When I first learned how Bitcoin worked, I thought it was a marvelous technology. Today, I am growing increasingly pessimistic about Bitcoin. The environmental costs of Bitcoin mining are very high when we consider the resources to fabricate millions of specialized chips and circuit boards and energy to run them. Moreover, Bitcoin can’t adjust its money supply, so it is highly prone to inflation. Although the number of Bitcoin transactions has stayed the same over the last year, the price of Bitcoin has skyrocketed, which makes it an unacceptable currency in my opinion.
Like many new technologies, it takes a while to find all the potential problems and design a blockchain technology that is capable of serving as a stable, widely-accepted cryptocurrency. Unfortunately, Bitcoin is stuck in the first iteration of the technology and it can’t evolve. I have no doubt that it will continue being used, but better cryptocurrencies are being designed and one of them will eventually take Bitcoin’s place as the premier cryptocurrency.
I go back and forth as to whether cryptocurrencies are good or bad for society. On the one hand, they will massively reduce the transaction cost of money, which will lead to a lower cost of trade and money transfers. I love the idea of being to easily transfer my savings between banks in Bolivia and the US, but I hate the idea that cryptocurrencies will promote even more free trade which tends to concentrate wealth into fewer hands and makes humanity incredibly vulnerable to disruptions in the global supply chain. Cryptocurrencies will make it even cheaper to buy grains from the other side of the globe, but that makes it less profitable for local farmers to grow grain and when one part of the world has a drought, it can double the price of bread on the other side of the globe. In 2010 when Russia had a drought and stopped exporting wheat and the US and EU implemented new mandates on biofuels, the price of bread in Bolivia rose from 20 to 50 cents and many people experienced hunger.
Cryptocurrency also reduces the ability of national governments to control the use of money by their citizens and oppress organizations that governments don’t like. When the US State Dept. claimed that Wikileaks’ activities were illegal and convinced Bank of America, VISA, MasterCard, PayPal, Western Union and Amazon to block donations, Wikileaks simply switched to Bitcoin, which made me cheer, but I stopped cheering as loudly when I read how Bitcoin is used by ISIS. I cheer at the idea that Argentinians will be able to avoid losing all their savings by using a cryptocurrency to transfer their funds abroad when their currency collapses as it did in 1999, but cryptocurrency also will make financial markets even more volatile as money can rapidly flee any national economy. Governments will loose the ability to control their monetary policy and they can be blackmailed by international investors who will threaten to pull out their money if certain national policies like tariffs, labor rights and environmental regulation are implemented. Cryptocurrencies can contribute to the liberation of people fighting oppression, but they can also contribute to the undermining of democracy since elected governments will have less ability to implement their own economic policies, so there is less room for citizens to vote for changes in those policies.
Blockchain technology will be a vital tool for transferring wind and solar energy in regional energy markets and making a smart grid to get to 100% renewable energy, but it will also contribute to a massive reduction in human labor to verify transactions, which could throw millions of people out of work. At a time when AI and robotization already threaten to make 50% of employment obsolete, it is hard to cheer yet another technology that threatens to bring more unemployment and more concentration of wealth.
I love the idea of an anarcho-currency that can’t be controlled by governments, but the more I examine many of the problems that cryptocurrencies might bring, the more I see the need for regulation of cryptocurrencies and social democratic policies to redistribute wealth to avoid some of the worst outcomes.