The time to divest from Bitcoin is now
The time to divest from Bitcoin is now, Independent Australia, By John Quiggin | 29 May 2021 The rising price of cryptocurrencies is resulting in higher demands for electricity in order to produce them, writes Professor John Quiggin.
TWO RECENT DEVELOPMENTS in financial markets have big and directly opposed implications for the future of the global climate. On the one hand, financial institutions of all kinds are divesting from carbon-based fuels. On the other hand, they are increasingly embracing one of the most pointless and destructive trends of recent times — cryptocurrencies such as Bitcoin.
Let’s start with the good news. Not so long ago, divestment from coal mines and coal-fired power stations appeared a symbolic moral gesture, undertaken by socially-minded investors who were willing to narrow their investment options rather than profit from environmental destruction. As it turned out, the socially-minded investors did well, while the hardheads who kept coal miners and oil companies in their portfolios lost badly.
Jumping forward to the present, divestment has become the norm, though the process has typically been made in a series of baby steps. At this point, nearly all financial institutions in developed market economies have limited their exposure to coal and indicated a strategy to end any association with thermal coal, used in power generation. (Alternatives to metallurgical coal, used in steelmaking, are in an early stage of development, unlike solar and wind electricity generation)………………….
The progress being made on divestment from coal contrasts sharply with the eager embrace of Bitcoin and other cryptocurrencies. Although they were once supposed to replace existing currencies as a medium of exchange, cryptocurrencies are now used only as a speculative asset and as a way of conducting illegal transactions like ransomware payments.
The “proof of work” process by which Bitcoins and other cryptocurrencies are generated depends on “miners” competing to solve increasingly elaborate, but pointless, mathematical problems using specially designed computers and lots of electricity. The higher the price of Bitcoins, the more electricity it is worth burning to generate them.
Calculations a few years ago suggested that the electricity used in Bitcoin mining was comparable to the total demand of a small country like New Zealand. But as the price has risen, so has the demand on electricity resources, to the point where abandoned coal-fired power stations are being reopened. Even when Bitcoin is mined using renewable electricity, that electricity is diverted from other uses, which must then rely on coal-fired or gas-fired electricity.
As concerns have risen about the environmental damage caused by cryptocurrencies, attempts have been made to find “green” ways of producing them. Past efforts of this kind have failed, but perhaps these will succeed. However, we don’t have time to wait and see. Financial institutions need to divest from cryptocurrencies and financial regulators need to shut them down. When and if an environmentally safe version emerges, we can take another look.
John Quiggin is Professor of Economics at the University of Queensland. His new book, The Economic Consequences of the Pandemic, will be published by Yale University Press in late 2021…………… https://independentaustralia.net/politics/politics-display/the-time-to-divest-from-bitcoin-is-now,15137
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