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- Bitcoin investing satisfies "needy nerds" and members of organized crime, but also now appeals to big finance companies.
- Bitcoin will not revert to an ordinary market-based price over time because its value isn't based on use; only exchange.
- The energy usage of Bitcoin trading comes with a significant environmental cost.
Bitcoin investors differ from most of us. More driven by the desire for novelty than is the human norm, they are especially needy when it comes to gambling—they just can’t help themselves. And they’re likelier to be men than women; to exhibit neuroses; and to depend on constant rewards to protect a seemingly fragile self-esteem.
We know this thanks to such fabulously-named psychological measures as the State-Trait Anxiety Inventory, the Mood Disorder Questionnaire, the Temperament and Character Inventory-Revised-Short, and—a personal favorite—the Fear of Missing Out Scale.
These are not profoundly rational or careful investors. Rather, they are people in search of an identity, like sports fans or Barbie aficionadi.
So what is it that so fascinates these nerdy, needy folk?
Bitcoin is the best-known cryptocurrency. Like its rivals, Bitcoin operates not through a central bank, like paper and coin money and their plastic credit- and debit-card translations that we grew up with. Rather, Bitcoin uses blockchain technology, a peer-to-peer digital link between users who share transactions on an encrypted database that ensures their "reality."
These qualities, and especially the anonymity they confer, have proven providential not just for the needy nerds whose profiles we adumbrated above, but for organized crime: Bitcoin and its kind are ideal for laundering money and evading taxes. Within the even cozier world of legal capitalism, they are equally suited to speculation—when combined with a failure to peg value to economic conditions or central-bank policies, this has made for hysterical volatility of a kind we might associate with a severely disturbed adult, a tantrum-laden child, or a Twitter habitué (and the dynamics of pricing correlate strongly with so-called "social media" rumor).
Cryptocurrency is basically an asset bubble, like Dutch tulips in the 17th century or the South Sea Company a few decades later.
But there is a significant difference: Bitcoin doesn’t become ordinary and revert to a market-based price over time. This is because it has no fundamental value that is based on use; only exchange. It’s very hard to buy a material object or service with Bitcoin or other cryptocurrencies—they are fictive capitalism at their outer limits.
That will probably change as corporate capitalism extends its reach—Microsoft is on the books as accepting Bitcoin, for example, while big finance companies are investing in it, as they do in any form of speculation using money from the material economy and ordinary people’s labor.
That suggests a shift away from the image of the rantipole Bitcoiner with lank hair lying around in parental basements, blasting eldritch music through his headphones and working inexorably towards he has proto-arthritic wrists. It means individual psychology may soon be overtaken by political economy.
All this is entertaining for economic historians and provides nourishment for occupants of the economics-and-psychology movement.
It is a rather more serious matter for environmentalists.
The Bitcoin network is secured by people appropriately called "miners." Together, they use millions of high-powered computers to evaluate transactions and issue rewards, assiduously wandering from one minefield to another based on energy prices—not responsible environmental conduct.
These Bitcoin miners use more electricity in a year than do many countries—equivalent to Argentina’s or Ireland’s annual carbon emissions. One crypto-transaction uses the same power as watching 50 thousand hours of YouTube videos.
We can thank Tesla, Goldman Sachs, China, and JPMorgan for this unwise, poorly-founded, irrational, and environmentally destructive use of over a hundred terawatts—and, of course, the libertarian anarchists who celebrate their putative imaginary autonomy from states and corporations.
If you want to see the latest calculations, hop over to the Cambridge Bitcoin Electricity Consumption Index. It makes for salutary reading.
The environmental and physiological costs of cryptocurrencies’ energy use may exceed the letter value of each coin. Hence the new concept of cryptodamages. It describes and details the harm done by this latest example of media technologies and the blind faith of those who love them.
Regular readers of this column will be familiar with our skepticism and concern regarding the environmental impact of everything from printed books to cell phones, of new media emerging, whether they date from centuries ago or today.
It’s not too late to put a stop to the cost-benefit analysis fetish of public-policy evaluation, which relies on catastrophic errors being corrected.
We need to displace it with the precautionary principle’s focus on proving an absence of harm prior to proceeding with innovation.
Think about how much of the world has come to appreciate the complex work of epidemiologists, immunologists, microbiologists, biochemists, molecular biologists, and their colleagues this past year in identifying, tracking, and dodging the power of COVID-19.
The use of clinical trials as careful means of establishing vaccine safety is better-known by the general public than ever before.
Is it too much to ask for similar protocols to regulate cryptocurrencies’ impact on our environment and wellbeing? After all, even the lugubrious New York Times has awoken to the reality, albeit in its customary gossipy, pro-business mode.
Or must we allow Elon Musk, JPMorgan Chase, the Chinese state, macho thrill-seekers, and inveterate gamblers the free rein they have abused for the last decade?
