Bitcoins. Are they a net negative to human society?

Great Debates
1

I may have gotten a little carried away in the GQ thread about bitcoins, so I’m starting this one. The debate is if bitcoins are of net harm or net benefit to humanity as a whole. It seems as if we’re reaching a tipping point in the general awareness of bitcoins, at least here in the US. A few players set to be drafted into the NFL in a few days, including the likely #1 pick, have announced that they will be converting large sums of their pay into bitcoins. There was a top of the website article on this issue on ESPN’s website earlier today. Thus I think it’s worth having the debate again. I’ll start with two issues, but I don’t want to limit the discussion to just these two.

Let’s start with the electricity used in bitcoin mining. Here’s one article from the BBC which reports the amount of yearly energy consumption used in bitcoin mining is enough to power the country of Argentina for a whole year. Bitcoin mining uses about 0.5% of all electricity generated worldwide. That’s certainly not good for reducing our CO2 output.

The other negative that I see is that there isn’t anything of value underlying the currency other than that energy that is used in the mining and the blockchain itself (which I admit to not having a good understanding of). US dollars, euros, pounds, etc. have value because people in the US, Europe, the UK, and every other country around the world, produce things of value. The currencies are then used to keep track of the value of stuff produced, whether tangible goods or services.

This second issue, of course, is only a problem for those people who have decided to purchase bitcoins. It does seem to me to demonstrate, however, why the whole thing doesn’t make any sense.

So have at it. Are these two negatives valid complaints? What other negatives have I missed? What positives am I overlooking?

Bonus question. For those of us who come down on the net negative side, myself included, can governments do anything to realistically discourage or stop bitcoin mining?

2

It is a deep rabbit hole if you want to consider economic philosophy. But, of course, it is a valid complaint that it is foolish to waste energy for no reason (no need for that in an appropriately engineered “cryptocurrency”). As for there being “anything of value” underlying the currency, that is not a valid complaint, but it is a valid complaint if I find I can’t use it to pay for a coffee or groceries at least as ubiquitously and conveniently as I can using cash or a debit card.

3

I don’t see either of your complaints as valid. For the first there are lots of things that are worthless that people do that release more CO2 like eating meat. A group of people having a hobby that entertains and hopefully enriches them that also off puts CO2 is really far down on the list of things that are bad for humanity it certainly seems like a better use for your time and energy than video games.

As for the second concern collecting bitcoins in the believe that they are valuable is no worse than beanie babies or baseball cards. As long as enough other people believe they have value then they do indeed have value. At best you can say that the US dollar is as real as the US government’s ability and willingness to tax and pay off its debts. Both of those could easily be called into question though I think there is more value there than in the belief in the value of bitcoin but it still is a house of (much sturdier) cards.

4

Based on your OP, I would try to separate out the meaningful component parts.

The mining process is indeed a problem due to energy consumption. However, once a bitcoin exists, and is registered on the blockchain, does it continue to be an energy hog? Does the buying/selling/trading that extends the blockchain consume more energy? How does the energy usage at each of these stages compare to ore extraction, which backs up “real” money? Sounds like a project for an economics PHD paper.

Bitcoin as a universal unit of value for trade - this is interesting to me. Some corners have for years railed against an imagined “one world government”. ISTM that bitcoin serves to be a “one world currency”. You don’t hear the same whinging about that. Indeed, there is not a central governing body behind it - yet! I’m not too worried that there is “nothing” economically to back up bitcoin. If you think about it a little bit, everything that man creates is just that - something created by man, nothing more, really. If enough people agree that there is value, then there is value.

I am somewhat concerned that the bitcoin world allows for the bad guys to move money around. But they seem to be doing that fairly easily already with dollars and rubles and yen, yah?

5

What value underlies bitcoin? With any other currency, it’s the economic output of the country in question. From a super yacht that Jerry Jones is buying to someone washing dishes at the local taqueria, dollars are earned by producing something of value. Where does the value of a bitcoin come from, since the only things that seem to be produced are a ledger in the blockchain (based on my understanding) and some more CO2, which is of negative value.

6

If bitcoin were used more widely to purchase a wide variety of products and services, then it too would be backed by the value of all of those products and services, just like dollars are now. That hasn’t happened, and I don’t think it ever will, but there’s no inherent reason that it couldn’t happen.

As for other benefits, bitcoin makes it a lot easier to track and crack down on organized crime. For reasons most likely based on the old adage that Criminals Are Stupid, a lot of criminals have decided to conduct major transactions in the most traceable currency ever developed in all of history. In fact, it’s my guess that this was the original purpose of bitcoin, and that it was in fact developed by the FBI or some other such governmental organization.

7

Do you believe collecting bitcoins is OK when you could be collecting Improved Bitcoins that are substantially the same but do not release extra CO2? Or bitcoins that are much, much better? As an aside, without being precise, people are entitled to their hobbies, but not to waste energy or the environment for no reason.

The “mining process” is how the network operates, nothing to do with extracting anything. No mining = all servers are down = no operational bitcoin network

Like any modern money, it is not a token that represents a specific underlying commodity. That has nothing specifically to do with bitcoin though.

8

That’s one I don’t understand. Yes, the accounts are anonymous, but the entire point is that the transaction ledger is public.

Doesn’t take much to link anonymous accounts to people.

9

Definitely yes to the second question and mostly yes to the first, in practice.

The energy use of Bitcoin is inextricably tied to its value. As long as it is valuable, there will be lots of people competing with compute cycles to be the one to get the mining reward (and transfer fees). The only way to reduce energy use is for the value of Bitcoins to drop, which will reduce the mining reward, and people will stop using energy.

Unless Bitcoin moves away from proof of work (which seems unlikely), then the energy use of the network will be linearly related to the value of the mining reward.

10

Couldn’t really say this in the GQ thread and stay in GQ territory but Bitcoin and all blockchain based cryptos don’t have any purpose that can’t be better provided another way. Worse, their continued use is a massive waste of energy.

The anonymity argument is nebulous at best. Some cryptos are more anonymous than others but they achieve that by not having a lot of transactions, i.e. not being as ubiquitous, which defeats much of the purpose.

There’s the anti-government angle, but that seems to work for a limited number of would-be libertarian goldbugs.

There’s their value as an investment vehicle but should they not exist, people would just find tulips or beanie babies or something else to try as a get rich quick scheme.

Maybe you could come up with an “improved” blockchain that isn’t tied to an ever increasing carbon footprint. But let’s see that first before debating it. And even then, most of the reasons most people would want to use them would be served equally well by digital US dollars. That leaves the libertarian crowd, and I don’t care about them at all.

11

Bitcoin, yes. Ether, not so much. Bitcoin is just supposed to be a tradable token that supposedly holds some value because people say it does, which for some reason people think is equivalent to fiat money, except for the one thing fiat money of your home country does that other currencies don’t: pay taxes. So long as you’re being taxed on transactions involving bitcoin, it will matter what their value is, and you will need to cash some in to pay the taxes. It’s starting to become a more serious problem, though plenty of people have probably made millions and flown under the radar before the authorities really cracked down.

But the Ethereum network was designed to offer smart contracts. The utility of Ethereum is tied directly to the applications available on its network. Smart contracts offer a lot of exciting possibilities of automating things that are currently heavily reliant on trust, and crypto-backed smart contracts are a good solution to the trust problem. The only problem is if prices for the use of the applications on the Ethereum network are quoted in fiat currency instead of Ether; I don’t know enough about the currency’s actual uses and I really only know a bit about smart contracts from some continuing education I took towards my CPA license renewal. However, there at least is some extrinsic use to holding Ether as opposed to Bitcoin, as Ether is the only way to get access to the Ethereum network’s applications.

There’s really no way around the problem though of the fact that no one quotes prices in cryptocurrencies because they’re not stable enough, and there’s nothing that’s going to stabilize them until some powerful enough people put their foot down and put down a huge amount of some sort of commodity in exchange for crypto at a fixed rate on an ongoing basis. If anyone does this though, they’ll either lose tons of money as the crypto they accept plummets in value, or no one pays in crypto because its value is much higher. I’ll go back to the point about bitcoin: stability only comes once you have the currency entering the black hole that is taxation by the government that backs the currency, and with a decentralized currency, that can’t really exist. Thus I don’t see any reason why any crypto currency will stabilize on any value other than ones that are pegged to fiat money (stablecoins), or ones that don’t get used, which stabilize at zero.

12

I honestly don’t understand your question. I’m not up on all of the various crypto currencies so I don’t know the difference between Improved Bitcoin. If it is just bitcoin mined with sustainable energy then sure that would be preferable if it is something different how is it different than bitcoin mined in France or other primarily carbon free energy nation?

So people are only allowed to have hobbies that don’t waste energy. You’re against drag racing, or most other car sports or for that matter pretty much any motor sport like bass fishing. People dump tons of energy just for fun for all kinds of hobbies I don’t see how you would single out bitcoin as more of a waste or less valuable use of time.

13

If you could pay $1 and 20g of CO2 for a cup of coffee, or else $2 and 80g of CO2 and 5 extra minutes for the water to heat up for the exact same cup of coffee (say the second variant comes out of a shitty espresso machine), is it normal to choose the second one? How about $0.001 and 0.1g of CO2? Is it OK if everyone (I mean masses, not the odd vintage vehicle) is allowed to register and drive their decades-old badly tuned Diesel automobile to work when teleporters are available in every living room? That is what I am saying. Do not make the mistake of assuming bitcoins represent some sort of optimal technology.

I don’t know if it would be worth the trouble to formally specify an Improved Bitcoin for the purposes of this thread. I was envisioning it employing a fault-tolerant distributed consensus system which, for sure, requires some computer servers, just like any other payment processing network, but without built-in delays or built-in energy wastage.

I do not have access to technical information about the European Payments Initiative and other current systems, but I seriously doubt any of them use anything resembling bitcoin.

14

USD is backed by the full faith and credit of the US government. Bitcoin is simply a concept and certainly not green energy. I don’t see it except for too much money chasing the next thing.

15

I’m not going to say cryptocurrency doesn’t use a lot of energy, but it is not as simple as that. Crypto is not the only energy-intensive endeavour humans are engaging in; we are also streaming a billion hours of YouTube a day (not an exaggeration), streaming tv all day every day, streaming music, streaming online games, and things like data centres. Amazon won’t say how much energy it uses, but I think we can safely say it is a lot. One point in crypto’s favour; crypto miners make more money when they reduce their energy costs. I don’t know how much crypto mining is using renewable sources, but it’s not zero.

16

If you couldn’t convert bitcoin into dollars then it would have no value.

Its only use is as a means of exchanging ‘real’ money, or speculating in order to gain ‘real’ money.

What most people don’t realize is that the (dollar) cost of a bitcoin transaction is extremely high.

As of Apr 27, 2021, it costs an average of over $29 to process a single bitcoin transaction. If you wanted to pay for a cup of coffee using bitcoin, the transaction would cost you about $29, and it would take about 40 minutes to process.

The cost and processing time fluctuate wildly. The day before (Apr 26, 2021) a transaction would have cost you $37 rather than $29, and who knows how much it will cost tomorrow. That’s one obvious reason why bitcoin can never replace fiat currencies.

Chart - average bitcoin transaction fee

17

Nothing underlying crypto - you know there’s nothing underlying the USD now either. As of 2020, the Fed removed the requirement of fractional reserves - no reserves required at all! As others have said here, things have value because we agree they have value. A $100 bill is a piece of paper; you can buy a lovely dinner for two with it because society is all engaging in the same delusion.

As for buying things with crypto, here is a list of companies that accept Bitcoin. Who Accepts Bitcoins in 2023? List of 20+ Major Companies

The top 20 cryptocurrency debit and credit cards - Top 20 Cryptocurrency debit and credit cards | ItsBlockchain

One-third of top 25 ETFs on Toronto Stock Exchange are cryptocurrencies. https://www.nasdaq.com/articles/canadian-cryptocurrency-etfs-are-showing-monster-trading-volumes-2021-04-21

And, Marshall Islands are planning their own country’s currency to be a cryptocurrency. :blush: Bloomberg - Are you a robot?

18

With those things, there’s something of value as an end result. A cup of coffee. The value of getting from one place to another without having to purchase a new vehicle.

And the full faith and credit of the US government is backed by the economic output of the United States, which is substantial.

Those other things provide value, even if it’s only a minute or two of mindless entertainment.

If my wife and I go have a $100 steak dinner, things of value are being exchanged. The little piece of green paper with a depiction of Ben Franklin on it is just a way of keeping track of what’s being exchanged. My wife and I receive some well prepared beef, a nice ambience in which to eat it, good service provided by the waitstaff, someone else who will wash the dishes after we finish eating, and so on. They would be providing those things for something of value that I produced, in my case most likely providing medical care to 3 or 4 patients on any given day. Maybe the person dining next to me generated the $100 they’re paying with by installing plumbing in someone’s house, driving someone from one place to another, providing legal services, playing in a football game that other people paid to watch, or any number of other things that generate something of value. I just don’t see how adding to a blockchain compares with those other activities.

19

The only thing that bitcoin has going for it is that no one controls it, no one can adjust the supply.

And that is also the biggest problem that it has.

20

Not necessarily:

Also no one has mentioned the other downside: it’s made it almost impossible to buy graphics cards for any sensible price since they are all being bought up by bitcoin miners.