Bitcoin is the latest fantasy object of utopian thinkers far and wide. Angry with the banks? It sidesteps them. Fed up with governments? They can’t regulate it. Annoyed by corporations? Bitcoin transcends them. Worried about fraud? Bitcoin uses the latest cryptography. Keen to make a buck (so to speak) by participating in a boom? Come on down and plug in.
One Bitcoin traded for just fifteen dollars in January. Today, the figure is over a thousand. Early on the morning of November 29, it even exceeded the price of gold. In other words, Bitcoin welcomes you. And who are you? So far, over 90% are men, more than 60% are drug aficionadi, and many are right-wing libertarians. You’re increasingly likely to be Chinese and storing money offshore, where virtuality supposedly protects you from tax liabilities and either democratic or undemocratic regulation.1
For some readers, Bitcoin may be mysterious, even unknown; so here’s a quick primer. A decentralized quasi-currency in existence since 2008-09, it uses distributed computing—the simultaneous voluntary use of laptops and desktops across borders to undertake such projects as inter-galactic communication—to mine (remember the metaphor) new Bitcoins. Users are known as clients, and their accounts are called addresses. They can send Bitcoins to other clients through a global log called a blockchain. It is created and sustained by miners, who are basically high-tech bank tellers running on digital hamster wheels.
Miners are paid in Bitcoins when they generate new currency by solving cryptographic puzzles. Because cryptography protects transactions, miners don’t know any more about how the money is spent than bank tellers would—and supposedly less than their equivalents at a credit-card company.
The miners are governed by an anti-fraud accounting and auditing system that was invented two decades ago to control employees. It’s called proof of work (PoW): if you can prove you’ve done something, you’ll be remunerated for it. Which miners do by constantly running computers in order to generate currency and get paid.
Bitcoin’s originating algorithm makes the puzzles progressively harder to solve as more and more people compete to do so. This arrangement decreases payment per puzzle, so miners try to solve loads of puzzles as quickly as possible. Plus Bitcoins will become increasingly rare until they reach their finite number of 21 million, which is expected to happen around 2140. The upper limit is designed to prevent the currency from devaluing due to over-supply.2
As readers of this column can guess, there is an ecological dimension to Bitcoins. It’s well captured by the unfortunate metaphor of mining. Just as waste and environmental destruction increase in the search for ever-scarcer precious metals, environmental harms multiply as the potential supply of Bitcoins diminishes and they become harder to find.3
Why? Because the process relies on monumental computing power, which is exacerbated by miners’ preference for vampiric graphic processing units rather than vanilla central processing ones (they just love pretty pictures). As of late November 2013, Bitcoin’s own statistics disclosed energy consumption for one day of 83,384.3-megawatt hours—more than the world’s five hundred largest supercomputers combined. Independent estimates suggest Bitcoin could be responsible for substantial carbon dioxide emissions and hence contribute to global warming by as much as 2.1%. That’s about the same impact as commercial aviation, and it excludes creating and disposing of hardware.4
Such figures don’t show Bitcoin’s other environmental effects—unenforced liabilities for natural resources consumed, waste clean up, environmental regulation and enforcement, and so on. Of course, existing nationally based currencies are also energy consumers, and are wasteful and averse to environmental accounting—but the workers at their mints don’t make the bizarre claims to newness, revolution, goodness, and purity that Bitcoiners do. By way of comparison, electronic waste per Bitcoin currently runs at seventy times that of paper currency.
Apart from some fawning business stories, the bourgeois media have largely treated Bitcoin as a charming curiosity. In late fall, the British papers were agog at the experience of one Bitcoiner whose 7,500 Bitcoins were “buried under four feet of rubbish” because he threw his Bitcoin piggy bank (i.e., hard drive) into landfill. The press did not, of course, bother to consider the implications of this reckless disposal of toxic e-waste—instead, it became a wry story about how quickly virtual wealth can be made and lost.
Some of Bitcoin’s luster may be wearing off. Germany has formally recognized the new currency, so Bitcoiners are no longer such daredevils; they’ll pay taxes on transactions, which means they, too, just like ordinary people, must support things like public schools and parks. The US also regulates Bitcoin: not because desktop monetary radicals are undermining the state, but because corporate drug-dealers use it to launder money. Canada and Cyprus each boast the first Bitcoin ATM—so it’s no longer virtual. The code supposedly protecting each miner from exploitation by others has been cracked, so participants may obtain more than their share through “Selfish Mining.” And Chinese hoarding means Bitcoiners are quickly becoming part of a typical speculative capitalist bubble.6
Bitcoin true believers are easily offended and very noisy. Watch as they pick up on any, all, and imagined, deliberate and accidental, mistakes in this column … and watch as Bitcoin comes to be recognized as a very standard capitalist innovation that was birthed and welcomed with zero regard for environmental despoliation.
- http://www.zerohedge.com/news/2013-03-10/demographics-bitcoin; http://blogs.reuters.com/felix-salmon/2013/11/30/waiting-for-bitcoin-to-get-boring/
- http://gizmodo.com/5994626/bitcoin-mining-has-an-absurd-environmental-impact; http://www.j3l7h.de/talks/2012-09-20_Environmental_Cost_of_Bitcoin.pdf
- http://weis2012.econinfosec.org/presentation/Breuker_presentation_WEIS2012.pdf; http://blockchain.info/stats; http://cleantechnica.com/2013/04/19/bitcoins-environmental-problem/; http://www.psfk.com/2013/04/bitcoin-mining-environmental-problem.html
- http://www.newstatesman.com/business/2013/05/bitcoin-%E2%80%93-regulate-or-not-regulate; http://arxiv.org/abs/1311.0243; http://www.economist.com/news/leaders/21590901-it-looks-overvalued-even-if-digital-currency-crashes-others-will-follow-bitcoin