November 22nd, 2018
The energy costs of bitcoin mining are often cited as canceling out the. We must also consider the savings made, in avoiding some of the hidden costs of the alternative.
Critics of gold originally made the same arguments — that the mining and storage cost of gold meant paper money was more economical. However, American Economics Professor Roger Garrison points out that society incurs additional costs under a fiat system.
- The cost of different political factions trying to gain control of money production.
- The cost of special interest groups, advocating misuse of money production for their own benefit.
- Inflation-induced misallocations of resources, through misused authority.
- The cost to business of trying to predict monetary authority behavior and actions.
Debt to Society
In any business transaction, we must consider cost and benefit. The expected value of the benefit must be more than the price we pay. Otherwise, no deal.
As Nick Szabo points out: bitcoin’s high resource consumption buys social-scalability, which is arguably more valuable. Dynamic proof-of-work schemes, while processor-intensive, provide stronger resistance to forgery, inflation, and theft. Bitcoin also has no concept of debt.
The inexpensive debt market financing available through the fiat system allows governments to push through expensive and destructive programs. Whilst an electorate may not support tax increases to fund foreign wars or unfair benefits systems, debt financing can hide this in the costs of inflation.
There is a tendency to move towards one highly liquid and saleable money — a winner in the global economic race, as it were. If that winner should be the bitcoin (or any other PoW cryptocurrency) standard, a full analysis of costs should include:
- Signification reduction in the size of government.
- The end of fractional reserve banking’s boom-and-bust cycle.
- Reduced costs in the warfare and welfare state.
So the next time someone bemoans the “fact” that bitcoin mining is destroying the planet, perhaps urge them to consider the things it could be saving. As Garrison says:
Ultimately, the cost of any action, commodity, or institution is the alternative action, commodity, or institution forgone. The opportunity cost is the only cost that counts.