We Never See Nothing

On March 14. the European Parliament is about to vote on a bill that includes an outright ban on trading with all cryptocurrencies within Europe that use Proof-Of-Work mechanism for security. This would be tremendously bad for the whole industry and especially for Europe itself.

So lets remind ourselves why Bitcoin, the most famous POW cryptocurrency, was invented. Bitcoin was invented in 2009 as a digital alternative to FIAT. FIAT can be used and manipulated by governments and poses high risks of inflation, seizure. Bitcoin, on the other hand, is a decentralized trustless monetary network where everybody is treated equal (it’s just code). This means, that no single authority can ban you from the network, seize your assets, or meddle with the basic principles of supply of the currency. Instead, it is all 100% public information. The supply mechanics have been decided at the creation of Bitcoin and therefore enforce stability and predictability. The fact that connecting to the Bitcoin network only requires a computing device and access to the internet makes it the most accessible currency on the planet. The fact that it is protected by a Proof-Of-Work consensus mechanism, makes it the most secure currency on the planet.

And now let me explain why it is a moral imperative to help sustain the Bitcoin network. Bitcoin is a safe-haven asset for those who face repression by their governments or whose currencies are in a hyperinflationary spiral. Banning trading in Bitcoin would de-legitimize the network and possibly decrease its value. This would cut into the pockets of the people who are already facing difficulties. Some examples: Many African countries with poor economics and currencies are adopting Bitcoin at an accelerated pace, due to its clear superiority in relation to their current financial systems. Ukrainians are converting into Bitcoin to flee their country as fast as possible, while ATM machines are closed and their financial systems are dysfunctional. Russians are converting into Bitcoin to save their wealth from the hyperinflation of the Ruble. El Salvador, a country with 6.5M people now use Bitcoin as legal tender to escape the dollar hegemony.

Sounds like a useful invention this Bitcoin, right? But it does have its cost, which is energy. Proof-Of-Work is the mechanism by which the Bitcoin network is guaranteed security. This is done by computers validating transactions on the blockchain, which is incentivized by block-rewards (bitcoin payouts, which also cap the inflation of the network). Proof-Of-Work is the most secure way to secure the network since it cannot be manipulated and hacked due to math and physics (you cannot prove work that you have not done).

The question remains however. What is the worth of a such a global, decentralized, trustless, secure monetary network? And is it worth the energy it consumes? The clear answer by anybody who knows and understands the importance of Bitcoin is: YES. Let me remind you that the energy consumption of Bitcoin is in direct correlation with how much value it provides as a monetary network. If the network would be worthless, there would be no incentive for miners to keep mining because the rewards would not justify the cost of electricity and maintenance of the machines. Nothing is free, or without a cost. And the cost of the Bitcoin network is mathematically deductible and transparent, unlike many other industries. But unfortunately, that transparency has made it a target for politicians who like to take a quick look at things and make rash decisions based on their prior agenda without properly weighing the costs and benefits.

Bitcoin is an incentive for greener and cheaper energy. The fact that a miners profits are dependent on their cost of energy is the biggest incentive there is for miners to look for cheap energy and ultimately green energy. Instead of banning Bitcoin, if one were to care about the environment, one would use policy to make green sources of energy cheaper and polluting sources of energy more expensive. The best way to do this would be to enact a global carbon tax. But I know politicians don’t really care about the things they say they care about so I have little hope of that happening until the Antarctic is no more.