Bitcoin’s energy debate (and the Nature of Money)

Joe Weisenthal‘s morning notes are always worth a read. This morning he touched on a topic that I’ve been thinking on for a few days – the arguments around Bitcoin’s electricity usage.

The electricity consumed by the Bitcoin network is a bit more than Pakistan’s – a country of >200m people. Is this worth it? I went down this rabbit hole after tweeting this out a few weeks back:

You can browse the replies at your leisure but you can see that there was not a lot of love from the Crypto Bros. I tend to use Twitter as a learning resource, and in between the abuse I got some nice links to counter-arguments. They took me back to my old favourite subject: the nature of money.

Money is the medium that makes otherwise incongruent things comparable from a market perspective.

We all attach our own and different subjective values to different marketable things, but a marketable thing’s monetary value represents the crystalized triangulation of all of our subjective values (weighted by our individual monetary means). Simmel wrote a lot about this, basically outlining money’s role as reifying societal value.

So while the subjective value/ utility that I ascribe personally to a Bitcoin might be lower than that to which I ascribe a glass of clean drinking water, the money-weighted triangulation of subjective values/ utility ascribed to a Bitcoin is much much higher at around $46k.

Mark Carney outlined in his recent Reith Lectures that this money-centred value theory is actually somewhat new. In the late nineteenth century and early twentieth century, a group of economists known as neo-classicists launched an upheaval in value theory – comparable to the Copernican revolution in science. For older theoreticians like Smith, Ricardo and Marx, markets determine the distribution of value which was derived from labour. According to the neo-classicists, labour doesn’t give a good its value; instead, labour is valued because it is an input to a good onto which people project value. We can see how much value they project onto a good or service in its price (which serves as a money-weighted triangulation of subjective value). As such, price became the best description of value. Or, too take this to the extreme, Price = Value.

Going down this line of argument, the resources are consumed in delivering Bitcoin Proof of Work have been bid away from other projects because PoW has a higher value attached to it than any other activity. And as such it is idiocy to focus on electricity used by that which the market has determined to be the highest value activity.

Another line of defence in the energy use of Bitcoiners is that electricity isn’t fungible, and so Bitcoin mininng effectively utilises stranded or unreliable generation assets and turns them into something considered useful by many rich people (ie, Bitcoin). Some advocates sometimes go on to say that Bitcoin mining arbitrages electricity costs, although I think that this pushes the argument too far because energy that is ‘stored’ in Bitcoin form cannot later be released. A rehearsal of such arguments can be found in this popular blogpost.

I do see an integrity in these lines of argument. If we take the [price = value] route in judging the value of a thing to society, singling out Bitcoin’s environmental costs over the environmental costs of other things is nonsense.

Crypto Bros use a lot of electricity mining/ transacting in Bitcoin and ascribe positive subjective value to this activity even though I see this as pointless pollution with a large environmental cost.

I use electricity in connecting to the internet; I ascribe positive subjective value to this activity, but some readers of this blog might see it as pointless pollution. To one another we each say:

But I am unconvinced by the argument. I am unconvinced because I can see that such arguments would work to justify the generation of any form or level of pollution if activity of polluting delivers a monetary value. And I don’t feel comfortable signing off on that.

Maybe it’s a question about capturing the cost of the negative externalities attached to pollution properly – that would be the economist’s take, and one that I imagine Crypto folk might be happy with (although would maybe require inter-governmental alignment and enforcement that is antithetical to the Crypto crowd).

Maybe it’s just a recognition on my part that while markets and money are and have been – in my view – kind of amazing, they will always be incomplete and a poor clearing house for questions of axiological ethics. Which is a bit of a problem if they are used as such.