The case against Bitcoin’s value

Shortly after posting my trilogy of Bitcoin articles I got sent this video to watch with the message “Please educate yourself in what #bitcoin is and does. Would love to hear your feedback after watching this documentary“. The author had not actually read what I had written nevertheless I thought I would be a good sport and watch it with an open mind and write up my thoughts. A lot of these I will have covered in my prior blog posts on Bitcoin’s energy usage.

The clam metaphor

A recurring example in the documentary is that of clams. In some ancient civilizations such as the Miwoks, clams were used as a form of money. The reason being that clams are hard to obtain which gave it scarcity, and therefore made it a good option for use as money. It cannot be magically printed out of thing air, and it was irrefutable proof that a certain amount of energy was used to obtain it.

The documentary draws the parallel with Bitcoin’s Proof-of-work mining protocol. Each Bitcoin is irrefutable proof that energy was consumed which makes Bitcoin scarce and therefore a good option for hard money.

In my mind the argument has the two weaknesses:

  1. Gathering clams does not require exponential energy use

Obtaining clams uses an approximately known amount of energy. Doubling the amount of clam gatherers doesn’t mean each person has to expend twice the amount of energy to gather clams. With Bitcoin, the more miners you have, the more the energy need grows. Would these ancient civilizations have thought clams made sense as a form of money if this were the case? If as their civilization grew they found themselves working longer and longer hours to collect clams, and having to break up the clams into smaller and smaller fragments? My guess is this would rapidly become an unsustainable system and they would switch to something where the energy need was more constant

2. Energy use is not what gave clams value

It is not the energy expenditure that gives the clam value. It’s the scarcity. If in this ancient society, one clam were to magically appear per day instead of needing to farm them, then they would still have scarcity value, and therefore could still be used as a form of currency. Indeed you might argue they’d prefer it over the exponential-energy clams I described above, as it means they could make better use of their own energy in other areas of their society. Instead of consuming large meals prior to spending 23 hours hunting for clams, they would instead have a normal sized meal and go out and build a boat or hunt a boar or something. The documentary even begins with how vital energy is for civilizations to flourish. Which I wholly agreed with, and it’s why we must try and make efficient use of energy

Bitcoin mining incentivizes cheap energy

I agreed with this part of the documentary. Bitcoin values cheap energy and cheap energy is often green energy. Furthermore the documentary claimed that a lot of Bitcoin’s energy use came from excess energy that would otherwise have been wasted. This fully supports the view from my first article that Bitcoin should only be used to soak up excess green energy. It also means that banning Bitcoin mining from fossil fuels, and restricting Bitcoin mining to excess off-grid energy, are things that Bitcoiner’s should be championing or at least not be of concern to them, if it is indeed true that a lot of Bitcoin mining derives it’s energy from excess green energy. One thing that I would like would be to make it mandatory for all Bitcoin miners in the US and elsewhere to be obligated to have an annual external audit of their energy mix performed. Right know the figures that are thrown around about Bitcoin’s energy mix is derived by the Bitcoin mining council via an optional self-reported survey of Bitcoin miners.

Bitcoin incentivizes the building of green energy

This I also agreed with. Because Bitcoin miners are on the hunt for low cost energy, which is usually green energy, it incentivizes the building of green energy sources that may otherwise never have been built. Furthermore these energy sources do not have to be near human populations as is traditionally the case. Bitcoin can convert the thermal energy of a volcano for example, into Bitcoin.

The only concern I would have here is whether the building of power plants would cause serious harm to the ecology of that area, something which would have to be considered anytime any power plant is built. But this can be overcome with miners working with governmental authorities to ensure the appropriate checks are carried out. But otherwise governments may wish to enter into some partnership with Bitcoin mining companies looking to build green Bitcoin power plants that would otherwise not have been built; such that wider-society can benefit from it too in the long-run.

Bitcoin’s long-term security and viability

At around the 34min mark the documentary talks about Bitcoin being an anti-inflation hedge and the secure nature of it. I’ve largely covered this in articles 2 & 3. I’ll only add that Proof-of-stake coins can also act as a inflation hedge, it boils down to tokenomics and value, not energy usage.

The petrodollar is backed by the US military

It is fair to say that it’s the US might that gives the US dollar value. The ability for the US government to force its citizens to transact in it, to pay taxes in it, and for the US military to ensure security for oil supplies. The documentary however misleadingly tries to equate total military energy expenditure with total Bitcoin energy expenditure. Let’s put aside the fact that Bitcoin’s energy need increases the more miners you have, and that it is already using up a vast amount of energy for such a small industry. But the US military serves a wide variety of functions, not just protecting the petrodollar. If we were to move to the Bitcoin standard, the US military would still be needed, and therefore the energy consumed by it would still be required.

At this point I had to stop watching. I may go back and watch the remaining 1.5 hours of the documentary later, but I feel I’m having to re-hash a lot what I’ve already written and I do in fact have a busy day today. I could be using my energy to benefit society in other ways! 🙂

Published by ReddSpark

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