Putting energy into a system and getting value out of it are two totally different things. - xh3b4sd

Energy has driven civilization ever since like no other force. The degree to which humans can produce and harness energy has created global superpowers like never seen before. The ability to make any process more energy efficient is the driving factor behind our technological progress as a species. The Kardashev scale classifies civilizations based on their ability to utilize the energy within their surrounding environments. Type one civilizations can utilize all available energy of their own planet. Type two civilizations can utilize all available energy of their own star. And type three civilizations can utilize all available energy of their own galaxy. For us today it is unthinkable how we could even utilize all available energy of our home planet. And that is not for a lack of trying.

In our day and age we are governed by systems that sometimes mandate the saving of energy, which is probably the right insight, but has lead to entirely wrong conclusions over and over again. Saving energy for energy savings sake does only have the consequence of using less energy. And all things equal, having less energy as an input results in less productivity as an output, which is predominantly what we have seen happening in Europe over the last two decades. The mandate of saving energy as it has been implemented so far, has therefore been detrimental to achieving any of society's actual intents and purposes. We are not better off today as a system, and even worse, we have become exploitable from within.

If we want to save energy, then we have to grow our way out of this problem by advancing technological progress, because only technological progress can enable us to do more with less. And if anyone is really interested in lifting up everyone in society, then technology is our only best friend.

Our ability to produce electricity has come a long way, but the mechanisms to do that are still very crude at times. The absolute level of our sophistication is basically to heat up water hot enough, so that steam can physically turn the crank of a generator. The vast majority of our electricity production works by means of electromagnetic induction. This mechanism is so primitive you literally just have to spin that thing. We have also figured out how to harness photoelectric conversion via solar panels. But all together, those two methods pretty much summarize the extend of our ability to produce usable electricity.

The systems used to produce energy go through state transitions that cause lag effects. We cannot just go from 0% to 100% and expect instant power production at just the right level. And so, energy production has to be scaled up and down incrementally. At the same time, we are particularly inefficient at storing energy, which brings us to the concept of using blockchains as a temporary store of energy. We are going to make the case that this absolutely fantastic idea is not at all as brilliant as it may sound in the first place, because it either doesn't work, or it won't last.

To set the stage, when we produce electricity, then we often produce more than can be put to good use at the time. The energy grid must always be oversaturated in available electricity, because the lack of supply may cause cascading grid failures that can lead to wide ranging blackouts. Producing more than we need is not efficient, and it surely does not allow us to save energy by any measure. We are then trying to divert excess energy towards any available alternative for energy storage or revenue generation.

Historically people tried to make the case for mining Bitcoin with surplus energy, and we still hear about similar initiatives once in a while, all aiming to better manage peak loads within electricity grids. Localized experiments have helped power grids to manage peak load better and safe billions of USD, but current estimations suggest that Bitcoin is used in less than 1% of such cases, making it virtually irrelevant at global scale.

The Proof of Work type of load management is also a rather inefficient approach, because you replace one inefficient aspect of energy production with another inefficient way of energy production. And then, in Bitcoin's case, managing peak loads by way of mining BTC does only work as long as the market value of the coin is higher than the cost to produce it. And Bitcoin is designed to become more inefficient as the years pass by, which by some people is somehow considered a feature. All of that is to say that there is a time window during which Bitcoin may be used to manage peak grid loads, but that window will close in a matter of years, simply because the network is bound to become too inefficient eventually, causing it to crumble under its own load.

Now, I wanted to know if there are any active efforts to store surplus energy temporarily in Ethereum blockspace, and the short answer is no, because that doesn't work for several reasons. But let's take a step back and describe what we would try to achieve here. The idea would be that there is a blockspace market, and that people could acquire blockspace rights while gas prices are low. And those blockspace rights could then be exercised when gas prices are high. With that we would effectively create a temporal blockspace swap. Sounds pretty cool, right?

One flaw in that idea is that energy must be converted into a digital form of value first. And only Proof of Work blockchains allow the direct conversion from physical energy into economic value. So the gap between excess energy and gas for blockspace would still have to be bridged in very inefficient ways. So, Proof of Stake blockchains like Ethereum cannot help with this particular energy conversion problem at all.

We could simply purchase ETH for gas when peak load is high, but that approach in itself is flawed for several reasons. When peak load is high, then the supply of electricity is higher than the available demand. That means power is already cheapest during peak loads, which is a negative in itself because we are already bound to be inefficient. Selling cheap power for ETH may result in further energy losses along the way, because the price of ETH may very well move against us temporarily. And then all we have achieved is to purchase a token with excess energy, while what we actually needed in order to conserve energy onchain was to acquire blockspace itself, not the means to buy it at market price like everyone else.

What would be necessary is a protocol native mechanism that allows for temporal blockspace swaps, so that cheaply acquired blockspace rights can actually be exercised in an expensive blockspace environment. And as fascinating as this idea may be, it would still not alleviate the world's struggles for intermittent energy storage. This is because blockspace is limited and rather inelastic. What we mean by that is the following. There is only a fixed number of blocks generated every so often, and no external mechanism can modify that schedule. The only thing that external forces can influence about blockspace is the level of its contention, which refers to the amount of transactions that want to be part of the same block at the same time. All of the technical challenges aside, even if we could store energy in blockspace, we could only store so much of it at a time, because Ethereum mainnet is not designed to scale elastically to the extend that peak loads may require.

We could now argue that L2 rollups may introduce temporal blockspace auctions, and that multiple networks may be able to swap blockspace rights between one another. That is also a fascinating idea, but it doesn't appear to be practical either. The fundamental problem behind temporal blockspace swaps is the fact that we try to add more stress to an already stressed system, while at the same time we are unwilling to pay for the bottlenecked resources. The point of it all is to execute for cheap when execution is expensive. But the reason that execution is expensive, is exactly to protect the system from overloading. And so temporal blockspace swaps combined with peak grid loads would actually mean that we move the peak load of one system into the peak load of another, which all together sounds more like an unmitigated disaster from a mechanism design point of view.

Blockchain networks may be good for humanity. They may lift up generations of people and redefine the ways in which civilization governs itself one day. Blockchains might be incredibly well suited for myriads of market based experiments, and one day they might even cure cancer. But for all we know today, temporal blockspace swaps are the wrong conclusion, given the genius of their insight.

3.5% is the number of the week this time around. And here is the story explaining what it represents. Bitcoin is digital gold. Ethereum is home to almost all stablecoins. Comparing gold with money in the United States we can see that the US gold reserves equate to roughly 750 billion USD, if we are generous. The M2 money supply, which includes money market funds and retail deposits under 100,000 Dollars, is estimated to be somewhere around 22 trillion USD. The price pool that Bitcoin is playing for does only account for about 3.5% of the money within the US economy. And that does not even account for economic activity induced by the velocity of money itself. We also have not included second order effects that these types of economic systems bring with them, which all together would imply another differentiating factor of 10, dear reader. In summary we can say this. Bitcoin was the idea. Ethereum is the execution. Even if temporal blockspace swaps don't work.