The message is the medium

Why “Professors” In “Economics” Don’t Get Bitcoin


Another professor in economics (this one called John Quiggin) has recently written and published another article shock-filled with errors and faulty assumptions, further luring the public and causing harm to the environment if he slows down investments into Bitcoin and its blockchain. Here are a few quotes from this uninformed piece;

Vast amounts of electricity go into feeding the Bitcoin delusion.

No, less than only the offices of one US bank actually.

“ever-increasing environmental damage from the electricity used in the ‘mining’ of Bitcoins.”

Incorrect, a modern miner sources its power from renewable hydropower, use cutting-edge energy-efficient chips, recycle its materials, employs cheap cooling like natural air circulation or immersion-cooling. Did you talk to any miner before guessing your article? Also, you are talking about problems in generating electricity, not problems with Bitcoin.

“In essence, the creation of a new Bitcoin requires the performance of a complex calculation that has no value except to show that it has been done.”

You show you don’t understand the point. Those last words is the point. Proof-of-work is used to show that work has been done (that energy has been spent) – without it you’d have no security, and then you’d have nothing. In this way everybody can trust what has been done (the proof-of-work in itself) without expensive intermediaries like banks and lawyers. This leads to an amazing innovation for all the world to utilize, as each block stamped with proof-of-work can contain cryptographic hashes of any information the public wants to timestamp into this indisputable record of events.

“Most of the time that means electricity generated by burning cheap coal in old plants, where the capital costs have long been written off.”

Now, are you lying or have just not read anything about Bitcoin mining before writing about Bitcoin mining, John Quiggin? Did you not know that Bitcoin miners often place their facilities in cold environments to take advantage of the free cooling, like on Iceland and in Sweden – where electricity is mainly generated using renewable and green energy sources?

“With the coin price currently a little above $US200, optimized systems can break even with electricity requirements of around $150 for each coin. At 5c/kWh, that’s three megawatt-hours (MWh) per coin. That corresponds, in turn, to about three tons of carbon dioxide for coal-fired electricity.”

Now you must be trolling? Obviously you have no idea on break-even in mining. I know, but I can’t tell you. In any case your conclusion is wrong, many miners use renewable hydro-power or solar power, not coal-fired electricity. And if you really cared about the environment you must hate fiat currencies with all the pollution required to print and transport those bills all over the world, and that need replacing every 5 years? Bitcoins on the other hand are only minted once and can then be used forever, causing no extra harm to the environment.

The rest of your text (your calculations on households disposable income’s margin for extra store-of-value etc) is based on these flawed assumptions, so it’s all wrong.

“The same design feature that requires the use of so much electricity is the fatal flaw in Bitcoin as a currency.”

But there is no “fatal flaw” in the design of your dollars, yen or euro even though they require massively more electricity to be used?

“The creation of a Bitcoin requires costly calculations. But these calculations are of no use to anyone.”

Wrong again, these calculations make the Bitcoin network possible. Without these you’d have no security and this open, decentralized system would not be possible. With this system a couple of billion unbanked all over the world can start taking part in our common globalized economy, including rural farmers, using nothing more than a mobile phone. Do you not care about these people? Obviously not, just like the current banking fiat system.

“If they were valuable, then they would be performed for their own sake, with Bitcoins as a free by-product. That would undermine the whole system.”

You should, as an “economics professor” also understand human behavior. Bitcoin mining IS valuable. IF there was an “extra value” (which is what you seem to mean) then VC’s would have calculated this into their investment plans from the beginning, and the Bitcoin mining race would just have started at a higher point. Get it? Read the last part of this text again.

“By contrast, all viable currencies are underpinned by the fact that the currency has a use outside its role as a medium of exchange. […]The external value of fiat money is more subtle than that of a metal coin. It is inherent in the fact that the government issuing the currency is willing to accept it in payment of taxes and other obligations.”

“Willing” is the wrong word here. The way you put it you have it sound like governments are willing to accept fiat among other things. Governments only accept their fiat currency, and if you do not pay your taxes with their fiat money you end up in jail through the use of their monopoly on violence. “Willing” is a too friendly word in this context.

“Ultimately, however, all currencies without an external source of value must share the fate of the Confederate dollar and similar former currencies, becoming, at best, collectors’ items.”

Again you are just putting words together that mean zero. “External source of value”? What? Fiat money is printed at will by governments in collusion with their central banks, it is created out of thin air and then the people is forced to use it. Now there is an alternative. Try to understand it please

“In the end, Bitcoins will attain their true economic value of zero.”

More word salad. “True economic value” means zero in your context. But if you think about it, each bitcoin is costly to produce, energy must be consumed to produce a bitcoin, as such it is pretty easy to connect value to a bitcoin. You may even say that Bitcoin is backed by electricity + time (two really basic elements of the universe). Or another way of putting it, it’s backed by power. As any professor knows power is the rate of doing work. Hence; proof-of-work. A genius idea from the visionary Satoshi Nakamoto (we are only the interpreters here, trying to understand). Read Nakamoto’s white paper.

“The sooner this collective delusion comes to an end, the better.”

On the contrary, the sooner people start to understand how useful Bitcoin is, and how delusional the fiat system with its never-ending fractional reserve banking and quantitative easing policies is, the better. I hope “people” get it, even though “economics professors” have a hard time getting it. Why do they?

Probably because they are so entrenched in the “old” paradigm of thinking about money, and they’ve teached and defended the current system for so many years it’s difficult to rewire the brain to understand something totally different. Economics professors are used to central banks and fiat money created out of thin air. Bitcoin turns things on its head. It takes time to grasp. But to grasp it you also have to read up on it. And that is something old tired professors don’t want to do, obviously.

Ignorance is not bliss, it’s arrogance.

Economists who don’t understand what they are giving advice aboutĀ are actually harmful to the economy as they protect the status quo by defending the current paradigm (which creates economic divide, the 1% and violence).

And here is the ensuing comment thread on Reddit.