This document discusses Bitcoin and addresses common criticisms. It begins by outlining criticisms such as Bitcoin using too much energy and having no intrinsic value. It then examines Bitcoin's energy usage in depth, finding estimates are difficult and mining occurs near renewable energy in places like China, Georgia, Canada, and Iceland. The document also argues Bitcoin has intrinsic value by solving the Byzantine Generals Problem and allowing digital scarcity and consensus without centralized trust. It models Bitcoin's potential intrinsic value using Metcalfe's Law and compares this estimate to market prices over time. The document concludes knowledge is important to understand Bitcoin's technology and value.

1. Bitcoin
Beyond the hype: beyond the FUD
Sunshine Coast Blockchain
13 March 2018
Indunil Weerasinghe

2. These slides were put together to complement a talk I did on
the 13 March 2018.
Sharing ideas like this is great, but conversations are better.
If you're interested in joining a future Zoom session where we
can go through and discuss these ideas together, email
conversations@block2050.io.
Thanks.
Indunil W
http://block2050.io 2

3. http://block2050.io 3

4. Common Bitcoin FUD
• Bitcoin [mining] uses more energy than {insert country of choice}
• Bitcoin is a speculative instrument with no intrinsic value.
• Bitcoin is a scam / ponzi scheme.
• Bitcoin is too volatile to ever serve its purpose as a currency
and/or store of value.
http://block2050.io 4

5. “Risk comes from not knowing what you're doing.”
- Warren Buffet
Just a reminder:
• This is a forum to share our ideas and
perspectives, in order to improve our
knowledge.
• We do not give financial advice.
• Always Do Your Own Research (DYOR).
http://block2050.io 5

6. Bitcoin Energy Usage
http://block2050.io 6

7. Why does Bitcoin need energy?
http://block2050.io 7
Validates transactions
Secures the network
Disincentivize malicious
players
Image credits:
http://www.blockgeeks.com

8. How much energy is used?
• Difficult to actually estimate correctly
• Most widely quoted figures are from the Bitcoin Energy
Consumption Index
• Data Consultant Alex de Vries’ blog, the Digiconomist
• Understandably, uses assumptions, but those assumptions
usually aren’t quoted in the media
http://block2050.io 8

9. Bitcoin Energy Consumption Index
http://block2050.io 9
Estimates % of revenue spent on electricity
Assumes an average cost per kWh
Approx. 55TWh (as at 10 March 2018)
Is an economic model, whereas a “hashrate” model
yields ~18TWh
Source: Digiconomist
http://bit.ly/block2050refs009

10. Whatever the figure, it's easy to throw around
http://block2050.io 10
Bitcoin uses more energy
than 159 countries.
VISA transactions use a
mere fraction of electricity.
Source: Digiconomist, http://bit.ly/block2050refs009

11. Apples or oranges?
VISA - not settled payments
Typically, 5 parties required
Other payment mechanisms
Life cycle energy costs
http://block2050.io 11

12. Bitcoin vs. Banking
• Bitcoin - Approx 55TWh per year (mining energy cost)
• Peer-to-peer, transactions settled in minutes-hours
• Energy cost NOT proportional to # of transactions or users
• Can “easily” be scaled to reach approx. 2 billion unbanked (& countless other underbanked)
• Sources: Digiconomist, http://bit.ly/block2050refs009
Cory Doctorow on BoingBoing, http://bit.ly/block2050_ref012
• Banking – Approx 100TWh per year (energy for data servers, branches, and ATM network)
• Complex transactions with counter-party risk, settlement takes hours-days
• Energy cost proportional to size of network (esp # of users)
• DIfficulty scaling to reach the unbanked and underbanked
• Source: Hackernoon on Medium.com, https://bit.ly/block2050refs011
http://block2050.io 12

13. Okay, but...
http://block2050.io 13
Sources: Digiconomist, http://bit.ly/block2050refs009

14. Sources: University of Cambridge and South China Morning Post, http://bit.ly/block2050refs002
http://block2050.io 14

15. Bitcoin mining proximity to renewables
• China:
• Mines an estimated 60% of Bitcoin
• $44 billion investment into renewables around the world in 2016 alone
• World leader in terms of (absolute qty) of renewables and production of PV
• 24% of energy is renewable (up from 17% a decade ago)
• Has begun a crackdown on factories for not meeting emission standards, up to 40%
estimated to have been temporarily shutdown
• Tibet, for example: Qinghai province, June 2017, population of 6m ran for an entire week on
100% renewables
• Source: Wikipedia, http://bit.ly/block2050refs003; and Futurism, http://bit.ly/block2050refs004, and Futurism,
http://bit.ly/block2050refs005
http://block2050.io 15

16. Bitcoin mining proximity to renewables
• Georgia:
• 75% of energy produced in renewable (hydro)
• Running at just 25% capacity
• Source - Wikipedia, http://bit.ly/block2050refs006
http://block2050.io 16

17. Bitcoin mining proximity to renewables
• Canada:
• 2nd largest producer of hydroelectricity
• Accounts for 56% of electricity produced
• Several provinces, including Quebec, over 90% of energy produced!
• Sources: Natural Resources Canada, http://bit.ly/block2050refs007
and Wikipedia, http://bit.ly/block2050refs008
http://block2050.io 17

18. Bitcoin mining proximity to renewables
• Sweden:
• By 2014, more than 50% of energy produced was from renewables
• Highest proportion amongst the EU countries
• Source - Wikipedia
• Iceland:
• 100% of electricity and 80% of all energy requirements from renewables
• Source: RenewEconomy http://bit.ly/block2050_ref014
http://block2050.io 18

19. Bitcoin mining = Renewables subsidy?
• Could it be...
• Bitcoin: more efficient
than banking AND
subsidizing renewables?
• Watch Andreas Antonopolous
on YouTube for more on this:
http://bit.ly/block2050_vids002
http://block2050.io 19

20. Intrinsic Value
of Bitcoin
http://block2050.io 20

21. http://block2050.io 21
Source: Investopedia

22. Example 1: Gold
http://block2050.io 22

23. Source: APMex, http://bit.ly/block2050_ref015
http://block2050.io 23

24. Intrinsic value = f (perception)
• Actual value of an asset based on an
underlying perception of its true value in terms
of both tangible and intangible factors
but...
Perceptions change:
• from person to person
• with the socio-economic context
• with time
• with changes in use case
• with changes in scarcity...
http://block2050.io 24
Source: Investopedia

25. Example 2: Lithium
http://block2050.io 25
Source: TheAtlas, http://bit.ly/block2050_ref016

26. Example 3: The paradox of value
Source: Akshitha Agarwal on TED-Ed, http://bit.ly/block2050_vids001
http://block2050.io 26

27. Example 3: The paradox of value
Source: Akshitha Agarwal on TED-Ed, http://bit.ly/block2050_vids001
http://block2050.io 27

28. Intrinsic value = inherent “usefulness”?
So...
...is Bitcoin “useful”?
http://block2050.io 28

29. The Byzantine Generals Problem
Goal:
• Consensus: attack or retreat?
• Messengers and gereals could be
traitors
• Consensus should not be disrupted
by (a small number of) traitors
• Do not have to identify traitors
http://block2050.io 29

30. Computer geekdom or real world benefit?
• Building consensus without trust can have myriad of applications
• The finance industry is one such area:
• The problem with “digital money” is how to prevent double spending
• Current industry and technology prevents this by having third parties that
add trust to the process but...
http://block2050.io 30

31. Finance without blockchain
• Involving third parties:
• Centralizes control of a
critical human activity
• Adds counter-party risk
• Adds time
• Costs money
http://block2050.io 31

32. Why Bitcoin is useful
• Involving third parties:
• Centralizes control of a
critical human activity
• Adds counter-party risk
• Adds time
• Costs money
http://block2050.io 32
• Solves the problem of “double
spending”
• Creates a system which is:
• cheaper
• faster
• less risky
• more robust
• more equitable

33. So... Does Bitcoin have intrinsic value?
• Solving problems within a system adds
value to that system
• When you consistently add value, you
yourself become valuable
• When you become valuable, people tend
to want you around
http://block2050.io 33

34. Metcalfe's Law and
an estimate of intrinsic value
http://block2050.io 34

35. http://block2050.io 35
Image credits: ITInvolve on Slideshare

36. Application to networks and P2P
1 telephone: useless!!!
http://block2050.io 36
2 telephones: 1 connection
3 telephones: 3 connections
4 telephones: 6 connections
100 telephones: 4950 connections
10 telephones: 45 connections

37. Validation of Metcalfe's Law
• 2013: Dutch researchers analyzing EU internet usage
• 2013: Dr Metcalfe himself analyzing Facebook
• 2015: Chinese researchers analyzing Facebook and Tencent
Source: Wikepedia, http://bit.ly/block2050_ref017
http://block2050.io 37

38. But does it apply to Bitcoin?
• Tom Lee, co-founder of FundStrat Global Advisors
• Accounted for 94% of price movements over a 4 year period
Source: Tom Lee, on Business Insider: http://bit.ly/block2050_ref018
http://block2050.io 38

39. Let's do some maths... but first:
http://block2050.io 39

40. Ok, so back to the maths
http://block2050.io 40
2
)1(  NNMV fn
Where:
Vn is the value of the network (marketcap)
Mf is Metcalfe's function
N is the size of the network (no. of unique wallets)

41. Metcalfe's function
• Is a proxy for the network's estimate of intrinsic value
• Fundamentally could (should?) change as technology improves
• Intrinsic value is a function of perception, hence could be affected
by hype and FUD alike
http://block2050.io 41

42. Historic value of Mf for Bitcoin
http://block2050.io 42
0.00
5.00
10.00
15.00
20.00
25.00
03-Jan-09
03-Mar-09
03-May-09
03-Jul-09
03-Sep-09
03-Nov-09
03-Jan-10
03-Mar-10
03-May-10
03-Jul-10
03-Sep-10
03-Nov-10
03-Jan-11
03-Mar-11
03-May-11
03-Jul-11
03-Sep-11
03-Nov-11
03-Jan-12
03-Mar-12
03-May-12
03-Jul-12
03-Sep-12
03-Nov-12
03-Jan-13
03-Mar-13
03-May-13
03-Jul-13
03-Sep-13
03-Nov-13
03-Jan-14
03-Mar-14
03-May-14
03-Jul-14
03-Sep-14
03-Nov-14
03-Jan-15
03-Mar-15
03-May-15
03-Jul-15
03-Sep-15
03-Nov-15
03-Jan-16
03-Mar-16
03-May-16
03-Jul-16
03-Sep-16
03-Nov-16
03-Jan-17
03-Mar-17
03-May-17
03-Jul-17
03-Sep-17
03-Nov-17
03-Jan-18
03-Mar-18

43. Estimating the instrinsic value from this
• Used Simple Moving Average of Mf
(55 days, trial and error, SMA100, SMA200)
• Used the formula to calculate price based on this Mf
• Then applied SMA to this new, theoretical price
• Is this “correct”? No.
• Is it “useful”? I certainly think so.
http://block2050.io 43
2
)1(  NNMV fn

44. Intrinsic Value Guesstimate - All time
http://block2050.io 44
$0
$5,000
$10,000
$15,000
$20,000
$25,000
03-Jan-09
03-Mar-09
03-May-09
03-Jul-09
03-Sep-09
03-Nov-09
03-Jan-10
03-Mar-10
03-May-10
03-Jul-10
03-Sep-10
03-Nov-10
03-Jan-11
03-Mar-11
03-May-11
03-Jul-11
03-Sep-11
03-Nov-11
03-Jan-12
03-Mar-12
03-May-12
03-Jul-12
03-Sep-12
03-Nov-12
03-Jan-13
03-Mar-13
03-May-13
03-Jul-13
03-Sep-13
03-Nov-13
03-Jan-14
03-Mar-14
03-May-14
03-Jul-14
03-Sep-14
03-Nov-14
03-Jan-15
03-Mar-15
03-May-15
03-Jul-15
03-Sep-15
03-Nov-15
03-Jan-16
03-Mar-16
03-May-16
03-Jul-16
03-Sep-16
03-Nov-16
03-Jan-17
03-Mar-17
03-May-17
03-Jul-17
03-Sep-17
03-Nov-17
03-Jan-18
03-Mar-18

45. Intrinsic Value Guesstimate - 5 Year
http://block2050.io 45
$0
$5,000
$10,000
$15,000
$20,000
$25,000
13-Mar-13
13-Apr-13
13-May-13
13-Jun-13
13-Jul-13
13-Aug-13
13-Sep-13
13-Oct-13
13-Nov-13
13-Dec-13
13-Jan-14
13-Feb-14
13-Mar-14
13-Apr-14
13-May-14
13-Jun-14
13-Jul-14
13-Aug-14
13-Sep-14
13-Oct-14
13-Nov-14
13-Dec-14
13-Jan-15
13-Feb-15
13-Mar-15
13-Apr-15
13-May-15
13-Jun-15
13-Jul-15
13-Aug-15
13-Sep-15
13-Oct-15
13-Nov-15
13-Dec-15
13-Jan-16
13-Feb-16
13-Mar-16
13-Apr-16
13-May-16
13-Jun-16
13-Jul-16
13-Aug-16
13-Sep-16
13-Oct-16
13-Nov-16
13-Dec-16
13-Jan-17
13-Feb-17
13-Mar-17
13-Apr-17
13-May-17
13-Jun-17
13-Jul-17
13-Aug-17
13-Sep-17
13-Oct-17
13-Nov-17
13-Dec-17
13-Jan-18
13-Feb-18

46. Intrinsic Value Guesstimate - 18mo
http://block2050.io 46
$0
$5,000
$10,000
$15,000
$20,000
$25,000

47. Is “intrinsic value” important?
• Fundamentally: will help you understand the technology and how
you as an investor are actually generating wealth
• Technically: it's not important to have an “accurate” model (who
knows what's accurate?) BUT:
• It's important to have some reference to pull you back from
FOMO and/or panic selling
http://block2050.io 47

48. “Risk comes from not knowing what you're doing.”
- Warren Buffet
The difference between gambling and
investing is KNOWLEDGE.
Look beyond hype.
Look beyond the FUD.
Thank you.
http://block2050.io 48