EDITOR: | February 5th, 2018 | 4 Comments

Bitcoin — the Tulip Bubble of the 21st Century

| February 05, 2018 | 4 Comments
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I have a confession.  I hate Bitcoin.

As an economist, I truly believe Bitcoin is the Tulip Bubble of the 21st Century. I fully expect it to go to zero. Any first year economics student I ever taught would be able to explain its deficiencies as a currency…but that is not why I hate Bitcoin.

I hate Bitcoin for one simple reason…it is awful for the planet.

The whole issue is power consumption.

A few months ago, I was asked to review a Bitcoin mining deal. When I read the financials, I thought that someone had made a typo on the power usage line. They had not.

Although it is tough to get verification, some eye popping claims abound.

Among them;

  • Bitcoin mining power consumption is about equal to Denmark
  • Bitcoin mining consumption would make it the 59th largest power consuming nation on earth
  • Bitcoin power usage grew 26 percent in the month of November 2017
  • Bitcoin consumption in Jan 2018 was 47 TerraWatts in January 2018, up from 33 in November 2017
  • Bitcoin had an estimated carbon footprint estimate of 23 kilotons of CO2 in 2017
  • and finally, Bitcoin mining will consume all of the world’s power consumption in 2020.

Obviously, the last claim has been broadly debunked, but the math behind it is fascinating.

The mechanics of Bitcoin mining are convoluted, and make for boring reading, but a Google search of the subject will reveal that it involves huge computing resources, and therefore power consumption. Bitcoins are granted based on a competition among miners, with the winners essentially processing the most transactions…and this entails massive power use in computer servers around the world.

In a competition like this, with the main variable cost being power, a surging Bitcoin price rewards those who increase their activity, and therefore their power consumption.

Cheap power attracts Bitcoin miners. Many Bitcoin mining operations are emerging in markets heavily dependent on hydrocarbon generation. Bitcoin mining runs on cheaper, dirtier power.

It has gotten so ridiculous that one Russian investor has acquired two Russian electrical plants to power planned Bitcoin mining operations.

Shockingly, environmental groups have been jarringly silent on this issue.

I shall, as one who loves the environment, hope that the frenzy will end.


Jeff Wareham

Editor:


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Comments

  • BSZ

    People will do as they see fit with the things that they own. Thinking Bitcoin is over is incorrect, and attempting to control what people do with their property is immoral.

    February 6, 2018 - 1:34 AM

  • Gordon

    At least when Tulip mania ended its participants had some pretty flowers to look at for a few weeks each spring!

    February 6, 2018 - 6:05 AM

  • Intrigued Investor

    Wow. This is very intriguing and a critical component to be considered. Thank you for this insight. I will watch for more from you — enjoying your interviews!

    February 7, 2018 - 9:16 AM

  • robert wagenbach

    Bitcoin creation should be subject to a carbon tax.

    February 8, 2018 - 1:32 PM

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