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Bitcoin: The Moral Imperative (3/3)
This is the third article of a series of 3 articles.
- The first one focuses on the current issues on the monetary system
- The second one focuses on how we can fix the money
- The last one addresses common critics of Bitcoin
Addressing common concerns about Bitcoin
If Bitcoin is so much better, why is it so volatile?
This is a huge mental barrier for so many people judging Bitcoin. Bitcoin is 14 years old. It may seem old, but it barely started to be globally adopted. Its market capitalization is so small that many investment funds cannot even get involved as they would probably wait for a 1 trillion USD market cap.
A consequence of a small market cap is volatility. Big players can easily affect the price with just one big buy or big sell order. So the volatility is partially due to the fact it isn’t as widespread/adopted as we can expect for a world currency. Additionally, we need to keep in mind that this is one of the few natural “monetizations of a currency” in the world, something which happens maybe once every 500 years on average. Fiat and other official currencies are adopted in one day via a legal system, so seeing the monetization of a currency purely based on market dynamics is incredibly rare and takes a long time. This is a transitory state, and not something based on the design or fundamental properties of bitcoin itself.
Volatility is also an advantage. As the price drops easily, people can still acquire Bitcoin more cheaply (“buy the dip”). As the price increases quickly, people quickly gain purchasing power. “Everything is good for bitcoin” as we say.
Additionally, Bitcoin, and the crypto space in general, is massively misunderstood. I would even go as far as saying most people who bought bitcoin don’t fully understand what they bought. They saw the price going up and had “the fear of missing out.” Years later though, those who “survived” the crashes and the patient, curious ones learn to keep acquiring it and keep transferring their wealth slowly from the Fiat system into the Bitcoin Standard.
We now have millions of people who keep acquiring bitcoin no matter the Fiat exchange rate, as soon as they have money to convert, therefore creating an unstoppable floor which keeps getting higher over a long period of time. When the price drops, given the psychology of long term “hodlers” (people who don’t plan to sell long term and typically keep acquiring more), the price slowly rises as demand keeps increasing while supply gets ever more scarce.
How is Bitcoin more moral?
Let’s go over the flaws listed for the Fiat system and see how the Bitcoin system is better.
- Saving is possible again. Since Bitcoin cannot be debased (and actually is deflationary since people do lose bitcoin once in a while), its value will only be driven by the real economy. If the world produces more goods and services, there is the same amount of satoshis for an expanding market, leading to lowering prices.
- If someone rich keeps acquiring resources on a Bitcoin Standard he can save more bitcoin, therefore lowering the available supply for everyone else. When the available supply is more scarce, it becomes more valuable. Someone being successful makes everyone else more successful. It is a virtuous system. Unlike an interest based system, providing ever and ever more units of currency to rich people while debasing the currency for everyone else, or facilitating cheap debt, on a Bitcoin Standard everyone has to provide something valuable to acquire bitcoin. Be it time/work or energy.
- Full individual ownership is restored without the need for any third party, and no one gets money for free by having the legal right to change a number on a computer.
- Freedom is expanded as we would slowly get to the separation of money and state, allowing everyone to move value anywhere for any amount without restrictions. States who do not manage their budget correctly would not be able to survive, as they would eventually run out of money, instead of constantly being allowed to borrow more making everyone more poor via wealth dilution. Over time, we would see a system of States managed better and working more in favor of their population to still get tax revenue. Otherwise people would leave, as taxes would be the only way to fund programs, without the possibility to just borrow at the expense of everyone else.
- The probability of war is lowered. States would have a much harder time funding war, war bonds would be impossible, and foreign loans very rare. Additionally, the “return on investment” of war when a State wins would also be much less, because on a Bitcoin Standard the assets of both the individuals as well as the conquered State could not be seized easily. Even the main reserves could be managed via a multi-signature setup of the majority of the Parliament members for example, which may effectively be impossible to get a hold of.
Bitcoin and the Environment
How can Bitcoin be moral when it “destroys the environment”?
First of all it is not even clear that Bitcoin mining is net negative for the environment. Bitcoin mining prevents a lot of methane from being flared or wasted into the environment, which the oil industry has no use for, given the processing cost. Now this industry effectively gets funding to very efficiently transform methane into electricity, improving emissions as an extra side benefit.
Additionally, we rarely see a comparison between Bitcoin electricity usage and the current banking system, with its buildings, employees, and datacenter footprints. We would also need to compare Bitcoin mining with gold mining. On a Bitcoin Standard, with gold losing its monetary premium, we’d need to mine a lot less gold per year, which would have a significant effect on the environment. Gold mining is highly energy intensive, not to mention the environmental damage caused by physical extraction and use of chemicals.
We often hear critics of Bitcoin and the environment due to its “carbon footprint”. It is actually surprising, as we rarely hear such vocal criticisms about very high definition video streaming online, while we could have just 480p videos instead of 4k videos, for example. Why spend so much extra electricity to encode, store, compress, transfer, so much extra data? It would be a very easy and instant change to lower electricity usage worldwide if this was done just for YouTube!
Similarly, idle electronic devices such as TVs and video game consoles, are also using more electricity, and for absolutely no reason. Why don’t we hear anything about that? If we assume the goal is to spend less energy, then why not start with things easy to change, in particular cases where they provide no value? Bitcoin solves a lot of problems and while some people see no value and are happy with their monetary system, millions are not and use Bitcoin to change their lives for the better.
Bitcoin provides other advantages related to electricity management. In Texas, it helps stabilize the grid, as extra capacity is built for new mining, but when extra demand is required for individuals, the Bitcoin machines can be stopped in a few seconds and the electricity can be sent to the rest of the grid. Otherwise, building up this extra capacity would have required a lot of taxpayer money. Bitcoin increases the demand for renewable energy production, as most of the Bitcoin mining cost is electricity. Bitcoin provides a huge incentive to transition to a renewable energy source and extra efficiency like no other industry in the world. This will fast track innovation in the energy sector. If a few years later, a miner isn’t profitable anymore, the extra electricity production would remain onsite, and would over time lead to cheaper electricity prices, since more supply would be available. Additionally, in the same way more demand for computers lowered computer prices, more demand for electricity from Bitcoin miners would have the same effect.
What about Proof Of Stake (POS) blockchains, such as Ethereum? What if we could just update the Bitcoin consensus algorithm to use POS, lowering 99% of its electricity usage? This is also something we hear often, but these critics fail to understand that Proof Of Work (POW) is the key to making Bitcoin work. Energy is both securing the Bitcoin network, and enforcing that no Bitcoin can be created out of thin air because it is based on the law of physics, rather than politics.
A POS system is also highly immoral, as entities with the most staked money effectively decide the validity of blocks, as well as get extra money without additional efforts (stacking). In other words, the rich control the money again, recreating the Fiat system on crypto rails. There is a lot to say about how energy secures the Bitcoin network, and why POS doesn’t solve the problem of trust in third parties, but this will require another article to properly dig into and compare both systems on a more technical level.
Another lesser known impact of Bitcoin on the environment is the slow transition away from a society of consumption. Bad money leads to bad quality goods, as companies have to frequently cut down on quality for prices to remain constant. For example, we all have the experience of buying an umbrella for a few dollars, and ending up having to buy another one shortly after, when the first one quickly breaks. In a deflationary world, people would only spend their money on quality items. Merchandise will be more durable, therefore we would produce less quantity and also benefit from less resource extraction, resulting in less impact on the environment.
Reinforcing this point, every purchase carries a significant opportunity cost of not acquiring Bitcoin. Would you prefer to buy a phone today or acquire more Bitcoin, which could potentially grow in value and allow you to purchase a car with the increased value in 10 years? This is a question that all Bitcoiners grapple with, and we have observed that many of us gradually shift towards buying fewer items and opting for higher quality ones. I anticipate that this behavior will scale to the entire planet, and will have a massive, positive effect on the environment. While no one is obligated to consume less, the incentives point in this direction.
Bitcoin and money laundering/terrorism/tax evasion
We have to recognize we live in an environment where there is a war on information. A lot of people have a LOT to lose as Bitcoin’s success grows and takes market share away from existing assets. Information is cheap and effective to try to push people away from better money.
If we want to target a currency used for money laundering, terrorism or all kinds of tax tricks, the USD is the currency of choice, as it is the most popular for this purpose. Bitcoin is actually a poor choice for these uses, given that it literally leaves a permanent public record. The blockchain, tied with IP records and chain analysis are quite effective to track pseudo anonymous entities. Cash exchanges, on the other hand, leave no trace. Additionally, Bitcoin wasn’t even designed as a privacy coin, as opposed to Monero for example.
While Bitcoin, similar to every other currency which will ever exist, may have some usages we do not like, Bitcoin is by far the best currency to provide the most benefit for mankind. It solves our money problem and unleashes a new Renaissance by increasing our purchasing power, giving property rights and a reliable saving’s technology to 8 billion people, and giving the ability to transfer generational wealth across space and time without loss. Bitcoin is the equivalent of the invention of the wheel for those who spend time studying it.
You may want to get some in case it catches on.
Thank you Satoshi.