THE GREAT BITCON
I got the Blockchain and Bitcoin ‘bug’ around 2015, gave talks on the subject, even got married (should I say remarried) on Blockchain, paid for in Bitcoin. Then, volte face, I became a sceptic real quick and over the last few years, I’ve seen it get worse - huge projects trying to solve problems that already have adequate solutions or problems that don’t actually exist and now this period of speculative mania.
The Great Bitcon is a financial mirage, a shark that needs to keep afloat through dirty energy and liquidity to keep it afloat. That gold coin image is a complete con. As Nassim Taleb says, its worth is “exactly zero”. There is no common good here, in fact it is a dangerous, damaging piece of energy hungry speculation… and unsustainable.
As if to confirm the absurdity of Bitcoin as a currency, there’s been an experiment, on a real country - El Salvador! Pick a small, poor South American, stagnant economically, with a horrific homicide rate, run by two massive drug gangs (MS13 and Barrio18) and a major land-route for drugs into the US - and give it a highly volatile virtual currency. Its capital San Miguel is the money laundering capital of central America - hotels, nightclubs, car dealerships, right down to the hardware stores. What could possibly go wrong?
Former PR man, turned Dictator, Bukele, is what has gone wrong. Despite having brought inflation under control by pegging the ‘colon’ (you couldn’t make it up) to the dollar, he decides he wants to be Mr Cool. It’s a stunt. He has sacked the judiciary, put his henchmen in place, limited the power of the opposition and in true South American Dictator style - scrapped the limited term law for Presidents. A few weeks ago he gives everyone $30 in Bitcoin. You don’t solve the problem of poverty by foisting a volatile asset on poor people. Not that poor people get the money anyway.
So, how’s it going? It dropped 20% in the first day and is already trickling upwards into the hands of the rich and gangs, with whom the President did a deal. Widespread reports of fraud in the wallet system has left people bewildered. Few businesses are accepting the currency and 15,000 took to the streets demanding it be stopped. They even destroyed a Bitcoin ATM.About half of El Salvadorians have no internet access, sure many have phones but the old and poor often lack the skills to use this stuff. It’s a process of exclusion not inclusion. I repeat, the last thing we want to do for poor people is get them involved in a highly volatile asset, when what they need is stability.
The great con works as there’s something in crypto for everyone, from the idle speculator to every species of ideologue. For Libertarians - no authority in control. For the Left - no corporates and banks in control. For the Right - no corporations in control. Why? Because no one is in control. That’s the real problem. It is, quite simply, speculation or to use old Marxist expressions, the purest separation of capital from production the world has ever seen, and its seen a few. A pure expression of greed from those that can least afford to lose - the young, women and ethnic minorities. The FCA rightly issued a warning this year NON-TRIVIAL DOWNSIDE RISKS.
I get that people are concerned, especially during Covid and it is that uncertainty that’s driving the speculation and volatility fuels this speculation. But spare me the duplicity of doing good - it’s just plain bad. You always hear about winnings, never losses. What’s happened is that the whales, VCs, hedge-funds and billionaires have stepped in. It’s the 1% folks. The people who control it are the people with lots of it.
Jackson Palmer, founder of Dogecoin says crypto has “evolved to incorporate many of the same institutions tied to the existing centralized financial system they supposedly set out to replace. All the while shoving cash and profits back up the funnel towards the rich, not the bankless & the poor. Crypto avoids audits, regulation, taxation, all the protections that are they to protect citizens”. It sucks capital in like a black hole, indeed it has to, to sustain its existence, but without contributing to real economic productivity.
That’s not to mention several other bad actors; tax evaders, money launderers, sanction busters, ransomware gangs, kidnappers and scammers. Forget your password - hard luck. Get scammed - hard luck.
Then there's the fatal objection. Right in the middle of one of a serious, global energy crisis, where Lebanon quite simply went dark and where fuel poverty will hit hundreds of millions, cryptocurrencies are doubling their energy requirements, to the equivalent energy use of Poland. Talk about swimming against the tide. It’s not just the cost of mining, the cost per transaction but the waste. The problem is systemic, it is in the model of verification, in the maths. It is quite simply energy intensive. It’s also an emissions disaster as its primary energy source is fossil fuels. When China banned Bitcoin mining and trading, the miners fled to other countries.
Why Khazikstan? Low financial regulation, only 6% renewables and tons of dirty coal. Why Mongolia? Low regulation and tons of dirty coal. Why TEXAS? Cheap electricity. Why is it cheap? An independent grid, deregulated, old infrastructure, low investment, so bad that they had severe outages in February of this year - it is estimated that up to 700 people may have died, 4.5 m homes and businesses had no power.
Why did China do what they did? Climate change targets. It came on the back of huge internal Chinese energy outages, where factories were shut down. China has a target of being carbon neutral by 2060 and see crypto being regulated and banned through climate change blowback alone. Oh, and the chips for mining are almost all made in Taiwan.
No hears you when you scream with the pain of your hacked losses or lost password in cryptoland. No one comes to your rescue in an unregulated suprastate environment.
My fear is that crypto is ‘doomed to succeed’ to take us to dark, ugly places we can’t get back from. I said at the start I had gone from zealot to sceptic. I will keep an open mind but I am convinced that cryptocurrencies are purely speculative, not a viable set of currencies, destabilising, increasing inequalities, energy intensive and therefore on an unsustainable path, both politically and in terms of climate change.
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