How to Guide: Debunking ESG
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“The utility of the exchanges made possible by Bitcoin will far exceed the cost of electricity used. Not having Bitcoin would be the net waste.” –Satoshi Nakamoto
No Free Lunch
Those who decry Bitcoin’s use of energy fail to acknowledge a simple reality: that all things in life require energy, and there is no such thing as free lunch.
Much mainstream debate has been waged on “concerns” around Bitcoin’s use of energy, yet a significant proportion of that conversation has been muddied by deep-seated myopia on the part of legacy financial interests–a type of willful blindness toward recognizing the necessity of decentralized energy money in comparison to compromised fiat financial system of today.
The fact is, any economic engine is only as good as the energy which sustains it. For a network to maintain its structure and persist despite the entropy of the universe, energy must flow, and monetary networks are no exception. Ever since government-issued fiat currency severed the link between energy and monetary creation, the currencies of the world have been steadily marching to their graves.
The Importance of Decentralization
The fiat system is a prime example of centralized stakeholder capitalism run amok, whereby those with the greatest network equity have captured the governance of the monetary protocol, unilaterally manipulating the rules of the game to suit their self-interests. Easy money zombie companies abound, feeding on the capital redistributed to them from society via inflationary monetary policy.
The modern financial system has been co-opted by the most well-capitalized network participants at the cost of all others, namely those lacking asset ownership and access to cheap debt. The centralized control of fiat presents both a single point of failure as well as a single point of control for those with the stake, granting them nearly unimpeachable access and the ability to benefit from printing money.
For any monetary protocol to avoid this fate, it must be sufficiently decentralized and resilient to coercion.
Gold: Nature’s Proof of Work
Throughout much of human history, gold served as such a sufficiently decentralized monetary protocol, where the underlying rules of the gold standard were impossible to manipulate due to the fact that no individual could create physical gold without expending the necessary energy required to generate new supply. Thus, gold had verifiable scarcity and did not carry any counterparty risk due to the very laws of physics that govern the natural world.
These two aspects were highly desirable for money, and were only possible in that nature does not permit gold to simply be printed out of thin air, nor can it be in two places at once, preventing the occurrence of forgery and double-spending within the network. In this way, nature served as an incorruptible arbiter of the gold standard, ensuring “unforgeable costliness” in the production of new money. Network participants necessarily had to shoulder unavoidable costs to obtain gold, thus ensuring an apolitical money backed by nature.
Although gold’s connection to thermodynamic reality granted it scarcity, from a technological perspective it failed to keep pace with the needs of a rapidly scaling, international global economy. Prohibitive weight, inadequate divisibility, cost-ineffective verifiability, and the risk inherent to transporting physical gold around the world to settle payments all contributed to its shortcoming. To solve these scaling problems (namely related to transaction costs) governments created gold-convertible paper notes to facilitate capital flows, thus making (claims on) gold more salable across space.
However, because economic actors placed their gold with centralized custodial banks to increase its salability, the economy necessarily evolved to operate on a system of credit issued against that gold, whereby depositors accepted counterparty risk for the benefit of using paper currency. This effectively increased gold’s frequency of final settlement at the cost of incorporating trusted third-party intermediaries into the architecture of the monetary system.
This system of paper credit was ultimately backed by the balance sheets of central banks that issued these gold-convertible certificates. This meant that the ability of depositors to convert their certificates into the underlying commodity (gold) was reliant upon the favor of central banks, reflecting the permissioned and inherently political nature of the fiat system.
Promises from central banks, it turns out, are worth their weight in gold.
Because of gold’s physical manifestation, it required centralizing solutions that were vulnerable to regulatory capture. In a way, the fact gold exists in physical reality at all led to it being gamed by those with superior physically coercive capacities. During World War One, the conflicting nations were able to suspend gold’s convertibility, funding warfare through the ability to print fiat currency. As well, governments were able to outright ban private ownership of gold while unilaterally imposing capital controls in order to fund warfare, among other government programs.
At the conclusion of the gold standard and the Bretton Woods system, the United States had issued dollar liabilities far in excess of its gold reserves on deposit. In 1971, when too many creditors came calling (namely France and the United Kingdom), US President Nixon officially closed the gold window by disallowing gold’s convertibility, bringing the world onto a fiat standard.
Why Fiat Fails
The necessary, and seemingly foregone outcome of government-monopolized money has delivered some particularly nasty unintended consequences. Those able to issue new currency gained the ability to paper over their bad debts, enriching themselves by socializing their losses at the expense of the broader economy.
Traditionally, this regulatory capture benefited governments and entities benefiting from government-granted monopolies, allowing them to accumulate greater and greater stake in the US dollar network. As well, the United States, as the issuer of the world reserve currency, maintains the ability to impose seigniorage whereas the rest of the world operating on the US dollar standard does not have this so-called exorbitant privilege.
Government-monopolized money has consistently generated unsustainable government debt as those with access to the printing press maintain the ability to inflate their obligations away. To debase is in fact an obligation of a state in competition for power with other states, and would otherwise render losers those unable to debase their currency during times of emergency or war.
As the process of ever-increasing government debt and compounding interest accumulation reduces growth, even more debasement is required to further kick the can down the road. All the while, unsound debts are increasingly papered over and forgiven. As a higher and higher proportion of unproductive capital circulates within the financial system, productivity falls and requires even more credit expansion for the system to function in a pernicious inflationary spiral.
Fiat currency, which emerged as an expedient yet centralized way to solve gold’s technological shortcomings, metastasized into an unsustainable systematic destruction of capital, its lifetime limited by the degree to which the state can coerce its citizens to participate in an inherently one-sided economic game.
Energy is the Key to Decentralization
Bitcoin’s proof-of-work is the only way to achieve immutable decentralized consensus for digital money, a domain characterized by adversarial game theoretic conditions; the famous Byzantine General’s Problem that Satoshi set out to solve.
Proof-of-work incontrovertibly requires energy to be expended to mine new coins, and energy carries a necessary, real-world physical cost. This imposition of “unforgeable costliness” (cred. Nick Szabo) bonds digital money creation to energy expenditure, introducing the first law of thermodynamics into the architecture of a digital monetary system.
Energy expenditure serves as the necessary check and balance in the process of decentralized monetary consensus and cannot be replaced. Energy’s inability to be forged by any known means minimizes the trust that individuals must place in one another, allowing immutable code to serve as law in the adversarial game that is money.
Porting unforgeable energy into the digital realm enabled the creation of the first absolutely scarce monetary good, granting humanity the capacity to provably value its collective future free from the monetary debasement implicit of captured, self-destructing, debt-based fiat currencies. Bitcoin’s use of energy now supports anyone, anywhere, to store value free from the yolk of central banking time theft, powering a monetary system no longer predicated upon harvesting future productive capital to sustain itself.
The beauty of Bitcoin’s proof-of-work is that the “opinions” of those who would wish to harm it bear no impact on the network’s truthful and uncensorable depiction of the ledger. The Bitcoin network’s energy-enabled decentralization guarantees it will continue to thrive, and we will all be better for it.
The World Economic Forum
“Bitcoin alone could help push global warming above two degrees Celsius”
This claim is perhaps the most egregious and often-cited misleading piece of FUD bandied about by the media. The World Economic Forum (WEF) is infamous for its disdain for bitcoin, and perhaps this makes sense given its close ties to central bankers and the cantillionaires who benefit from the control of the monetary system. Politics aside, the WEF and its acolytes would be well-served to take a closer look at the “science” they purport as truth when, as even a cursory glance at their cited material, Nature Climate Change, suggests their claim has no basis in reality.
The WEF continues to cite a barely two-page comment published in the aforementioned journal by Mora et al. (2018). This comment has since been debunked three separate times in the very journal in which it was published, a much better reflection of “the science” at hand. These readily-visible responses appear directly above the material cited by WEF, yet coincidentally find no mention by those with “concerns” about Bitcoin’s energy use. A curious case of selective blindness, perhaps?
The Mora comment, as well as being completely unrepresentative of reality, was written by a group of undergraduate students as an exercise to understand the academic publishing process. This level of academic inquiry should have no place in the public discourse and suggests that those with an ax to grind against…
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