by UnHerd
Thursday, 8
April 2021

Will Bitcoin destroy the West — and then the world?

Peter Thiel is warning that the cryptocurrency could disrupt the global order
by UnHerd

Peter Thiel, tech billionaire, has turned gamekeeper again. Though he’s an enthusiast for Bitcoin and cryptocurrencies in general, he’s just uttered the following warning at an event for the Richard Nixon Foundation:

It’s not there yet, but if Bitcoin becomes established as fully-fledged rival to government-issued currency, then that would be disruptive.

In particular, and as Thiel explains, it would threaten the US dollar’s position as the world’s reserve currency. If the dollar loses its pre-eminent status, then America would find it much harder to fund its enormous public debts. Among other things, the defence budget would come under pressure — forcing the US to scale-back its role as the global policeman.

Guess who would benefit most from that?

It is unlikely that Bitcoin will displace conventional currencies. Bitcoin may be backed by its self-imposed scarcity, but dollars, euros, pounds and yen are backed by politics. It’s pretty clear who’s on the winning side.

There’s another problem with Bitcoin: it’s absolutely filthy.

I’m not referring to crypto’s less savoury uses here, but to its technological infrastructure. Basically Bitcoin is an energy hog. The computational processes by which transactions are processed and the Bitcoins themselves created (‘mined’, in the jargon) use a lot of electricity.

Most Bitcoin mining takes place in China (even though the use of cryptocurrency is more-or-less banned there). It is therefore generated by China’s infamously dirty coal-fired power stations.

New research published in Nature this week, puts some numbers on Bitcoin’s carbon footprint:

We find that the annualized energy consumption of the Bitcoin industry in China will peak in 2024 at 296.59  [terawatt hours]… This exceeds the total energy consumption level of Italy and Saudi Arabia and ranks 12th among all countries in 2016.
- Nature

This equates to “carbon emission flows” of “130.50 million metric tons” — which, for purposes of comparison, is more than all the greenhouse emissions from the Czech Republic.

It’s crazy. If western governments want to take Bitcoin down a peg or two then they could slap a hefty carbon tax on purchases by western companies and financial institutions. However, a more constructive approach would be to support the development of a low carbon infrastructure for crypto currencies and other blockchain-based operations.

Any system that is supported by widely distributed network of computers could, in theory, allocate work to locations around the world with a surplus of power from renewable sources. Variable generation is, of course, the big drawback of wind turbines and solar panels. Sometimes they produce too little for local needs and sometimes too much.

But if we could do more to shift demand for computation around the planet, then that could help soak up surplus production of renewable power wherever and whenever it occurs. Thus we could decarbonise crypto and boost the economics of clean energy.

Unless western governments become as authoritarian as Beijing, they won’t be able to stop crypto even if they wanted to. However, they can influence its evolution. Bitcoin, after all, is the beginning not the end.

Join the discussion

  • We just need a major war, and all these cryptos will come crushing down. In the end what matters is the currency of the strongest nation. That nation has the power to declare all other forms of money illegal. That is why gold has always been desirable during conflicts. It does not matter what some close-knit crypto related social groups think. Cryptos are a product of a generation that has not seen real global conflicts. A generation that has not witnessed a major power outage. Cryptos are a product of dreams dreamed while sleeping during peacetimes. They are definitely not a replacement for gold, for transections in gold do not require a working Internet or stable power supply! These are fantasies of unoccupied idle minds of peacetimes.

  • Unfortunately, the crowd cheering the Emperor is getting bigger and bigger.

    Bitcoin, being a social currency, will live and die like any real social group. I compare Bitcoin to a religion: it is driven by the faith of its followers organised into a close knit social group with certain rules. All religions have dreamed of global dominance, and many have died out in the process. Unfortunately, some religions have survived for centuries without contributing anything to the progress of humankind!

  • Hmm…would I like to invest in Bitcoin?
    Built around blockchain as an unhackable technology. I recommend doing a Google search on “The top 6 biggest Bitcoin hacks ever”, one of the more interesting ones being the SECOND time the Mt Gox exchange was hacked when it managed to “lose” Bitcoins worth $45 billion at current values.
    When the inscrutable Satoshi decreed that no more than 21 million Bitcoins could ever be created he popped out to the shops before explaining what would happen after that. Considering just over 18.5 million have been created in the last 10 years I hope he returns soon with some suggestions. It is highly likely that this ceiling will be lifted but…wait for it…no-one knows how the system will operate after the magic number is reached.
    Never mind all that though. Don’t miss the opportunity of a lifetime to purchase one of these magically invisible tokens for just under $60,000 each.
    Oh and can you please send a cashier’s cheque or alternatively greenbacks in a duffel bag? Cheers.

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