Is Bitcoin More Wasteful Than Bank Bailouts Were?
HONG KONG, HONG KONG - NOVEMBER 9: As a visual representation of the digital Cryptocurrency, Bitcoin ... [+] sit on US Dollar on November 9, 2017 in Hong Kong, Hong Kong. Cryptocurrencies - Bitcoin, have seen unprecedented growth in 2017. (Photo by studioEAST/Getty Images) Getty Images  A favourite talking point of anti-bitcoin international financial associations, banks, and the political class that form an extension of their trustfulness employ is the waste of energy that bitcoin creates. As a proof-of-work chain, and one that requires state replication across many devices around the world to come to consensus, bitcoin is computationally expensive. This is because a key aim of the system is to provide trust without needing an explicit intermediary to vet it. Instead of passing through digital ledgers of banks that are guaranteed to work for the nation-states in question through tax status (and layers of employees and political donations), value can be transmitted to individuals who have no reason to trust each other at all, and dont need a third-party to mark trust one way or another. In a sense, you can see the intermediarys role here as wasteful. It depends, again, on how you define waste and from whose perspective. People who trade with bitcoin, or use the Lightning Network to top up their phones or transmit tips to people they value might define working through intermediaries that consume resources as waste. Likewise, states that see some tax revenue from the transactions, but arent able to lean on the network operators, might see all of the value transmitted in cryptocurrencies as waste despite the value nodes, miners, and users place in it. This argument can be as nuanced as pointing to different consensus algorithms: for example, distributed versions of proof-of-work or proof-of-stake. Yet, each comes with its tradeoffs: proof-of-stake for example, has to rely on outside validators because economies of scale tend towards the centralization of uptime and stake holding  and theoretically rewards larger holders with better holding costs, than smaller players  leading to centralization risks that are not seen in proof-of-work chains. And it doesnt remove costs though may ameliorate them: though you can argue about the energy costs of mining vs. the energy cost of holding, there is always going to be some amount of energy cost associated with holding or maintaining compute power. The issue in the designation of waste however, seldom gets to this level of detail. In effect, waste is a more primal word and designation, akin to classifying certain forms of violence as terrorism or not. So far, weve dealt with hypotheticals  let us anchor to a point: TARP, claimed as a great success by some who disparage bitcoin as waste  the fiscal program that amounted to a massive bailout of in-trouble banks. 1- Rampant increased wealth inequality  Wealth inequality spiked in the post-TARP period. Some would say this is deliberate: after all, the strategy relied on creating an asset bubble and on rewarding those who caused the financial crisis of 2008 in the first place. Wealth at the top has nearly doubled from 2009 to 2016 when it comes to global wealth, while the wealth of the global poor has decreased. The same formula with quantitative easing past the zero-bound has been reactivated again, partially because monetary policy never went back to a pre-2009 equilibrium  benefiting those who owned assets or in other words, those who were rich already and who lived in rich states that could benefit. Despite the rhetoric that surrounds equality, the truth is that monetary policy is trickle-down and is causing extreme inequality within states and around the world well, benefiting those who rigged the system in the first place  and fiscal policy in the form of TARP just added frosting to the cake. 2- Consolidation of the same principal players  Not only did the same players cause the Great Financial Crisis, because of the acquisition of fallen competitors, they have grown larger and even more well-connected politically than they were before. Concentration ratios (the measure of banking system assets held by the five largest players in a country) have increased in the United States and Europe. Consolidation has continued, with a large post-crisis reduction of banks concentrated in smaller players who could not survive, or did not have the extensive political connections implied in too big to fail. The bailouts ultimately promoted moral hazard for large players that never suffered the consequences of their actions. The system never evolved past the conditions that truly created financial fragility in the first place. Too big to fail has become bigger. 3- Increased carbon emissions  The reality is that as GDP increases, under current conditions, carbon emissions increase. This correlation can be seen in Chinas recovery from COVID-19, with it marking its carbon peak goals to at least 2030. More alarmingly, despite the rhetoric, China continues to build coal plants at a furious pace, belling the tradeoff of another more fundamental goal: 6 percent GDP growth rate per year. While the United States has seen a marked decrease in carbon intensity since 2009, a large part of this amounts to natural gas usage, some state incentives for renewable energy, and a large shift from manufacturing to commercial activity, a long-haul trend since the entanglement of Chinese manufacturing with American consumption. A global look at the stats puts this into focus: worldwide carbon emissions continue to accelerate and grow, driven by non-OECD countries, most prominently China  the carbon intensity and activity profile of the United States has partially shifted to developing countries that provide manufacturing now. All this isnt waste because it helped consolidate the tax base of the United States or China, or any other nation-state. Increased GDP per capita produces benefits but must be accounted for in terms of costs as well. A reading of GDP per capita with a complete focus on carbon emissions in the same manner critics look at bitcoin would account for it as a pure cost. Bitcoin is being unfairly compared to a financial system that produces a whole lot of consumerism for providing liquidity yet cannot seem to avoid large, rapturous financial crises, and which only get rewarded for always being the largest players. Meaningfully denting this system, something Satoshi originally envisioned in the coinbase of the genesis block, can hardly be seen as waste in this context. Any system can benefit from reducing costs. It would be good for bitcoin and other proof-of-work chains to shift gradually to cleaner sources of energy, including driving some of those changes once it becomes large enough or when nation-states adapt it. Here we should specify cleaner in the sense of lesser-carbon emissions lest we forget that many of the measures meant to fix the hole in the ozone layer are now some of the worst carbon contributors (the switch from chlorofluorocarbons(CFCs) to hydrofluorocarbons (HFCs) and hydrochlorofluorocarbons (HCFCs) for refrigeration). This shift is not only because renewable energy sources are likely to be more economical in the long run (see the long-form cost curve of solar energy as an example)  but also because the long-form consumption and savings thinking in a deflationary asset is meant to encourage a better future. This is why thinkers like Hal Finney very early on thought of how to reduce carbon emissions for bitcoin even when it was a fraction of what it is now. The problem is in the inherent argument that cryptocurrencies should only be looked at in terms of costs and not benefits  an imperial attitude of the current financial system works for us, so why cant it work forever for you?  Of course, nation-states want to reduce their carbon emissions, but there is a tradeoff involved here too. Their economies produce value for them  the amount of taxation and the number of people under their control. Nation-states are geared to view people in binary manners: as citizens or tax evaders. Emigration is viewed as a brain drain. Carbon emissions are seen as a cost within the system, rather than as an absolute indicator of waste. Many who decry bitcoins carbon emissions seem focused only on the issue of waste  once categorized this way, any improvements such as shifting to more carbon-neutral sources of energy will not work for its most extreme detractors. Value, after all, is when a bunch of Wall Street banks pay you back for tanking the economy, and nothing changes. Value as defined from a states perspective does not depend on the amount of benefit accrued to different people but rather the amount of control the state retains. We are so used to a system of being stamped from birth and tying virtue to affiliation with one state or another  that many of us quickly forget the fundamental lie embedded in that idea, and this sensitivity is most exposed when it comes to money, a monopoly of numbers semi-conjured by state authorities. Bitcoin can reduce its energy consumption  yet its largest strength in this debate is taking the hands of value outside the exclusive domain of state planners and placing it in the hands of peoples around the world  who can participate by running software rather than being forced to play a game with losing stakes for them and the planet.