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Bitcoin – The Ethical Alternative

  • Bitcoin is increasingly being perceived as a store of value.
  • Traditional stores of value, such as gold, have caused humanitarian and environmental catastrophes for centuries.
  • Bitcoin could present a more ethical alternative for the creation and maintenance of economic value.

In 1860, the essayist John Ruskin wrote: “Any given accumulation of commercial wealth may be indicative, on the one hand, of faithful industries, progressive energies, and productive ingenuities; or, on the other, it may be indicative of mortal luxury, merciless tyranny, ruinous chicane.” Bitcoin is arguably part of the former while legacy assets are part of the latter.

Value

A store of value is an asset that is predicted to maintain or increase its value with time. What becomes a store of value, much like value itself, is ultimately determined by societal consensus.

As basic economics teaches us, value is determined by supply and demand. The scarcer the object, the greater the supply side of the equation will push its value up. As for demand, it is subjectively determined by society. The combination of these factors explains why a diamond is worth more than water. As Plato has Socrates say in the Euthydemus, “it is the rare thing… which is the precious one, and water is cheapest, even though… it is the best”.

The factors determining demand are in constant flux. The hot collectable in Ancient Egypt was a mummified cat, in the 90’s it was a tamagotchi and now it is NFTs. Tastes change. Societies change. Systems change. Stores of value change.

Bitcoin is currently in high demand, its supply is capped by design and it is convenient to transport, highly liquid and divisible. This is why an increasing number of people, including a member of the Federal Reserve Board of Governors, are starting to view bitcoin as a store of value or, at least, an up-and-coming store of value if its volatility subsides. This is a big if, but it is useful to note that gold has had its own share of volatility in the past. As an example, Mansa Musa of Mali notoriously crashed the value of gold, for over a decade, because of his lavish pilgrimage in the 14th century.

Bitcoin’s perception as a store of value seems to have accelerated with the recent spike in inflation, as fiat money is rapidly losing its own status as a store of value. All of this does not necessarily mean bitcoin will replace gold, but it means that it might join gold as an alternative store of value.

So the important question then becomes, what does a society with increasing faith in bitcoin, as a store of value, look like? And how does it compare to a society which has faith in gold, diamonds and other traditional store-of-value assets?

Costs

Legacy stores of value have tended to be scarce mineral resources. The classic examples are precious metals and stones. Their pursuit, extraction and trade has led to enormous human and environmental cost over centuries. In the last century alone, diamonds from conflict zones, so-called blood diamonds, have been central to wars in Angola, the Democratic Republic of Congo (DRC), Ivory Coast, Sierra Leone, Liberia, Guinea and Guinea-Bissau.

Gold, the store of value par excellence, has also led to horrific situations. History is littered with examples of human exploitation and enslavement in the process of gold mining. Its pursuit also caused bloody conquests, massacres and forced expropriations. The Spanish conquest of South America in the 16th century and the Boer War in South Africa in the early 20th century are but a few notable examples amongst a myriad of them. Most recently, gold fuelled decades of violence in the DRC, as it found its way to markets in the US and Europe through illicit channels. The mining of that gold often involved children working in inhumane conditions for extended periods of time.

In addition to the human cost, gold mining is responsible for considerable environmental damage and carbon missions. The mining process produces enormous amounts of waste that contains harmful chemicals such as mercury and cyanide. It can result in the devastation of entire ecosystems and destroy marine life, as waste can make its way into waterways. Some have estimated that the manufacture of a gold ring, alone, could be responsible for 20 tonnes of waste. Gold mining is also a cause of deforestation, which can lead to the destruction of wildlife habitats and the displacement of indigenous peoples. As the price and demand for gold increase, these problems worsen, as ruthless prospectors find increasingly ingenious ways to mine, smuggle and trade it.

Challenges

Bitcoin is not perfect, but it is constantly improving. The current environmental concerns regarding the running of the bitcoin network are valid. The Bitcoin Mining Council’s latest report puts some of these concerns in perspective, however. According to their estimates, bitcoin mining consumes 0.12% of the world’s energy production, which equates to just 0.38% of the world’s energy that is lost or wasted. Bitcoin mining also has a higher proportion of sustainable energy than all major energy-producing countries.

Many measures are also starting to mitigate the environmental effects of the bitcoin network and even being spurred on by bitcoin itself, as we argued elsewhere. The situation is constantly improving through greater mining efficiency and more sustainable energy being introduced in the mix. Bitcoin mining has become 42 times more efficient in the last eight years. This positive dynamic will only continue to improve as computing efficiency increases and green energy becomes cheaper and more widespread. China’s recent crypto ban was an additional blessing in this regard, as it is an opportunity for the network to become even greener.

As a point of comparison, bitcoin mining consumes a third of the energy used in gold mining. It is also estimated that gold mining is 50 times more expensive than both mining bitcoin and running the bitcoin network. As the price of bitcoin increases, furthermore, the ratio of economic value to unit of energy, will put bitcoin far ahead of gold in terms of efficiency.

Conclusion
As faith in bitcoin, as a store of value, keeps increasing, the creation and storage of economic value will shift from legacy assets, like gold, onto the bitcoin network. This may significantly benefit society, as the problems associated with legacy stores of value may diminish. While an increased price of gold could lead to more conflict, an increased price of bitcoin could lead to less violence, exploitation and environmental damage.

Nothing in this article constitutes professional and/or financial advice. The content is provided exclusively for informational and/or educational purposes. Nothing is to be construed as an offer or a recommendation to buy or sell any type of asset. Seek independent professional advice in regards to financial, tax, legal and other matters.

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