Bitcoin, The Unsustainable Alchemy.
Bitcoins are often compared to gold bullion. Make no mistake, this is an environmentally unsustainable alchemy; sooner or later, it will turn back to air. Why?
Cryptocurrencies are emerging as new forms of currencies or liquid value reserves challenging fiat money or precious geological assets like gold.
Gold is used in electronics; cryptos (not bitcoins) are also helpful for smart contracts and various other applications. But the point is that although bitcoins are way more speculative assets than gold or strong fiat money, they currently serve as a liquid reserve of value.
Why is bitcoins an unsustainable store of value? How is this different from precious metals or fiat money?
Value is a subtle mix between collective psychological agreement and an underlying reality. The underlying reality of bitcoins is environmentally unsustainable. That of gold mining too, but stopping the gold mining does not endanger the current value of gold, on the contrary.
Gold atoms are not reproducible; we cannot create them. Actually, it is possible, but the energy cost to produce gold at scale is simply out of reach.
Gold is scarce on the planet, hard to mine, and it is not soon that we’ll be able to mine it outside earth crust, like, e.g., from oceans or asteroids.
Of course, this scarcity applies to other metals or objects, but gold has the distinctive feature of being permanent, beautiful, and light; it won’t fade, oxidize, or break. Gold is a highly stable, rare, and useless store of energy.
Fiat currency value varies with political, economic, and military power. All these slowly come and go, but the dynamics involved are hardly connected to environmental sustainability.
With bitcoins, trust is ensured by the decentralized sharing of many electronic resources to solve cryptographic riddles. These electronic resources allow performing computations, communications, and storing of information. The bitcoin protocol’s security then stems from the prohibitive amount of resources a single entity needs to hack this shared system of computers. In other words, bitcoins are literally created out of electricity going through non-precious metals like copper, lead, aluminum, tin, cadmium, or nickel, all of which abounding in computer motherboards. Bitcoins are achieving the long-sought dream of the philosopher’s stone. We have turned electricity running through base metals into a new sort of gold.
From here, we could hence ask for quantitative analysis. Is the energy require to run the bitcoins exchange unrealistic in a near future? How does it compare to the energy requirement to ensure the security of digital exchange of fiat currencies? Besides, what about the metal needed? Does anyone count the soil and water pollution stemming from mining for the precious metal to make GPUs, TPUs, or ASICs for bitcoin mining?
It is not just a fantasy or a problem for the future; NVIDIA and AMD, the most prominent suppliers or Graphical Processing Units (GPUs), are facing some supply shortage due to the popularity of mining for cryptocurrencies.
Any quantitative analysis would then rightfully generate a lot of research and discussion around the truthfulness or accuracy of the electrical and metal consumption and their environmental cost. Some will argue that there will be sustainable cryptocurrencies protocols, e.g., not relying on computations but rather on decentralized information storage. Others will then answer that they should then consider the environmental cost of SSD (the future of storage) etc.
Entering such quantitative details could probably help to estimate the time at which bitcoin will cease to exist as a store of value. Yet, this will not change its fate. There is a primitive, resilient, and sustainable way to store value: gold supported by a global prohibition for gold mining. The later being perfectly achievable via satellite surveillance systems.
It is crucial to think qualitatively to understand the long-term directions of our complex social systems. While there are attempts to make gold mining and bitcoin mining sustainable, in both cases, the very principle of mining is wrong for our environment. The difference is that stopping the mining of gold does not alter its value; on the contrary. If we stop mining bitcoins, we can no longer exchange them securely, and no one will anymore believe in their value.
When will there be a common consensus about cryptocurrencies’ unsustainability as a store of value? Where will it come from? Will we have to wait for a societal consensus? Or will supply chain shortage in metals force the governments into metal rationing? We are no oracle, but we hope it will come soon.
Beware! We are not saying that there will be no digital currencies in the future. A digital currency is not necessarily a cryptocurrency. Ironically, a side-effect of bitcoin’s greed is that it is probably accelerating the adoption of digital money in the world. Yet, crypto-based coins as a store of value will ultimately fade away. We’ll remember bitcoin as the most distinguished lure of humanity into the possibility of alchemy.
