Synthesis

David Morris:

As I've noted for a while, the Bitcoin is beautiful with regard to abstract cryptographic design, but a lunatic nightmare with regard to concrete environmental realities. This is because its decentralized ledger is predicated on a proof of work verification step that must cost, more in electricity and computational costs, than the value of what's in the ledger--and multiple miners are competing to do the verification step, to earn mined coin. That's what keeps someone from forging currency and ripping people off: it costs more to do that then what you'd earn. As an analogy, imagine that it would cost more than $100 dollars in energy and computers to forge the $100 dollar bill in your pocket; you wouldn't bother to try and forge. What keeps forgers from forging dollar bills is that it's hard to produce the materials. What keeps forgers from forging bitcoin is that proving that bitcoin is real bitcoin takes enormous amounts of energy. But as the total value of bitcoin grows, the total amount of energy needed to prove it and ensure forgery isn't worth it, grows. AND THAT PROOF NEEDS TO BE DONE EACH TIME A BLOCK OF TRANSACTIONS IS ADDED.

NB, more precisely, it is energy together with and required by the computational time and power required for doing the proof, with current computing technology (as well as the energy for cooling the computers); AND the energy wasted, because the miningsystem is itself market driven, with multiple competing miners working to (in effect) solve the SAME PROBLEM, and only the first one to solve it earns Bitcoin, so the electrical energy spent by miners who don't earn the coin doesn't do anything useful, as if in a car you design it with multiple engines that generated heat, and only the first to turn over a gear moved the car forward. If you want to have decentralized ledger, the design of Bitcoin is elegant. If energy per currency exchange were a measure of the worth of the currency, the design is terrible. You could also make a currency that is hard to forge because you make it from paper from a trees in a particular forest that you then burn down. But nobody would think that makes sense, I hope. In this case the cost of energy becomes a way of proving and security an identity in an abstract realm of numbers that don't have identities, when you don't want to allow a central authority to monitor identities. Is it worth it? Why not seek to solve the human side of the equation: figure out how to build human institutions that one can trust and do not corrupt or abuse, instead of trying to bend numbers to purposes they do not serve well, except when we cost out the numbers in terms of computation costs. That's it in a nub: we make it hard to forge numbers by leveraging the energy, time, and computing cost of computing certain numbers. Bitcoin should come with a logo that says "In primes we trust." And be prepared for trouble when quantum computing gets to the point of finding prime factors quickly.

As well, if one had the thought that speculation on the house market had become a problem in, say, 2008, and speculation in third order derivatives that nobody understands and that become decoupled from underlying value are a problem that contributed to market crashes are a problem, and that in general financialization that is decoupled from actual economic productivity, since it is just bets about market movements, is a problem, and that financilization facilitates wealth accumulation and inequality, then one might be worried by speculation in currencies whose value is simply speculative. It's not for nothing that some governments are saying that companies issuing cryptocurrencies are in fact issuing securities. 

One could think that what cryptocurrencies afford is the securing of a new domain of betting. Not one houses, stocks, productivity, or changes in the values of those, but bets on how people value certain numbers that can be owned and not duplicated, or how people value the exchange of those numbers. (And yes, also means of exchanging value in ways that aren't exposed to monitoring or corrupt institutions; but that, as far as I can tell is not what is driving the bubble that appears to be blowing at the moment.)

But of course this could be wrong, they could end up becoming important to new economies, as in the libertarian scifi scenarios. Or crash everything.

(Personal communication, retrieved 8 Dec 2017. Emphasis added.)

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Business Insider article:

Excerpt:

Bitcoin transactions now use so much energy that the electricity used for a single trade could power a home for almost a whole month, according to Dutch bank ING.

The bulk of Bitcoin "mining" is done in China, where energy costs are comparatively cheaper than in places like the UK or US.

"The top six biggest mining pools from Antpool to BTCC are all largely based in China," Mati Greenspan, an analyst with trading platform eToro, said in an email earlier this month. "Some rough estimates put China's hashpower at more than 80% of the total network."