[LINK] Bitcoin and global warming

[David Lochrin]

This is an interesting discussion...

On 15/12/2017 18:36, Jim Birch wrote:

> There's a bit of a fundamental economic problem there, isn't there?
>
> Reducing the energy cost of a bitcoin (or the cost of energy) will result in more bitcoin production.  The  situation is inherently unstable under most scenarios.  While bitcoins can be generated at a cost below their sale price it makes economic sense to devour arbitrary levels of resources to produce bitcoin.  (The climate catastrophe scenario.)

The value of a conventional currency is founded on what it will buy, the currency itself is just a system of tokens.  Central banks like to increase the supply in step with GDP, so the value of a dollar (say) remains unchanged.  If the supply is increased beyond that we have inflation.

However the inherent value of a bitcoin now lies almost solely in it's exchange rate with these conventional currencies.  That might well change if it became widely accepted, but it would put economic management outside the control of any government.  And that would certainly invite action; perhaps OECD members could decide to make any currency not controlled by government illegal, or bring them under World Bank control (quelle horreur!).

> Two stable situations can exist. One is where the cost of new bitcoin is approximately equal to dollar cost of the energy required to produce bitcoin [...]  The other one is where the dollar value of bitcoin reverts to its natural value ie zero, and bitcoin production stops.  (The preferred option from an environmental damage perspective.)

All true, I think.  But the concept "the cost of new bitcoin is approximately equal to dollar cost of the energy required to produce bitcoin" still assumes that national currencies continue to provide a stable foundation.

A third outcome is that the value of bitcoin becomes so unstable its value declines and it goes out of fashion.

> I'm expecting the  second scenario to prevail sooner or later for basic economic reasons.  However, I would be extremely foolish to bet on a cessation of human stupidity on any fixed time frame.

...(:-)

David L.