Bitcoins: what will our grandchildren think?

Bitcoins may seem a little esoteric and offtopic for this blog, but looking at them provides some interesting insights into our society and economy. Broadly it is an online currency, independent of any national or bank control, and anti-inflationary by design: the total supply is limited to 21 million, a point that will be reached in the year 2140 – some forward thinking here! More details available for instance at Wikipedia.

To what extent it will work as intended, or last even until 2020, let alone 2140, is uncertain. Some think it may just be another Ponzi scheme. But two particular aspects are quite troubling.

The first is that although hoped to be a stable currency, it has been nothing but: some of this has been due to concerns about online security and fraud which have sent the value crashing. But in recent weeks there has been a substantial spike, largely attributed to people seeing it as a potential safe haven after fears over the Cypriot banking system.

The second though is that it has a considerable and increasing environmental cost. The way that the number of bitcoins are limited is that they are generated by people solving problems on computers that get steadily harder, and the more people trying to make bitcoins, the faster they get harder. All of this processing takes a lot of computer power. One estimate (from this article is that the amount of electricity being used is just short of 1000MWh daily, or a million units in UK measure. Or enough to power 31,000 US homes. A friend, Eddie Edwards, has computed that the cost of a single bitcoin is currently $35. (Although this doesn’t take into account manufacturing costs for the computer equipment, etc.)

What does this say in a world where we ought to be trying to reduce electricity usage?

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