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I know BitCoin uses a lot of electricity for its mining, but how is this comparable to the banking system? Also, other cryptocurrencies, like PeerCoin, claim to be more environmentally friendly by using something called proof-of-stake.

What are the metrics, and how does this all stack up with the current banking system?

  • I would say if any massive jump in processing power occurs the currency may drastically drop in value due to 'bit mining'. bitcoinmining.com – Terry May 28 '15 at 18:06
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Electricity is just a vector of energy: it is neither sustainable nor unsustainable per se. It depends how it is generated and how it is used.

No ponzi scheme is economically sustainable; and BitCoin is no exception. Those who created the first quarter of the total possible bitcoin stock did so extremely easily. Every block thereafter gets harder and harder, The bitcoin founders thus held a worthless stock, but can increase their stock's value by getting other people to use bitcoin - they are always looking for the greater fool. It's therefore a commodity whose value depends solely on sucking more and more people in: it's a ponzi scheme; albeit an unusually clever one, with some very talented rampers and PR merchants now behind it.

Bitcoin itself has no value, so it is distinct from capital markets, where the stocks are of wealth generators.

It's perhaps closest to the gold market; but gold is tangible, has a little bit of industrial use, and some use as jewellery. However, unlike commodities (and unlike modern currencies), the technically possible total stock of Bitcoin is a known capped quantity, and the available stock is already very close to it. So there's very little adjustment that the supply can make to changes in demand. So any change in demand has a disproportionately high impact on price. Hence the need for early adopters to constantly draw in new people, to increase their stock's value.

There are always a few stocks in a market that generate no wealth themselves, but have sellers always looking for the greater fool. So although it's a mistake to say that Bitcoin is like all capital markets, it is true that within each market, there's often a worthless stock that floats up on belief and naive optimism to a high positive value for a while.

  • Bitcoin's not a ponzi scheme, though it has been accused as such numerous times. Have you read this? bitcoin.stackexchange.com/a/37221/516 – Highly Irregular May 26 '15 at 23:17
  • @HighlyIrregular yes I have, thanks. David Schwartz is mistaken (well intentioned, I don't doubt, but mistaken), and I've extended my answer to explain why. – EnergyNumbers May 27 '15 at 5:41
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You might use Life Cycle Assessment and existing data on global power mix, server requirements, and data infrastructure to model the life cycle of a bit coin. It's possible someone has already modeled the life cycle of currency, though you can do that yourself also, from fiber harvesting to incineration at end of life.

OpenLCA is free, and I think NREL still has a free database of life cycle data. It's also possible someone has already modeled this for a thesis project or something; it sounds interesting enough.

www.openlca.org http://www.nrel.gov/lci/

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