There has been lots of hype recently about digital currency, the most famous being the decentralised Bitcoin. According to Google, Bitcoin is a type of digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. But let’s not forget what it is at heart – it’s just money. And with money comes problems.
The Power of Bitcoin
By power, I mean electrical power. Bitcoin uses a massive ledger called the ‘blockchain’ to keep track of every bitcoin transaction ever made. Without getting into too much detail, a lot of mathematics is involved, as well as a lot of guessing. (You can read all the details for yourself with Dr Karl Kruszelnicki’s, The security of bitcoins:
http://www.abc.net.au/radionational/programs/greatmomentsinscience/features/the-security-of-bitcoins/7554758). This guessing requires a lot of computing power. It is said that the Bitcoin network uses at least several hundred times more power than the top 500 supercomputers combined.
Dr Karl states that the bitcoin network uses as much electricity as it takes to run two Large Hadron Colliders at full power.
So what is the point of using all this power? Are we creating something worthwhile?
The Value of a Fiction
Let’s face it, Bitcoin is an artificially created fiction. Nothing is being produced except for a large 100GB blockchain database which gets bigger by the day. It’s hard to justify the amount of electrical power that is being used to produce and maintain the network. One must wonder what would happen if all this power was instead used to power some public transportation, hospitals, or schools. At least people can actually benefit from a hospital.
So why are all these people investing in high-end computer systems to participate in ‘mining’ (i.e. the process of adding transaction records to the blockchain)? Of course the answer is money! By mining, users are rewarded with new bitcoins. This is only economically feasible if their power expenditure is less than the value of the bitcoins being mined. Miners in China were recently busted for stealing electricity to power their high-end computer systems.
Bitcoins maintain their value by being inherently scarce. If people were allowed to produce as many as they like, hyperinflation would ensue. Part of their programming is that there can only ever be 21 million bitcoin, creating a scarcity. And of course, we all know about the capitalist scam of artificial scarcity.
Show Me the Money
Many people buy bitcoins simply as an investment. Because of its very nature and human greed, the Bitcoin market is a speculative one. (Just look at its historical value.) It has had huge volatility and is far from a
...
https://www.youtube.com/watch?v=g_nIilxN7vI