Last year, we ran a post, Omid Malekan on why crypto is not a scam. After that, I had lunch with Malekan and fellow Columbia Business school denizen Gur Huberman, and Malekan gave me a copy of his book, “Re-Architecturing Trust: The Curse of History and the Crypto Cure for Money, Markets, and Platforms.”
I flipped through the book and came to this passage on page 215:
Ironically, for all the hand-writing about Bitcoin’s price volatility, it has been the cryptocurrency’s single greatest selling point because, for over a decade, and despite several bear markets, it has always resolved itself to the upside. Put differently, those who have believed in this monetary prowess have been handsomely rewarded. To them, bitcoin’s volatility is a feature, not a bug. Had they held dollars (or any other fiat currency) instead, then they’d be a lot less rich. That wealth creation, along with the titillating prospect of even more to come, has propelled both the coin and the underlying technology forward for over a decade.
Seems descriptively accurate. I continue to think that the medium-term plan of bitcoin, as with other tech innovations, is regulatory capture: get enough well-connected people inside the pyramid so they can ensure government support in some way. But, in any case, yeah, the price of bitcoin has made some early investors rich.
Is “wealth creation” an accurate description of the rising price of a speculative asset? I’m not so sure about that. Sometimes yes, sometimes no, right? If I discover a new talent for painting, and my paintings are popular, and they start selling for a million dollars each, and I make a thousand of them, then, sure, in some sense I really have created a billion dollars of wealth, in that the world has these thousand paintings which people really seem to value. But this argument ultimately relies on the paintings as having this value. If all of them are blank white canvases, and I’ve sold them by convincing people that beautiful paintings will eventually appear on them (with the idea being that I used some special paint that takes years to show up on the canvas), then the argument for creating a billion dollars of wealth seems shakier; we’re more in a conditional zone where the value exists only for as long as people agree that this value is there.
So I think the claim of “wealth creation” leans on the assumption that bitcoin has an inherent value, something other than “the titillating prospect of even more to come.” And Malekan does argue that bitcoin has inherent value, and not just for early investors and criminals. I did not try to evaluate those claims, but that’s really the crux. Making people rich is not by itself wealth creation; it’s just a form of transfer payment.
Another issue that comes up is energy consumption, both the direct substitution effects—energy used in the bitcoin process is not being used for some more direct human purpose—and for the concern about climate change.
Malekan writes something about this, on page 217:
Here we should pause for a second to consider the environmental impact of mining, as it is often presented as a negative. Indeed, other than its (highly exaggerated) use in illicit activity, the Bitcoin platform’s electrical consumption, which we should admit is significant, is the most popular argument against further adoption. As with other critiques against crypto, there is an obvious double standard. Lots of activities negatively impact the environment, especially when measured in aggregate. Tellingly, none are as controversial. The United States uses more power for air-conditioning than the UK does in total, yet there is no shortage of crypto critics waxing poetic from their comfortably cool offices.
Bitcoin’s electrical consumption is a feature and not a bug, the natural evolution of the long-running relationship between money and power. Those who have issued the former have often deployed the latter to preserve its purchasing power. Case in point, one of the primary purposes of the US military—a major energy consumer in its own right—is to protect the purchasing power of the dollar. It does this by protecting unsavory regimes that price their exports in dollars and by dropping the occasional bomb.
Bitcoin’s clever contribution is to make this previously implicit relationship explicit. People trust its coins because they require a lot of power to produce. Human beings don’t value things that are easy to make. That’s why a handmade automatic Switch watch costs one thousand times more than a machine-made quartz one, even though the latter is better at telling time.
The complexity and cost of mining provide Bitcoin with a stronger foundation to grow from. They also allow it to become the rare monetary system that doesn’t rely on coercion, and is strictly opt-in. . . . Anyone concerned about the Environmental, Social and Governance (ESG) impact of mining should consider the social and governance benefits of a monetary system that is universally accessible, fully meritocratic, and not predicated on the threat of violence.
Ummmm . . . I disagree. I’m no fan of air conditioning myself, so I guess I’m with Malekan on that one, but otherwise the above paragraphs make no sense to me at all. Suppose Bitcoin used twice as much energy as it already did? Then would it be even better?? Also, people value many things that are easy to make. People don’t pay much for such things, but that doesn’t mean they don’t value them. I have no idea what it means for Bitcoin to be “fully meritocratic,” and I don’t see how the monetary system that supports the value of the $20 bill in my wallet is “predicated on the threat of violence,” any more than any possession or way of life is predicated on the threat of violence in the sense that if someone tries to violently rob me, some threat of violence might be necessary to deter them.
Again, it’s ultimately a cost-benefit question. Bitcoin using massive amounts of power is a cost, its use in crime is a cost, but, sure, maybe it has benefits too. To deny the cost and act as it’s actually a positive thing—that just seems nuts.
It’s kind of stunning how far apart Malekan and I are on this one. To disagree on the benefits of Bitcoin is one thing. But if he’s saying “Bitcoin’s electrical consumption is a feature and not a bug” . . . is there any possibility of communication at all?
P.S. I sent the above to Malekan, who responded:
I appreciate your pushback on my arguments. That we end up agreeing is of little importance to me, it’s the debate that is valuable.
On the question of monetary coercion, here’s what I meant: US law requires you to pay your taxes in dollars. If you insisted on paying in any other currencies, be it Bitcoin or Canadian dollars, then you’d be committing a felony and can face jail time. Similarly, US law also considers the dollar legal tender, so lenders have to accept it from debtors. There are civil consequences to refusing to do so. Zooming out, maintaining dollar supremacy is a publicly disclosed goal of America’s geopolitical disposition, which includes going to war. We have deals with countries like Saudi Arabia to provide military protection in exchange for them pricing and selling their oil in dollars (with the added consequence that they buy Treasuries with the proceeds). Some people argue that America’s endless military misadventures in the MidEast are more about preserving the Petrodollar system than control of oil. America is now the world’s #1 oil producer, so we aren’t as dependent as we used to be. But the dollar losing its reserve status would have a profound impact across the economy.
I’ll leave it up to you to decide whether the above is coercion, but keep in mind America is not the rest of the world. Are there kooky people here who love Bitcoin because they think the dollar is on the verge of collapse? There are—and I spend much more time debating with crypto purists like them than I do skeptics like you—but that’s not the kind of investor that made the new Bitcoin ETFs one of the most successful Wall Street product launches in history. Surely a pension fund that buys Blackrock’s IBIT through Morgan Stanley is not doing so because it wants to invest in criminal activity or is anti-ESG.
I have this running joke that almost every major critique of Bitcoin (including yours) makes a lot of sense…on the upper west side. Many countries have capital controls that restrict how their citizens use and spend their own money. I don’t have the exact figures but China and India both do, and that’s over 1/3 of the global population. These controls are often used by governments to pick winners over losers, enabling connected (and often corrupt) elites and crushing the financial livelihoods of ordinary people. This is certainly the case in my native Iran, and was also true in Argentina until not that long ago.
This thesis is partially validated by data on per capita cryptocurrency adoption. It tends to be highest in countries with high inflation, corrupt governments, and unreliable banking (banking in every country is an extension of its monetary system). I’d posit that 99% of the (often poor and brown) people in the top countries in that list have a valid reason for embracing crypto. It’s just not obvious to us because we have the luxury of a monetary and legal system that works.
Lastly, many of the commenters in your blog seem to think my book is some screed against fiat currencies and in defense of Bitcoin. But as you’ll see if you read the rest, it also argues favorably for solutions like stablecoins, which only expand the reach of the US dollar.
Electoral consumption?
Typo fixed; thanks.
Tulip bulbs with a significantly negative impact on the environment.
Malekan’s book on bitcoin is par for the course for business school faculty books to get media attention and fame. “Oh, he’s a Columbia University business school professor! Oh!” Say something “controversial”, make shit up, and make massively inflated claim on little to no empirical basis (false analogies and other logically fallacious rhetorical devices are a feature and not a bug of this type of books). Make sure your publisher markets the book to mindless journalists who want to get in on the attention. Voila!
P.S there is no “natural evolution” of anything in human affairs.
I don’t agree with “predicated on the threat of violence”, but I think what it means is that all government actions are ultimately backed by force. I’m… not sure that actually applies in this case though; I’ve seen places that say “we don’t accept cash” and people don’t call the police on them.
People of a certain ideological bent frame government enforcement as violence and coercion. I think the modern usage started with Nozick. Most people outside of that framework find the terminology to be loaded and just kinda roll their eyes. It’s an example of what I’ve recently been calling “bubble language.”
Confused:
I’m fine with saying that all government actions are ultimately backed by force. Non-government actions are ultimately backed by force too. If I have something and someone else wants to take it from me, ain’t nuthin’ but force gonna stop him.
That’s why I don’t get it when Malekan when he describes Bitcoin as “the rare monetary system that doesn’t rely on coercion.” If someone knocks on my door with a gun to take my bitcoin away, the only way I can stop him is by my own coercion (a bigger gun, I guess) or the threat of coercion (the thief is afraid of getting caught and serving time, so he won’t try to rob me in the first place). Calling it bitcoin rather than dollars doesn’t stop any of this.
It would be more correct to say that normal currencies are backed by tax collection since you need to pay taxes in a specific currency. If I recall correctly that was also to boost the adoption in colonies, where the natives were not too keen to switch away from whatever form of currency they were previously using.
If you did all your business in pounds, you could use them to also pay your taxes. If you used some other currency for business, you probably did not have the pounds to pay your taxes and that’s where the violence (ignoring the other kinds of colonial violence) came in.
I’m not agreeing with his claim, but I do think I understand it. The argument is that fiat currency only has value due to government actions and the government is ultimately backed by force. The force implied isn’t to prevent theft, it’s to maintain the existence of a government.
But (even if this argument is accepted, which I do not*) this is not specific to Bitcoin – gold or silver would be the same.
*I think there are legitimate significant problems with fiat currency, but both a gold standard and crypto currency are worse.
Also, the US uses a lot of power for air conditioning largely because much of its population lives in very hot climates (including baffling places like Phoenix, I have no idea how that became a huge metro area). Though there’s a totally legitimate criticism that a lot of public buildings are kept too cool – like 68 or 70F – which not only wastes energy but intensifies the effect of the outdoors heat.
The UK has a mild marine west coast climate with limited temperature extremes, and much less than a quarter of the US’ population. It would make more sense to compare UK energy use to the West Coast states (CA+OR+WA) rather than the entire US; the population is much closer to comparable.
Aristotle pontificates on the origin of fossils
There is no technical reason governments and/or central banks couldn’t manage a currency that retains (or even rises in) value over time. But in practice we see the temptation to debase the currency is irresistible.
The waste due to constant inflation is so great, I doubt it could cancel out the adoption of any currency that incentivizes people to conserve and save.
I remember Peter Schiff (famous in financial circles for loving gold and hating bitcoin) complaining his son refused to buy furniture for his apartment because he would rather wait for bitcoin to go up. Imagine if the entire world population behaved that way. They would, if they anticipated their currency would gain value over time.
Yea, eventually you buy things to live/enjoy but it isn’t like you better spend your money now or else its going to lose half its buying power each decade.
Of course the same people who are so concerned about global warming, etc are typically proponents of debasing the common currency. And their solution is to debase it even faster to spend on boondoggles like politicians who claim they can control the climate!
> the same people who are so concerned about global warming, etc are typically proponents of debasing the common currency
Sorry who are you talking about?
Category A is about half the people elected to government in the US and Europe, along with those who vote for them. Category B is something like 90% of the same.
Anonymous –
Sorry who are you talking about?
Anoneuoid regularly makes up vague and entirely discretionary categories for people, as he sees fit and in line with his anecdotal reasoning, with zero evidence or science to back up his taxonomy. It detracts from his sometimes informative comments. I mean look at his follow up comment…
Category A is about half the people elected to government in the US…
He knows this number because…tea leaves? A crystal ball?
Not Anoneuoid, but I think “about half the people elected to government” just means the vast majority of the Democratic party. Pretty much everyone in government wants some inflation (though they’d prefer a low rate like 2%) and more government spending (just differing on what to spend it on, military vs social programs etc), but generally only the Ds are concerned about climate change.
(I don’t think “debasing the currency” is technically accurate for a fiat currency, but increasing the money supply is basically similar.)
lol
Another interesting thing about bitcoin opinions:
Many of the same people who think “literally hitler” could be elected shortly don’t see the value in something that could protect them from him shutting down their bank accounts and so on.
Its very strange.
I think few people, even those who most fear a second Trump term, expect that to be a plausible mode of attack by a Trump-led government. At least, I have never seen it suggested as a thing to worry about, out of a long list of things I have seen.
(I also think people’s fears fall basically into two categories: A, fears of discrimination/action against marginalized groups, and B, fear of bad foreign policy leading to a major war. If you believe A but are not personally in those groups, you may strongly oppose Trump for moral reasons but not personally fear action against yourself; and B it’s not clear that Bitcoin would do better.)
That is whats strange. Why wouldnt you fear a dictator-led tyrannical government confiscating the wealth of [marginalized group]? Its like the first thing they all do.
I think it’s just a Venn diagram thing.
To want to move to Bitcoin for that reason you’d logically have to:
– believe Trump has a significant chance of not only winning the presidency but actually controlling enough levers of power to be able to make radical change;
– believe Trump actually wants to do this;
– believe you personally are a plausible target for this kind of action,
– believe the risk of that happening is comparable or greater to Bitcoin losing most/all its value,
– believe that Bitcoin wouldn’t be banned in the US at the same time
I think few people are at the intersection of all five circles.
Bitcoins are an entropic nightmare. Using more power to create more bitcoins is almost pure creation of entropy and a waste of useful energy. Creation of bitcoins ignores the additional cost which will arise from handling the inevitable changes in climate, or changes in culture/society required to accommodate climate change. In my opinion, the creation of bitcoins has a value solely for protecting ‘monetary’ value exchanges for a relatively small number of actors who want these exchanges to be private and away from governmental view. The potential for investors to increase their wealth with bitcoins is a small gain compared to the overall cost to society.
It’s a technology that just decreases the earth’s albedo.
Interestingly, one thing that gives me pause about my above post (saying inflation is wasteful) is the idea the universe seems to *reward* maximum entropy production. Eg, turning high frequency EM radiation (or even nuclear energy) into low frequency (“waste heat”) as efficiently as possible:
https://www.sciencedirect.com/science/article/abs/pii/S0370157305004813
Like over time, the purpose of life is to make the earth, then solar system, then galaxy approximate a blackbody as close as possible. The ability of an alien race to do so would be considered “successful” right?
Anon:
Your idea here is consistent with the observation that, when seen from the outside, the history of humans in the past few hundred years would be well explained by the simple goal of maximizing the amount of energy usage (which, as has been pointed out, is really the amount of entropy creatin).
It is definitely an interesting idea that would apply to life far before humans. From a more theoretical biology perspective:
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC11277707/
Interesting points (to me):
1) The primary molecules associated with life are UV pigments, a fact used in biology labs all the time.
2) Once life oxygenated the atmosphere, that lead to the ozone layer which now absorbs nearly all the (higher energy) UV-C and -B radiation from the sun.
3) Photosynthesis is actually very inefficient (~1%).
The “threat of violence” thing gives it away: the guy is a libertarian, sees government as organized violence (Weber’s definition is importantly different), and thinks bitcoin is a way to remove money from the state’s evil clutches. Along the way, he seems to engage in the rather sophomoric view that if you add up the financial wealth of each individual the result is society’s wealth, as if money were more than just a claim on fungible goods and services. Adam Smith, for one, had a different idea.
The reason why crypto mining’s environmental impact is so horrible is that it provides no social benefit aside from the ideological satisfaction it gives to the libertarian crowd. As a thought experiment, imagine that there was a religion that felt that objects with a certain sacred symbol embossed using an extremely rare mineral powder had greater value. So the US treasury began issuing a special set of bonds for them — how would we evaluate the environmental impact of mining for that mineral? And would it matter if demand from adherents of that religion bid up the value of these bonds over a period of 10–20 years?
I largely agree with you about Bitcoin, but I’m not on board with your thought experiment. De Gustibus Non Est Disputandem, right? Value is value. Now if you told me that these religious adherents would have a change of heart and regret their fealty to the rare mineral then we’re back to Andrew’s art example (which I like a lot.) But their money is their money to spend as they wish, is it not? I’m not sure I see any ebvironmental externlity here, either. (Of course, government might want to place taxes on the mining activity to capture any external costs which do occur.)
Actually, money-value is not social wealth-value. The embossed bonds are not themselves usable, any more than unembossed ones are. A society isn’t richer just because the value of its outstanding debt, even if it accrues only to its own nationals, goes up. Arguably, paintings *are* valuable to the extent we admire them. Is a better wine more valuable than rock gut? Or a concert by a better musical group more valuable than one by amateurs? What’s the problem with assigning value to a better painting? Of course, if the canvas is completely white, what we have is pure suggestion rather than aesthetics.
Here’s another thought experiment. Someone develops a counterfeiting machine so refined it can produce dollars that can’t be distinguished — by anyone — from the legit ones. (a) The machine can make its owner fabulously rich, but does it add value to the society? (b) Suppose the machine uses an enormous quantity of energy in its operation; can we say this environmental cost is “worth it”?
Much better. (Although I believe it’s “rotgut.”)
Peter:
My impression is that economists will be very happy to say that wine connoisseurs are status-obsessed snobs who can’t tell the difference between an expensive vintage and a supermarket mix if you hide the labels on the bottles, while people who spend their leisure money at Disneyland, Vegas, or monster truck rallies are just fine and it would be paternalistic to question their judgment. It’s a kind of reverse snobbery.
In the above post, I carefully set up my art example so that the purported value of the art would not be in the blank canvases or in the “conceptual art” of getting people to buy a blank canvas, but rather in the promise that beautiful paintings would eventually appear on those canvases in time.
Oops! Yes, it’s rotgut. The rock gut stuff has too much minerality for its fruit.
The inherent value of Bitcoin is admittedly unclear. A better argument can be made for the inherent value of Ether as Ether is required to power decentralized computations on Ethereum. If these computations have inherent value then Ether has value just as gasoline has inherent value only so long as it is necessary to power machinery.
Our host attributes the disagreement to miscommunication. That may be true. But I am not sure. I think Malekan’s language is not particularly unclear. The things Mr Malekan claims, as I understand them, are:
(i) It is relatively easy to measure the environmental footprint of bitcoin.
(ii) Bitcoin has a significant environmental footprint.
(iii) A large environmental footprint does not imply that bitcoin reduces human welfare.
(iv) All actions taken by the government to protect the purchasing power of its currency should be taken into account, including physical actions: It is not only about printing the money, but also about the consequences that arise from governments being the currencies issuers.
(v) Mankind does not value what is easy to make. [This is not exactly what Malkan wrote, his statement leaves more linguistic ambiguity. His example implies that he sees a causal relationship between the effort invested in production and human valuation. The strong interpretation I gave above has been refuted by our host with counter-examples; the weak form, ‘human valuation and difficulty of production are positively correlated’, is a correlation and does not imply human valuation per se. It still supports Malekan’s case, but only until evidence of bitcoin’s actual intrinsic value (or lack thereof) is presented.]
(vi) Bitcoin is strictly opt-in.
(vii) Bitcoin is universally accessible. [IMO, the statement is too broad to prove or disprove without further context].
(viii) Bitcoin is completely meritocratic. [Same comment as (vii)]
(ix) Bitcoin is not based on the threat of violence. [(ix) is a (possibly hyperbolic) extension of (iv).]
Hypotheses (i) to (iii) are not controversial. At first glance, (iv) is not overly controversial either, although it is clear that including the entire world’s political/economic system in an analysis is a futile exercise. Putting that aside for a moment, I would argue that if the dollar is not valued in a vacuum, then bitcoin should not be valued in a vacuum either. The industry that produces the computers and energy to create Bitcoin is heavily dependent on the relatively stable political and economic system we have around the world. What I mean is: no dollar, no bitcoin. If the dollar (or eurodollar or any other combination of currencies) is blamed for systemic problems, I see no way around arguing that bitcoin is also implicated (though perhaps less so).
I actually agree with hypothesis (iv). Simply saying that bitcoin is bad because it has a large environmental impact is not enough. I suggest that a full analysis should be in the style of a Shapley coalition analysis, i.e. considering the four scenarios (1) what the world would be like without bitcoin, (2) what the world would be like without bitcoin or money, (3) what the world would be like with only bitcoin and no money, (4) what the world is like with both bitcoin and money. This is the framework in which I suggest the discussion should take place, if anyone really wants to have the discussion.
I think (iii) actually is controversial to some people.
Andrew: there is no such thing as “Inherrent value” in anything. If it was discovered tomorrow that VanGough profited from the American slave trade the value of his paintings would plummet to zero. Arguably a half pound of native copper has more “inherrent value” than a VanGough, since at least it can be formed into a point that can help someone obtain a meal, while a VanGough held beyond its social panache will become worthless. Your idea of “inherrent value” is just that: your idea, it has no basis in reality or fact, it’s just your own personal claim.
Chipmunk:
I think that some things do have inherent value, at least in the context of a particular society. For example, you can pour gasoline into your car, and lots of people have cars and need gas, so it seems reasonable to say that (a) a liter of gasoline has inherent value, and (b) two liters of gasoline have twice the inherent value as one liter.
But even moving away from this sort of directly functional example, I think that all sorts of things have inherent value in context, without relation to my own personal preferences. For example, suppose you buy a six-pack of Coca-Cola with the intention of drinking it. This Coke has some inherent value to you; otherwise you wouldn’t have bought it. You’re looking forward to the enjoyment and sustenance that these cans of pop will bring to you. Then the next day you open a can and it’s flat! And it turns out that you don’t like to drink flat soda. This can has no value to you. If all six cans are flat, then the entire six-pack has no value to you. This is a notion of value that has a basis in reality.
In the context of asset valuation, there is also a standard definition of intrinsic value which is separate from speculative value. Stock in companies is expected to yield cash flows through dividends; the value of a stock is hence pegged to the sum of expected discounted cash flows out through infinity. Real estate, similarly, is pegged to the discounted future rents. Both ultimately involve people being willing to paying for something due to a use value. Bitcoin is pegged to nothing.
In a recent letter to The Economist, Robert F. Kennedy Jr. argues that Bitcoin’s energy consumption is not a problem. In fact, it benefits renewables. He says that mining farms only run if energy is cheap and thus, in renewables-intensive grids, it stabilizes demand. So if demand is high farms are turned off and do not contribute to further price rises. If demand is low, farms run and buy cheap energy. This benefits producers of renewables, since they know they can sell their energy.
The letter is paywalled unfortunately, not sure if it is legal for me to copy-paste it in here.
https://www.economist.com/letters/2024/09/19/letters-to-the-editor
Setting aside some of the deeper concerns with RFK Jr’s* argument, there are some fundamental problems with its reasoning that have to be addressed. Let’s assume we have a Bitcoin mining facility that only “produces” when the price of electricity is below some threshold $x/MWh. (In reality, this threshold would be determined by the marginal energy intensity of mining Bitcoin and Bitcoin’s market price, so worth keeping in mind that, as the price of Bitcoin rises, the price miners are willing to pay for electricity also goes up, which can directly crowd out certain other uses for electricity.) Furthermore, let’s assume that the facility is responsive to energy prices with “real time” granularity (i.e., the miner responds to every 5-minute wholesale energy price).
On the surface, RFK’s point is generally correct–that increasing price-sensitive demand for electricity at low prices would tend to push up those prices, which would tend to increase compensation for renewable generators. (Of course, we’re assuming that the renewables are themselves being paid wholesale energy market prices, and haven’t themselves entered into a Power Purchase Agreement, or other long-term contract which pays a pre-determined price per MWh generated.) However, this price increase isn’t neutral. Higher prices during the middle of the day mean utilities also face higher total charges, which are paid for through consumer bills. The increased load from the miner facility still tends to increase predicted future maximum system load, which tends to mean more money is spent purchasing generation capacity in capacity markets.
Then we need to think about what the opportunity cost is for higher prices in the middle of the day. One of the keys to large-scale decarbonization is energy storage. In the relatively short term, energy storage’s main revenue source will be arbitrage profits–effectively, batteries earn the difference between high prices in the evening and low prices in the middle of the day (charge in the middle of the day, discharge in the evening). If a bitcoin mining facility has already increased “middle of the day prices,” then there are fewer arbitrage profits for storage resources to chase, slowing down their development in the system. By reducing the profitability of storage, we’re harming one of the key pillars of the energy transition.
*(Based off huan’s post; I don’t have access to the Economist on this computer.)
Thanks for your explanation, very interesting. Can you further explain what you say here?:
“The increased load from the miner facility still tends to increase predicted future maximum system load, which tends to mean more money is spent purchasing generation capacity in capacity markets.”
I don’t understand unfortunately. I equate “future maximum system load” with “peak demand” and since miners only mine when prices are low, I don’t understand how they could be contributing to peak demand.
Regarding the lower arbitrage profits. Your argument makes a lot of sense to me. I think, however, that higher prices when demand is low may offset the lower arbitrage profits: Due to bitcoin mining, renewable energy producers can sell their energy more profitably when demand is low. So when their batteries are full they will sell. If this happens during low demand, they now make more money due to bitcoin. Also, they may not be able to sell all there energy during peak demand, which also lowers arbitrage profits but is less of a problem with much bitcoin mining going on. I don’t know how realistic both scenarios (batteries full during low demand, not able to sell all stored energy during peak demand) are, maybe you have an idea?
@huan Cheap energy does attract miners, but the places which currently have cheap energy are ones which are heavily reliant on fossil fuels and which politically favor minimal regulation.
Places like the state of Texas, where storms now regularly knock out the poorly maintained power grid:
– Wikipedia: 2021 Texas power crisis
– Hundreds of thousands of Texans are still without power after storms unleash hurricane-force winds
– Beryl leaves millions of Texans without power as dangerous heat descends on the region
Texas does have a large and growing fraction of its electricity generation coming from renewable sources, but state politicians are now turning against it, and even blaming wind and solar for the disruptions to their grid.
Meanwhile, the state regulator is paying bitcoin miners to stop using the grid during periods of high demand — at times much more money than the miners earn from mining:
Texas paid bitcoin miner more than $31 million to cut energy usage during heat wave .
Is it rude to remind people here that Omid Malekan was lavishly praising a crypto scam company right up to immediately before it imploded?
Or to mention that today’s news
(https://arstechnica.com/tech-policy/2024/09/caroline-ellison-to-2-years-for-covering-up-sam-bankman-frieds-ftx-fraud/)
has a subtitle that implies that she managed to hold on to 11 billion dollars of fraudulently acquired customer money? (Doesn’t that make her one of the most successful fraudsters in modern economic history??? And she only got 2 years in prison for it. Outragous in the extreme.)
As before, to the best I can tell, crypto’s only “use” is in criminal activity.
David:
No, that’s not rude.
This is related to the above. Isn’t there a widespread fear people involved in stuff like abortions and gay nightclubs will be made criminals? In some counties a woman working is a criminal.