Environmental benefits outweigh the energy cost
How Bitcoin is Going to Save the Earth
Yes, mining consumes electricity. However, what we get in return is not just a blockchain and a cryptocurrency, but an entirely new economic system that — among other benefits — is also better for the environment.
A lot of bits and ink have been poured into both proclaiming the death of Bitcoin and cursing how Bitcoin’s electricity consumption will be our doom. The unjustified extrapolations on energy demand and other misconceptions have been extensively debunked elsewhere, but almost everyone seems to forget or ignore how widespread adoption of Bitcoin is going to make the world a better place.
I have previously written on the topic of trustlessness and its benefits, but one of the commonly overlooked qualities of Bitcoin is its massive potential to reduce waste of all kinds. In reality, Bitcoin will be a boon for the environment, not its bane.
A little price theory for starters
Let’s begin with the combined prices of all products and services. We can call this the aggregate price level (P). It is simply the product of aggregate demand (D) and the supply of money (M). If either one increases, the prices go up, and vice versa, all other things being equal or ceteris paribus.
Monetary regimes with inflationary targeting, necessarily always fiat, operate on the premise of keeping the inflation — or the increase of prices (positive ΔP) — at a certain level, such as the two percent of the European Central Bank (ECB) and the Federal Reserve. Other types of fiat currencies also always end up with price inflation in the same fashion, albeit from slightly different motives.
Nevertheless, under an equilibrium state the aggregate demand will tend to match the aggregate supply of products and services (S). The aggregate supply itself is the product of number of working people (N) and their productivity (A), which are clearly not under the control of a monetary authority, and neither are the needs and wants on the other side of the equation.
Therefore it is clear that the remaining means and their required intensity in order to achieve a desired level of price inflation are the changes in the supply of money (ΔM), which are directly controlled by monetary authorities such as the ECB or the Fed.
When prices increase in response to the increase in the supply of money without a corresponding increase in aggregate demand, this necessarily drives down the value of the money. Each unit of money slowly (or sometimes worryingly rapidly) becomes worth less than it was before as there are more units being distributed across the existing amount of aggregate demand.
While there is a major moral issue here, namely the redistribution of wealth from the poor to the rich caused by monetary inflation, this time we are worried more about its environmental impacts.
Inflation causes consumerism and induces waste
Have your ever heard an environmentalist say that we need to reduce waste and curb throw-away consumption? Likely yes, and rightly so. As a society, waste is what drags us behind and hinders our true progress.
When inflationary policies make the prices go up and drive the value of the money down, it creates incentives for the people to spend their depreciating euros or dollars sooner rather than later, and even pile up a debt doing so. In extreme cases, such as the bolivars’, people are driven to spend their salaries within the hour of receiving them, or expect a heavy financial loss for just getting to the store too slowly.
Conversely, price inflation disincentivizes savings, which directly translates into waste. We just keep on buying stuff that we don’t need or use only once, or don’t even hesitate filling up the fridge even if some of the previously bought food will then just spoil, rot and get thrown away. These things are precisely what the environmentalists want us to stop doing, and I agree that these perverted incentives of our current monetary system cause a lot of shameful waste.
Bitcoin to the rescue
However, if we set the supply of money in stone or rather in the protocol as in the limit of maximum twenty-one million bitcoins to be ever produced, we will have a completely different picture.
As the aggregate supply of products and services increases via the population growth (ΔN), the technological advances in productivity (ΔA) or as a combination of both, this will cause a transient decrease in prices or price deflation until the aggregate demand catches up with the aggregate supply.
The decrease in prices creates incentives towards postponing or even completely abandoning some of the planned spending, apart from the daily needs and justified wants. Especially it is a strong incentive against running a debt, as saving becomes more profitable.
And while the competition in the market already pushes companies to cut operational slack and waste, price deflation acts to strengthen any and all such incentives.
Thus, under a deflationary monetary regime such as the Bitcoin economy would be, we will tend to buy things only when we need them and avoid buying stuff that breaks down easily or isn’t recyclable, not to mention the utter disregard for any single use items, unless for hygiene or other actually valid reasons. Additionally, it guides us to reduce waste in all of our endeavors, be it big or small.
In other words, adoption of Bitcoin as the main currency would realize us some of the key targets of the environmental movement, for the benefit of both the environment and mankind, and by the way of the carrot instead of the stick.
I for one think that’s a goal well worth of some good electricity spent towards achieving it. As an added benefit with Bitcoin there are no more hyperinflations, paper money litter or central banking system. Those alone are enough to offset the energy bill.