Shoulda bought Bitcoin a year ago…

The WSJ found a great way to show how much bitcoin has risen this year:

Their video is fun too. Many bitcoin fans argue that this price rise is based on the fundamental value of bitcoin. I agree with the WSJ that it is an enormous bubble. This bubble won’t be as damaging to the rest of the economy as any of the others shown on the graph, but bubbles are often wasteful and in this case, large amounts of electricity are being wasted as thousands of computers are running hot to “mine” additional bitcoins. The electricity used to mine bitcoin this year is bigger than the annual usage of 159 different countries! Here is a map of the countries of the world that use less total electricity than the bitcoin miners:

Not only does bitcoin waste lots of electricity in “mining” new coins, it is also extremely energy inefficient at making transactions.  Business Insider says:

Bitcoin transactions use so much energy that the electricity used for a single trade could power a home for almost a whole month, according to a paper from Dutch bank ING.

…Not only does Bitcoin use a vast amount of electricity to complete transactions, it uses an almost exponentially larger amount than more traditional forms of electronic payment.

“Bitcoin’s energy costs stand in stark contrast to payment systems that have the luxury of working with trusted counterparties. E.g. Visa takes about 0.01kWh (10Wh) per transaction which is 20000 times less energy,” Brosens notes, pointing to the chart below:

This inherent inefficiency of bitcoins is one reason why I think it is a bubble.  There are more efficient ways to make black-market payments and avoid paying taxes.

Posted in Macro
2 comments on “Shoulda bought Bitcoin a year ago…
  1. […] mining uses more electricity than 159 different countries and in order to make it worthwhile for miners to continue processing transactions, bitcoin will […]

  2. […] dreams for blockchain. First is that the technology doesn’t actually work very well yet. It is highly inefficient and that inefficiency means that hardly anybody doing legitimate transactions has an incentive to […]

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