Let’s talk about bitcoin. This was brought on by the news that the hunt for bitcoins is using as much energy as the entire country of Ireland now . And, at the current rate of growth one possible trajectory has it using all the world’s energy by 2021.
Which it won’t do, of course. People are going to insist on having a little bit of heat to cook and stay warm, but it does tell you how crazy the bitcoin path currently is.
What is bitcoin? The idea behind it is to have a cash equivalent when financial transactions are increasingly electronic. There is a value to having anonymous, untraceable money, just as there is value in anonymous, untraceable speech. It makes it harder for anyone to grab control over people. The downside, of course, is that it also makes it easier for criminals and hatemongers to do their thing.
Without going into the computerese of it all, you’re using processing power to do the calculations necessary to keep a transaction both secure and untraceable. (Although there’s some dispute about the perfection of the untraceability of it in all cases.) Secure untraceable transactions could actually be very useful in the case of, for instance digital voting.
A couple of points about bitcoin: there is a finite number of bitcoins allowed by the bitcoin system. I think the idea was that this was necessary for it to retain any kind of value. Obviously, if you can just “print” infinite numbers of bitcoins, they’re meaningless. It’s the same characteristic that makes gold valuable. There’s just so much of it and no more.
The second thing is that the closer you get to that limit, the more processing you have to do to get the computer to say it’s produced a secure untraceable transaction, a bitcoin. Producing a single bitcoin now takes as much energy as a US household uses in a month, very approximately. When this folderol started, I could have generated a hundred of them on my little laptop in minutes.
What is money? To understand what bitcoin actually is, I think it’s helpful to think about what money actually is. There’s a lot of dispute about the latter, so this is my view . (Which is right, of course. You at the back, pipe down.) It agrees with some of the Great Grandads of Economics (Keynes, for instance, unless I’ve totally misunderstood him), but not others.
At it’s most basic, money is a measure of value that allows us to exchange things that have real value — cabbages and houses and medical services and classes in Japanese flower arranging — without having to use barter. Barter isn’t bad, it’s just terribly inefficient. It depends on the buyer happening to have whatever the seller wants in exchange, and then both agreeing how much of A, say 5 cabbages, is worth how much of B, say on class on flowers. (And then, if you’re the teacher, what are you going to do with the 50 cabbages your students have given you?)
If money is a measure, then someone has to define what it’s measuring. With feet and meters that’s not a problem because we all know how and where to use yardsticks. But measuring value is a whole different ballgame.
There are fleets of economists who work on that sort of thing. And they can actually get reasonably close to what a given economy is producing. Money, at its best, then measures that and makes it easy to exchange things at sensible prices.