs of governing by reducing reliance on coercion and monitoring” [10].

When applied to organisations, legitimacy is the acceptance by the public and authorities of an organisation’s right to exist and pursue activities in the manner it chooses [11] [12]. Beliefs, consent and conforming to rules are indicators of legitimacy with respect to an entity, yet these are not straightforward when it comes to Bitcoin.

While all money requires belief – belief in the person paying us, in the entity issuing the money1 and in the bank expected to honour liabilities [13] - it is insufficient to say that Bitcoin is legitimate because people believe it is. If legitimacy is obtained through belief alone, then something could become legitimate simply through promotion or marketing [14]. Rather, a particular power is legitimate not because we believe in that power, but because it meets pre-existing normative expectations; we are “making an assessment of the degree of congruence, or lack of it, between a system of power and the beliefs, values and expectations that provide its justification” [14]. In the case of Bitcoin, legitimacy relies on norms, beliefs, and expectations about money, and the belief that a distributed computing system can provide a valid form of governance over money (this paper contends that the latter remains fragile).

Legitimacy is also observable in how people behave towards Bitcoin. Bitcoin was the first successful decentralised cryptocurrency and has remained dominant in market terms, despite there being no obvious ruler or sovereign power associated with it. In the absence of force, acts of consent, including conforming to a system’s design, can work to confer legitimacy. While the use of Bitcoin can be motivated by self-interest rather than consent, the act of using Bitcoin also demonstrates to others that it is considered acceptable. Continuity and credibility are therefore mutually enforcing; the more we see something as credible the more we are likely to continue to support it [8].

When it comes to rules, it is not enough to say that Bitcoin is illegitimate because it was established as private money and defies government oversight. As Amanda Greene points out, the question of legitimacy rests on “a normative standard that goes beyond legal validity” [15] and is used to determine whether something deserves legal protection. The newness of Bitcoin means that its legitimacy may need to be established before suitable regulation in a jurisdiction can occur. Moreover, Bitcoin asserts its own rules through code, including the consensus mechanism described in the next section.

Bitcoin is a distributed system, and Greene’s work on the legitimacy of markets is a useful starting point for considering legitimacy in relation to a network of independent actors as opposed to a particular institution or authority. Greene argues that markets achieve legitimacy because economic agency promotes certain goods, including resource discretion, contribution esteem, wealth, diffusion of power and freedom of association. Importantly, markets achieve these without participants having “shared ends, or shared deliberation about joint ends” [15]. Green [16] argues that

While these goods are plural, they form a nexus: the production of shared goods without shared ends. I propose that when a market fails to realize this nexus of human goods, or fails to be recognized as doing so, it lacks legitimacy (emphasis added).

She concludes that the distinctive promise of a market is that it facilitates cooperation on a large scale “without the need for individuals to have shared ends, deliberation about ends, or even shared views about justice” [15]. While markets are not intrinsically legitimate, they are capable of being legitimate if they achieve cooperation without collectivism and where a market is recognised as fulfilling its purpose.

As described below, in the discourse surrounding Bitcoin’s environmental impact, commentators who question Bitcoin’s legitimacy on environmental grounds tend to focus on the effects of the algorithm using generalised economic models to do so, while those who see its potential to modernise energy grids treat it as a network of individual actors for whom the software enables cooperation in response to market forces and local dynamics.

Methods

To understand how Bitcoin’s legitimacy came to be challenged by its energy consumption, I gathered sources arguing that Bitcoin’s energy use is illegitimate and reviewed the models used to arrive at that conclusion. In theories of rational choice under certainty, a set of alternatives are specified and the agent orders these in a predictable way (the ‘rational’ part)[17]. Attempts to model bitcoin energy make assumptions of miners’ choices based on how other industries access electricity and the degree to which hardware and software processes (such as the speed of ASICS and the difficulty adjustment2) incentivise mining. However, choice can only be anticipated if a person’s underlying motivations are known, even if the conditions are certain[18][19]. In the case of Bitcoin, the consensus mechanism has an in-built conception of how actors within the system will behave, in that it uses economic incentives to ensure security of the network. The initial design did not anticipate hardware developments let alone external policy pressures or local factors, which have influenced how people participate, producing unintended outcomes [20]. Economic and data models on Bitcoin’s energy use can miss such crucial information.

I therefore reviewed publicly available information from miners and industry analysists who offer a different account. Although many miners choose to remain out of the public eye (for instance, hiding their IP addresses by using VPNs), when I began this investigation in early 2021, some miners had taken it on themselves to respond to the energy use debate through their own media channels, including social media, newsletters, and podcasts. I analysed these sources and found that there were different practices associated with using renewable energy at the source, waste energy from the production of hydrocarbons, and using power from the grid. I then undertook to interview miners from each group to better understand their mining practices.

The miners I spoke to were all at the mature end of the industry, running large bitcoin operations or in the process of establishing them. I focused on larger miners as, for reasons explored below, they are directly entangled with the energy industry through commercial deals and geographic proximity to energy production. However, it is worth noting that business models have arisen to accommodate those with less capital, such as Compass Mining, which offers hosted Bitcoin mining services3. Smaller miners can still be profitable through mining pools, whereby they share in the profits of all members proportional to their activity.

I focus on the practices of four miners in this paper, each representing different approaches: Miner A was in the process of packing up operations in China at the time but had been using renewable energy at the source during some months and energy from the grid at other times. Miner B was based in the USA and Australia and was using renewable energy. Miner C was in the process of setting up Bitcoin mining using natural gas. Miner D was operating Bitcoin mining using renewable energy from the grid and was undertaking technological innovation to reduce environmental harm associated with data centres.

In interviews I asked the miners for their views on Bitcoin’s energy use, whether they saw a need for a coordinated response, and what that might look like. I included questions about the local factors involved in establishing mining operations, energy use and markets, as well as hardware. Before discussing the choices of the miners and their responses to the energy debate, I first describe how Bitcoin works and the rationale for energy consumption.

Proof of work consensus

Bitcoin is a distributed ledger, storing information about transactions and balances on many computers simultaneously [21]. Anyone with access to the requisite hardware, software, power supply and skills, can participate in maintaining the Bitcoin ledger. The network uses a consensus mechanism called proof-of-work to provide security and ensure that nodes can come to agreement about the state of the ledger. Fundamental to proof-of-work SHA256 algorithm is the requirement that the nodes carry out hard computational work to earn the right to mine a new block (a set of transactions to be added to the ledger). When a new block is successfully mined, the miners are rewarded with newly minted Bitcoin and transaction fees. The work required to mine a new block makes it extremely difficult and costly for an actor to try to manipulate or control the network unilaterally.

This method for reaching consensus in a distributed network is one of many possible consensus mechanisms, some of which date back to the 1970s4. The genesis of proof-of-work algorithms was a 1992 paper by Cynthia Dwork and Moni Naor (1992), who put forward a proof-of-work method to prevent spam.[22] The model required computers to solve a computationally difficult problem to send an email, making sending a large volume of spam computationally infeasible. Hashcash, created in 1997[23], used the theory developed by Dwork and Naor; people sending an email using Hashcash would have to generate a token by completing a proof-of-work problem. This token would be included in the email metadata to confirm that the sender was not a spammer. Parts of the Hashcash algorithm bear strong similarities to the algorithm used by Bitcoin. Bit Gold, created in 1998 by Nick Szabo, was another important precursor to Bitcoin that also used proof-of-work.

The high energy consumption of proof-of-work was identified when Bitcoin was still new. Alternatives to proof-of-work that use less energy include proof-of-stake, which was first proposed in 2012 by the inventors of Peercoin, Sunny King and Scott Nadal5. They write that “philosophically speaking, money is a form of ‘proof-of-work’ in the past thus should be able to substitute proof of work all by itself” [24]. Proof-of-stake requires holders of the currency to stake their coins to operate a validator node. Stakes can be slashed, punishing any validators that fail to keep up or attempt to attack the chain. Ethereum’s decision to move to proof-of-stake is estimated to have reduced its carbon footprint of that blockchain by 99 per cent [25], and the world’s energy consumption by 0.2 per cent [26]. While some activists have campaigned for Bitcoin to move to proof-of-stake, many within the Bitcoin community are committed to proof-of-work. One argument put forward in favour of retaining proof-of-work is that it anchors the network in processes that are external to itself, including the physical world (for instance [27]).

Disagreements on the carbon footprint of Bitcoin

The Cambridge Bitcoin Electricity Consumption Index (CBECI) estimates Bitcoin’s energy consumption to be around 108.3 Terawatt hours per annum at the time of writing [28].6 While measuring energy use can be predicted fairly accurately, measuring the carbon footprint is a more complex task as it requires knowing the power sources used by the total network of miners. Most academic research into the carbon footprint of Bitcoin mining uses data models to arrive at estimations of energy consumption, extrapolating from this to measure the network’s use of fossil fuels. These estimations are at odds with industry reports that purportedly use data direct from miners and arrive at far lower estimations.

For instance, one study attempted to simulate the carbon footprint of Bitcoin mining in China under different policy scenarios and estimated that without policy change, carbon emissions from China’s Bitcoin operation “would peak at 130.50 million metric tons per year in 2024”, equivalent to that of the Czech Republic in 2016.7 The authors write that a limitation of their model is that it projects carbon emissions based on regional energy mix at the time and that “projected carbon emissions of Bitcoin blockchain operation related to electricity production depends on the source which is used for its generation” [29]. The article argued in favour of site regulation (policies to restrict Bitcoin mining to hydro regions) over a carbon tax. In contrast, a report by Coinshares Research in [30] mapped known Bitcoin mining locations and calculated energy mix taking into account stranded and wasted energy in those regions, arriving at a lower bound estimation that Bitcoin is 77.6 per cent powered by renewable energy at that time.[31] If Coinshares’ information is accurate, this would suggest that market forces drive miners to sites that result in lower environmental impact without regulatory intervention.

To address concerns about environmental impact, the leaders of a small number of large US-based miners came together in May 2021 and formed the Bitcoin Mining Council. Miners who join the council commit to disclosing the mixture of energy sources that they use, and to provide greater transparency around actual energy emissions in the network. The use of renewables by its 45 members in Q2 2022 was 66.8%, accounting for 50.5% of the network[32]. Kevin Zhang of Foundry Services’ USA Pool, which accounts for around 10% of the global network, stated in October 2021 that 56.6% of the hashrate of that pool uses renewable energy8.

A notable early report by Ark Invest modelled the potential impact of Bitcoin mining on solar and wind markets and found that Bitcoin mining could accelerate the transition to renewables by helping to solve intermittency and congestion problems. According to this model, under normal conditions solar could supply only 40% of grid power before utilities need to raise prices. However, by playing arbitrage between electricity and bitcoin prices, as well as selling surplus solar energy to miners, solar can supply almost all grid power demands without lowering profitability, and “transfigure intermittent power resources into baseload-capable generation stations”[4]. The authors suggest that energy asset owners of today will be the Bitcoin miners of tomorrow, which appears to be occurring. For instance, Norwegian oil company Aker announced in March 2021 that it had established a new company that would transfer stranded or intermittent electricity without stable demand into “economic assets that can be used anywhere” through Bitcoin mining[33].

The dramatic variations in estimates and explanations of bitcoin’s energy use arise from an industry where the motivations of those who maintain the ledger – the miners – are difficult to know. In the next section I draw on interviews with four miners to untangle some of the choices and practices that are occurring. While the debate on Bitcoin’s environmental impact centres on whether Bitcoin mining uses energy derived from fossil fuels or green energy, such an analysis fails to consider how Bitcoin is being embedded into energy markets.

Bitcoin mining practices

The miners I spoke to all saw Bitcoin as a legitimate store of value and defended the proof-of-work mechanism over alternatives. In Miner C’s view, moving to proof-of-stake was not an option as no one should "have the ability to create money ex nihilo and trade that for something that has required another person’s work and time." On the question of whether Bitcoin needs to address its carbon footprint to remain legitimate, miners B and D considered this to be an indicator of a mature industry. Their views were at odds with other miners who have argued publicly that Bitcoin is a good actor in energy markets by virtue of its design alone and that strategic responses are unnecessary, if not antithetical to Bitcoin’s philosophy9.

From a market perspective, lack of agreement among miners does not necessarily undermine Bitcoin’s legitimacy, as the legitimacy of a market rests on the idea that a social order can emerge without a shared view of justice[15]. In the next section I outline the circumstances and choices of the four bitcoin miners in turn before looking at local factors.

Energy use practices

For an energy grid to work effectively, supply from generators must equal demand from users constantly. If these become imbalanced it causes grid instability, resulting in blackouts. Energy derived from solar and wind is not constant and may be determined by supply-side factors (such as solar panels on homes), requiring generators, batteries or large load users such as smelters to stabilise the grid. For hydropower, pumps are used to increase or decrease supply, but these can be costly to run.

Miner B falls into the group of miners who see Bitcoin as a “bidder of last resort” in renewable energy markets. Miner B described his company’s approach:

As an energy play, we can identify a lot of disused or mispriced energy in the market. Where you can identify this underutilised energy, both in infrastructure and capacity, it makes a lot of sense to position your business to take advantage of this mismatch (Miner B).

He spoke in detail about how energy markets suffer from a mismatch of supply and demand as energy is typically produced at times of the day when consumers are less likely to use power. Because generators are required to be on, the provider wears costs when households are not using power from the grid. Moreover, energy grids can only transport a certain amount of power at a time, meaning that some energy will go to waste. The company has developed modular bitcoin mining infrastructure that can be installed at the source of underutilised energy. Being a buyer of last resort for marginal producers can enhance the viability of otherwise uneconomic renewable projects without requiring additional (and expensive) battery storage.

Miner B gave the following hypothetical example of how Bitcoin miners can therefore work with energy providers to mutual advantage: A bitcoin miner could reduce their energy bill by 40 per cent “by being responsive to the grid’s requirement, which ultimately is consumers’ requirement.” For instance, if power was 5 cents (AUD) for a 24/7 365-day load, the Bitcoin miner can agree to turn off their mining operations at certain hours in return for which they would only have to pay 3.4 cents for the energy they use. Bitcoin miners like Miner B are therefore responding to differences between baseload generation and peak supply in conditions where there are significant amounts of renewables entering the market with no effective storage. Moreover, by turning off for a small portion of the year they can assist the energy company to meet demand on a hot summer’s day when consumer use of the network is at its peak. Miner B’s company uses 80% renewable energy and offsets the balance by buying carbon credits to achieve a 100% net zero. In Miner B’s view, environmental, social and governance (ESG) criteria are influencing the sector due to the need for capital investment, with some fund managers and investor groups (such as family offices and high net-worth individuals) directing their investments based on ESG credentials. Miner B’s company had turned down a deal with a coal-fired energy provider on the basis of reputational effects.

Miner A represents a different approach in that the company had been using hydro power in China, locating their mining equipment at the point of production during the wet season when the hydro station was producing more energy than needed. During the dry season the company would move their operations to locations where energy was cheaply available through the grid, choosing places where the mix of energy included a high proportion of renewables. The ‘behind the meter’ wet season scenario was significantly cheaper than purchasing from the grid during the dry season. Using renewable energy at the source also enables miners to avoid paying costs associated with infrastructure that transports electricity through the grid. Miner A was in the process of relocating their equipment at the time the interview took place due to a government-imposed ban on cryptocurrency and expected that the move out of China would cause the entire Bitcoin network to become “greener” due to the energy mix and flexible energy market dynamics in other countries.

Miner C was in the process of establishing operations with a natural gas company in Australia, using energy at the site that would otherwise go to waste. Gas flaring is the process of burning natural gas associated with oil extraction, hydrocarbon processing plants or refineries, and occurs because the gas is costly to transport. The process releases harmful pollutants into the atmosphere, including carbon dioxide, methane and soot[34]. The gas company’s motivation was getting carbon emissions “off their books” as they were committed to reducing their emissions to a certain threshold. Selling gas to be converted into electricity and used on site by the Bitcoin miner meant that they would pass on any emissions to the Bitcoin mining company, as well as reducing their need to flare gas. While the overall amount of natural gas extracted does not change in this scenario, converting gas to electricity is a cleaner process than gas flares, particularly through the reduction in methane emissions.10

Miner D’s company runs a data centre facility in Tasmania, which is connected to mainland Australia by an underwater high-speed cable. The company uses renewable energy from the grid for its data centre business and is one of the State’s largest load users. Bitcoin mining is tied into that relationship through the following arrangement: The Australian Nation Energy Market (ANEM) is an open market, including a tradeable price for what are known as frequency control ancillary services (FCAS). Those who can raise or lower energy use in response are compensated, with faster responses receiving a higher reward for stabilising the grid expeditiously. While Tasmania has an abundance of renewable energy (hydro, solar and wind), it relies on FCAS to assist in ensuring the grid remains stable. Miner D’s company received approval from the Australian Energy Market Operator (AEMO) in 2020 and was licenced to provide FCAS services to the grid through their bitcoin mining operations, using extremely fast response times achieved through proprietary software and hardware. In addition, the company was also using immersion technology originally developed for their bitcoin operations to cool not only its ASICs but its traditional computers, making it one of most efficient data centres in the world in terms of energy use at the time (to their knowledge). Immersion technology involves passing cooling fluid over computing hardware to wick away heat. The fluid is then sucked out until it is cool enough for the process to be repeated.

Local factors

Mobility is a feature of Bitcoin mining in that equipment can be packed up and moved relatively easily. Installations typically consist of ASICs housed inside units fitted with cooling systems. Miner C contrasted this with traditional mining where a company is “heavily invested in a fixed location,” whereas Bitcoin mining will go “where it’s treated well.” As Miner A’s experience in China illustrates, this has been both a means to go where energy prices are most favourable, as well as survival in the face of hostile governments. In Miner C’s words, mobility is part of the Bitcoin mining ethos:

There are prominent people in the Bitcoin space that say you should assume that Bitcoin mining will be cut off from the grid, will not be permitted, and you need to set up your operations in that way. And that’s certainly my philosophy as well (Miner C).

  He saw mobility as important for the resilience of the Bitcoin network as it could avoid places “where there is no social licence or there’s pushback from the community or from politicians or unions or the local mafia, whoever it might be”. Miner C believed that while it was important that Bitcoin supporters “educate everyone we can,” including politicians, the process of obtaining social licence was risky:

So if Bitcoin goes around trying to argue that it has a social license to do X, Y, Z, well the only question is, can you argue better than the politicians, who control the media, who control the laws, et cetera. So can you overtake those power structures? I wouldn’t say it’s a very safe strategy to bet that you can (Miner C).

  Miners B and D provided a different perspective, arguing that Bitcoin can achieve social licence by being aligned with local needs and interests. Miner B stated that using existing energy infrastructure is an ethical decision as it provides a service to a community by making renewable energy markets more viable. If they were to build their own greenfield solar farms instead, the benefits would not extend beyond their own operations. Miner B’s mining installation reduced the price of power for consumers in the town where they operate by being able to provide network solutions via their energy consumption. The company partnered with the city government to buy power, which meant the city was able to secure a better deal with the state utility: “We found a deal where we could partner with the city, buy power, and by doing that, we’ve been able to help the city leverage our consumption to reduce their overall power” (Miner B). In Miner B’s view, by enacting cooperative arrangements at the local level, Bitcoin would be more likely to gain social licence and endure.

While Miner C was planning to use energy derived from gas that would otherwise go to waste, some Bitcoin operations make fossil fuel operations viable that otherwise might not be by enabling hydrocarbon exploration11. Bitcoin mining is also assisting power stations that were once deemed unviable to recommence operations. For instance, Greenidge coal power plant in Dresden, New York, shut down its uncompetitive operations a decade ago. It was converted into a gas facility seven years later and became profitable by mining bitcoin. The company claimed to be 100% renewable through purchasing carbon offsets, despite using fossil fuels. Significant opposition to the plant ensued, with the New York Department of Environmental Conservation (DEC) holding public hearings into whether to renew Greenidge’s licence. In June 2022 New York’s legislative assembly passed a bill that imposed a moratorium on proof-of-work mining. Miner B suggested that if Greenidge had offered to buy surplus energy from the network and collocate with existing infrastructure in NY it might have been seen to be assisting the state. Miner D’s company had turned down an opportunity to access waste energy from natural gas exploration on the basis that it would make a new fracking enterprise viable. Actions taken by the Chinese Communist Party to close Bitcoin mining operations over the timeframe of the research demonstrate why mobility matters to miners. However, Miners A and B both pointed out that there were repercussions for the local communities where those installations were running. In Miner B’s words:

I don’t know if anyone’s sat there and said, "Well, what about the guy that owned the power station that we had a deal to provide power with? What about the local tech college that had a bunch of kids in a school program to do a degree to get a job in this facility?”

  The extent to which the closure of Bitcoin mining may hinder the renewables industry is an area for further investigation.

Discussion

If Bitcoin’s purpose is to be a store of value that exists independently of any state, then those who refuse to see it as a legitimate store of value will see any use of energy – green or fossil fuels - by the Bitcoin network as invalid (for instance [35]). It is also possible to see Bitcoin as legitimate and choose not to participate on the basis that some miners produce environmental harms. Supporters of Bitcoin can accept Bitcoin’s legitimacy and authority to “change relevant social facts”[36] without having a duty to accept actions that go against their moral privilege.

From analysis of secondary sources and the information provided by the four Bitcoin miners there is a clear disconnect between those who see Bitcoin as a network and those who see it as a single power. From a network perspective, Bitcoin’s contribution to climate change is complicated and not simply a matter of whether the miner is using renewables or fossil fuels. Bitcoin is increasingly becoming enmeshed in the energy industry through its use of renewables and because it provides a novel, easy, and flexible solution within a market- based approach. Bitcoin mining can act to stabilise renewable energy grids, be used to absorb waste and surplus energy, and reduce harmful emissions produced in the extraction of hydrocarbons. It is also the case that the mobility of Bitcoin miners can leave local communities and energy grids in precarious situations when market dynamics change[37]. Differentiating the good actors from the bad in these scenarios requires looking at local factors, including whether the miner has established new sources of energy or is making use of existing infrastructures and waste energy. Bitcoin miners who use existing infrastructures and contribute to the stabilisation of energy grids or reduce gas flares by converting natural gas to electricity can produce positive externalities for communities, including cheaper energy prices. Future attempts to model the environmental impacts of Bitcoin should take these dynamics into account (in addition to standard measures such as hardware efficiency).

However, while local factors need to be considered when measuring the carbon footprint of Bitcoin, the Bitcoin network cannot be wholly understood or treated as a local phenomenon as transactions are handled by all nodes. For instance, although it is possible to produce a green bitcoin by showing it originated from a miner who was using only renewables, as soon as that bitcoin is transferred to another wallet (even between different accounts controlled by the same user), the transaction is added to a block that needs to be confirmed by others in the network. If parts of the network make hydrocarbon extraction viable when it otherwise would not be, then any use of Bitcoin is implicated in that outcome.

One way to approach these contradictory forces is through the concept of the entangled political economy, which “denotes an entangled network of enterprises that are constituted under different institutional arrangements that generate a continually evolving admixture of cooperation and conflict”[38]. The entangled political economy approach includes political actors who, like market participants, act with competitive and cooperative impulses. As the experiences of Miner B and Miner D illustrate, market forces can create alliances of mutual benefit between government and enterprise. Given the practices that are emerging among Bitcoin miners, we can predict that energy companies will increasingly undertake Bitcoin mining themselves (such as the Seetee example above), which may further anchor Bitcoin mining in localities, infrastructures, and regulatory parameters.

Bitcoin’s purpose as a money or store of value is the basis for its legitimacy and those who see it as illegitimate on that basis will find any energy use unjustifiable. The more salient point is that energy markets may better meet public expectations associated with climate change in settings where decentralised networks find social acceptance. Where Bitcoin’s legitimacy rests on it being a single power, the nuanced outcomes of the system will be ignored.

Finally, Miner D’s immersion cooling technology shows that Bitcoin’s computational processes have also led to innovations that can be beneficial for the computing industry more broadly. Advances in immersion technology and frequency control may be what Allen, Berg and Davidson (2021) call ‘repugnant market innovation,’ which is innovation produced in a market that is unregulated or illegal[39]. Such innovation can arise through efforts to mitigate social harm (making it safer) or to avoid regulatory retaliation. In relation to legitimacy, the moral choice may be informed not only by assessing Bitcoin’s energy mix but also how Bitcoin mining influences the carbon footprint of adjacent industries.

Conclusion

A twitter account by the name of “Did Bitcoin Die Today?” provides daily updates, typically in one-word form: “No”. Bitcoin’s continuity provides some evidence of its legitimacy, albeit a fragile and contested legitimacy. The raison d’être of Bitcoin, as conceived by its pseudonymous creator and affirmed through its use, is to be a store of value, if not electronic cash. In the process of meeting this purpose, Bitcoin uses an algorithm that causes machines to use power. Bitcoin is not alone in its use of energy to achieve its purpose – electronic goods in in general use natural resources. Those who do not see Bitcoin as a store of value will see this energy use as illegitimate, as well they might see Bitcoin’s use of software labour or research funding as illegitimate. However, as some commentators have pointed out, banning a technological innovation because it uses energy (as New York has done) is uncommon in free market economies, suggesting that distributed systems may be vulnerable to delegitimisation in ways that markets are not.

Moreover, the case of Bitcoin shows that information plays a major role in the delegitimisation of distributed systems. Estimates that assume miners are drawing energy directly from the grid in their home country fail to consider how miners participate in energy markets. The needs and expectations of local communities can also influence the viability of these deals (such as a city government pursuing cheaper energy for consumers). In some cases, Bitcoin mining is producing economic opportunities that may increase the viability of sustainable energy markets, and technological innovations that may lead to more environmentally sustainable cloud computing and data industries in general. In other cases, Bitcoin mining is used to justify further carbon extraction. Ultimately, the long-term legitimacy of Bitcoin will be established through norms related to decentralisation, specifically the social acceptance that individual actors can cooperate to produce an outcome (the ledger) without needing to share views about how that outcome is achieved.

Acknowledgements

Thanks to participants in the Blockchain and Legitimacy reading group, which took place in 2021 and 2022, organised by BlockchanGov and RMIT. Research for this paper was supported by funding from the Australian Research Council Future Fellowship scheme (Cooperation Through Code project FTFT190100372).