Bitcoin mining is a senseless waste of energy.
As bitcoin hits mainstream media, the topic of bitcoin mining begins to be criticized, specifically regarding its effect on our environment.
The Guardian reported that mining Bitcoin:
“uses as much CO2 a year as 1 million transatlantic flights. In November, the power consumed by the entire bitcoin network was estimated to be higher than that of the Republic of Ireland. It’s now on pace to use just over 42TWh of electricity in a year, placing it ahead of New Zealand and Hungary and just behind Peru.”
The reporter then concluded with the statement: “We need to take it seriously as a climate threat.”
And recently (April 9th, 2019) China decided it may ban bitcoin mining to “protect the environment.”
I won’t deny the truth about bitcoin mining. It uses considerable energy. But we need to understand why.
After all, those ‘1m transatlantic flights’ cause considerable pollution too -- but they won’t be grounded because they serve a purpose: getting people places. And the electricity of New Zealand and Hungry won’t be shut off -- because people need it.
But traditional banking is three times worse.
The truth about bitcoin mining is that it also serves a purpose: it’s the backbone of bitcoin.
Mining secures bitcoin. It prevents your bitcoin wallet from being hacked and keeps your bitcoin safe and valuable. To that end, it’s essential.
Think of it like this: your fiat money (USD, Euro, Yen, etc.) is also secured by a considerable expenditure of electricity -- the banking system.
In fact, according to Kelly-Pitou, a clean energy technology researcher at the University of Pittsburgh, “banking alone consumes an estimated 100 terawatts. This is a little bit more than three times the energy Bitcoin mining consumes.”
Think about it: banks run offices, ATM’s, online and offline branches which they need to secure your money. The difference is that their locations are centralized to a few big locations -- while bitcoin mining is decentralized to much smaller computer arrays (sometimes even just 1 computer in someone’s home).
If you believe in the future of bitcoin, then you should believe mining energy is well spent. After all, we do not complain about how much energy it takes banks to run their computers, their IT security departments, and their guards who keep our money safe in vaults.
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Bitcoin is a bubble about to pop.
For ten years, the media has enjoyed painting bitcoin as a bubble about to pop. They’ve gleefully pronounced the bubble popped and bitcoin dead … over 350 times. But the truth about bitcoin is that it keeps coming back. Why?
Charlie Munger called bitcoin “worthless artificial gold.” Others in the media have likened bitcoin to a bubble, a “tulip mania,” and other strong statements.
Every time bitcoin improves itself (like with Segwit or the Lightning Network), or increases in price, the media is eager and ready to jump on it, decrying and denouncing it.
So what’s the truth behind bitcoin’s price -- is it really a bubble?
But all new asset classes are volatile.
The truth about bitcoin is simple; it is experiencing the same rise and fall cycles as every new technology and asset class.
The internet also experienced a bubble. Shares of dotcom companies rose by 1000% on a regular basis. Then it all tumbled down. But we’re still using the internet, aren’t we? More than ever, in fact.
Stocks also experienced big boom and bust cycles, especially in their early days.
We may feel like stocks have been around forever -- and to us they have. But stocks also had a beginning, and a rough one too. Once upon a time in 1531, when the first stocks were invented, they saw extraordinary volatility, scams, and no regulation. In fact, before stock exchanges, they were sold at coffee shops -- just like cryptocurrencies were sold on localbitcoins.com, a peer to peer marketplace, before exchanges came online.
Even real estate, viewed by the majority as “the safest investment” experienced a dramatic cycle. Business Insider reported that “Between 2006 and 2014, nearly 10 million homeowners in America saw the foreclosure sale of their own homes.” And tens of thousands became homeless because of it. Yet --- we’re still living in homes, aren’t we?
The future of bitcoin might be the same as that of stocks, bonds, real estate, and the internet. It rises and falls like all the others, and it is currently extraordinarily volatile -- but that’s because it’s young.
Stocks have been around for 400 years. Dotcom companies for 40 years. Bitcoin is only 10 years old -- and cryptocurrencies, in general, are even younger. But slowly, they may become a part of our daily lives.
Rich investors are manipulating prices!
Look at this headline from the Independent: “Bitcoin price Crash: 'Manipulative Whales' cause Cryptocurrency Market Meltdown!”
It’s sensationalism, pure and simple. The article goes on to rant against these so-called “whales” -- individuals who own millions of dollars of BTC -- as evil-doers who’s only thought is profit.
This type of sensationalism is intended to hurt Bitcoin’s future; to scare people away from doing research and thinking for themselves.
Nonetheless, this statement is somewhat true. Up to 85% of Bitcoin’s supply is only owned by 1% of wallet addresses.
But there’s an important point to be made about these numbers. Most of the top percentage of wallets is not owned by whales -- but by exchanges.
But their effect is getting smaller and smaller.
A company called Chainalysis -- which specializes in analyzing the Bitcoin blockchain -- found that “the actual threat that all whales pose to the cryptocurrency economy is relatively low. If they sold off their entire holdings, it would be effectively a $3.9 billion sale at current prices. That’s not even 10% of the current total market capitalization of Bitcoin.”
This is because, as I hinted above, many of these wallets holding such vast sums are the ‘cold wallets’ (wallets held offline) belonging to major exchanges such as Coinbase, Kraken, Binance, and more. These wallets cannot be used to manipulate the price, diminishing the potential impact of large ‘whales’ selling their positions.
Bitcoin is too slow to be used as a currency.
The truth about Bitcoin is that yes, it is slower than VISA, Mastercard, and other centralized electronic payment systems.
Paying with your credit cards takes seconds and the network can handle payments around the world 24/7. However, though Bitcoin can also be used around the world, confirmation of payment takes an average of 10 minutes; during the bitcoin craze of late 2017, confirmation times could take hours.
Moreover, VISA on average processes around 2,000 transactions per second (tps). This means the number of payments people make per second on the network. VISA has a maximum of 24,000 TPS. Bitcoin, by contrast, has a maximum of 10 TPS. This argument has been put forward by many critics over the years and picked up by the media as the doom of bitcoin’s future.
But Bitcoin is a technology that evolves.
Now let’s think about Bitcoin’s past for a minute. The coin and its underlying technology -- the blockchain -- are only 10 years old. When the internet was 10 years old -- the year was 1989. Do you remember the internet in 1989? I sure do.
To use the internet, I had to go through a modem connected to the phone line. It made horrible screeching noises, and no one could be using the phone at the same time. Remember this was before cell phones too -- so disconnecting the only phone line in the house to use the internet was a big deal. It made my parents very upset.
All for what? Downloading a blurry picture that took ten minutes to load? No wonder the media at that time said the internet would never last. And they would have been entirely right -- if the internet never improved. But it did. And now we stream Netflix on our cell phones.
Give Bitcoin some time.
Yes, I agree, as it is right now, it is not the best option to transfer value right now. But it is a new technology -- and it improves continuously. The future of bitcoin might just be as bright at the future of the internet in 1989.
Bitcoin is used for criminal activity and phishing.
One of the first types of headlines the media ran back in 2009 and 2010 consisted of Bitcoin being used for all sorts of nefarious activity: hacking, phishing, drug running, the list goes on.
Even Forbes reported on a scam where hackers emailed their victims and requested BTC payments in exchange for not revealing sensitive information. Therefore, in certain ways, BTC and cryptocurrencies give hackers more options.
But cash is still king for every illegal activity.
Though it’s true that hackers and phishers do often ask for payment in BTC -- it’s no longer as true as it once was.
There’s a saying: “cash talks.” It means that if you want to get something done -- the best argument you can make is to put down a stack of cash. When Bitcoin rose to fame, the primary headlines centered around Bitcoin being the prime choice for illegal activity.
But Lilita Infante, Special Agent for the DEA (Drug Enforcement Administration) has some contradictory information about this. She was one of a 10-person Cyber Investigative Task Force team whose primary aim was the dark web and crypto-related investigations. This group is no little force. They collaborate with the Department of Justice, FBI, and the Bureau of Alcohol, Tobacco, Firearms and Explosives. And she went on the record to talk about what percentage of bitcoin transactions are actually being used for illegal things; she said that “illegal activity has shrunk to about 10 percent.”
Only 10% of all the transactions on the Bitcoin network may be used for illegal things. And that number is falling.
The fall in Bitcoin’s use among criminals is due to many factors. The most prominent factor is that Bitcoin is no longer anonymous. Sciencemag wrote a full report on how governments are developing and using techniques to explore the Bitcoin blockchain and find criminals by tracing their bitcoin payments.
Paying with bitcoin isn’t easy.
I’ve heard this argument circulate widely throughout the years. I still hear it from my grandpa every holiday dinner. He didn’t see a Bitcoin checkout option at the grocery when he bought the turkey -- therefore it’ll never be used.
His sentiment is accurate though. For instance, a journalist from Business Insider spent a day trying to pay for basic needs with Bitcoin. It didn’t go well.
Bitcoin isn’t widely accepted - yet. But that doesn’t mean it’s a total loss for people with Bitcoin to burn.
But paying with bitcoin is possible.
I traveled around the world for 1 year -- using only 1 Bitcoin. I survived.
I even wrote a book about it.
Just like I told my grandpa, I can tell you first hand that I used my Bitcoin to buy burgers in Hong Kong, beers in Prague, nights in hostels in Cambodia, and more.
Adoption of new payment mechanisms takes time. Did you know that credit cards, for example, were first used in 1958 -- but didn’t see mass adoption until the mid-1970’s? That’s almost 20 years for something almost everyone uses every day now.
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Bitcoin will never be a real currency.
There are limitations to bitcoin that it may or may never resolve.
We talked about its scalability (TPS limits and average transaction time of 10 minutes). We discussed price manipulations and volatility.
These are significant drawbacks. Perhaps they are far too significant to be resolved.
In the end, it’s possible Bitcoin will not be widely adopted as an everyday ‘buy your coffee with bitcoin’ type of currency.
But what if bitcoin becomes a store of value, like gold?
The same journalist from Business Insider who tried to pay for everyday things with Bitcoin also tried to pay with them for gold.
Guess what? The result was even worse than bitcoin. The journalist found two places (including a preschool) that accepted Bitcoin. She found
55 Shelton Street, London, United Kingdom, WC2H 9HE