Crypto enthusiasts want to know: what is the carbon footprint of the U.S. military?
This is a guest article by Omid Malekan, an assistant professor at Columbia Business School, claiming that the energy argument against bitcoin is based on an entirely subjective interpretation of what constitutes valid energy use.
First, the obvious: Bitcoin mining uses a lot of electricity, so it’s bad for the environment. Anyone who claims otherwise is an ideologue or a fool. Claiming that mining drives investment in renewable energy, while true, is misleading, because all energy use does. There are nuances to this debate, but none change the fact that Bitcoin has a large carbon footprint.
But the same goes for a lot of things, especially when measured globally. Tellingly, none are so controversial. What is the carbon footprint of air conditioning? United States uses more power for it than the UK altogether, but crypto critics have no shortage of poetry about the boiling oceans from their comfortably cool desks. Each type of human activity has an impact on the environment. Deciding which ones are worthwhile requires an objective cost-benefit analysis and comparison with similar activities. Bitcoin mining is rather unique, but for the sake of argument let’s compare it to the U.S. military.
Like Bitcoin, the US military uses more energy than whole countries. Also like Bitcoin, a big reason is to secure the purchasing power of a currency, in this case the dollar. But unlike Bitcoin, the military does it in a roundabout way, protecting unsavory regimes and dropping the occasional bombshell. It is no coincidence that the petrodollar arrangement that turned the Middle East into America’s backyard was born just after the fall of Bretton Woods. Dollars that were no longer protected by bullion were to be backed up by energy security, thus empowering the oil-producing states that have now become de facto coiners of the world’s reserve currency.
The relationship between money and power i
is almost as old as silver itself, those who issue the former use the latter to secure adoption. Even the most peaceful nations require their citizens to pay taxes in local currency. Bitcoin’s smart contribution is to make this previously implicit relationship explicit. People trust his parts because they require a lot of energy to produce.
The ESG argument for crypto begins with the recognition that mining energy consumption is a feature, a crucial part of a new security mechanism that achieves something remarkable: an independent global monetary system. from any company or government, and strictly opt-in. . There are no legal tender laws or naval fleets that force people to trust Bitcoin. And yet, hundreds of millions are doing it, perhaps for this very reason. This confidence would not exist if the network management was not difficult and if the creation of new parts was not expensive. Human beings do not like things that are not difficult to do. This is why a hand-assembled automatic Swiss watch costs a thousand times more than a machine-made quartz watch, although the latter is better at telling time.
The environmental cost of mining is further offset by the resulting social benefits, the money that is opt-in has its benefits. Crypto has no coercion. It uses transparency, math, and economic incentives to build trust where it wouldn’t otherwise. Crypto is meritocratic. Anyone can do anything, from mining to using it, to backing up. Like Lady Justice herself, crypto is blind. He doesn’t care (or even know) about anyone’s nationality, race, age, gender, or immigration status. It is the first electronic payment system accessible to everyone, from undocumented workers in Western countries to women in Islamist countries.
These features are needed more than ever, due to the tragic failures of the traditional monetary system. Not in terms of debasement and inflation – although that may come later – but in terms of access. Over 1.5 billion unbanked people around the world, mostly poor, undocumented, minority and innocent. This last adjective is important, because the exclusive nature of our current financial system is no accident. It is a direct consequence of a system built on a presumption of guilt.
As proof, consider the simple fact that opening a bank account is more intrusive than undergoing open heart surgery. Most industries operate on a presumption of innocence. They take anyone as a customer and then kick the bad actors out. Banking, as dictated by government regulation, operates on the reverse principle. Everyone is a potential terrorist or a money launderer until they prove otherwise.
This presumption of guilt is a minor nuisance for the rich, but an existential threat for the poor. This is one of the reasons poor neighborhoods offer more pseudo-financial services like check registers than bank branches, even in rich countries. Laws and regulations make it too difficult or too costly for banks to serve these communities. Money issued by a government must follow its rules, no matter how authoritarian or unfair.
Thanks to its decentralization and opt-in, crypto operates on a presumption of innocence. In theory, anyone can open a wallet, acquire money, and make payments, until they do something wrong. (Although conventional regulation has hampered this principle as it has come to dominate crypto). Nonetheless, as unusual as this approach may sound, it turns out that money has worked forever. Paper money does not discriminate the way financial providers do.
Skeptics argue that a financial system as open to undocumented Salvadorans as it is to affluent Americans is doomed to be supported by criminal activity. Aside from the racism and classism inherent in this argument, it fails a basic smell test. Despite its tendencies to exclusion, the existing system still allows a shocking quantity of illicit activities. Global banks have paid more in fines last year the bad guys moved in bitcoins. Ransomware attacks like Colonial Pipeline could get all the attention, but credit card and wire fraud is costing businesses a a thousand times Following. And that’s without mentioning Wirecard, the German Fintech which has been notoriously exposed by the FT as a multibillion dollar fraud.
Power corrupts, and the ability to issue a currency and then control its movement is the ultimate power. In other words, the SWIFT message is more powerful than the sword. The United States did not invade Iran or Venezuela, but crippled both countries with sanctions. Anyone concerned about the ESG impact of crypto should consider the social impact of policies that punish ordinary people for government crimes of which they are the greatest victims.
Crypto is by no means the panacea some claim, but it offers control over the growing madness of money. Populist politicians, overzealous regulators and trigger-happy central bankers – all of whom protect the increasingly problematic status quo – will now have to grapple with the presence of an egalitarian alternative. It’s not that everyone will eventually switch to crypto as their preferred type of money. It is that the mere threat of doing so will keep the stewards of the traditional system honest. Whatever the environmental cost of this option, it is largely offset by the social and governance benefits.