Bitcoin recently turned ten years old. In that time, it has proved revolutionary because it ignores the need for modern money’s institutions to verify payments. Instead, Bitcoin relies on cryptographic techniques to prove identity and authenticity.
However, the price to pay for all of this innovation is a high carbon footprint, created by Bitcoin mining.
Fundamental to that mining process is a peer-to-peer network of computers, referred to as validators, who perform Proof of Work. In essence, this involves computers solving computationally-intensive cryptographic puzzles that prove blocks of transactions, which are recorded in a public asset ledger, known as a blockchain. This ledger is publicly viewable by all computers, which helps the system achieve consensus in an unreliable network of participants.
Validators are called miners because the computer, or node, that successfully validates one of those blocks is rewarded with “mined” Bitcoin. Thus mining is also the process by which Bitcoin adds new coins to the network.
But these processes consume a vast amount of power.
In my 2016 article, Socialism and the Blockchain, I estimated Bitcoin mining’s annual energy use at 3.38 TeraWatt hours (TWh), which I equated to the total 2014 annual consumption of Jamaica. Recent estimates show the currency’s annual consumption rising exponentially, currently reaching an incredible 55TWh. Indeed, a new paper in Nature Sustainability suggests that the energy costs of mining cryptocurrencies exceed the costs of mining physical metals. Furthermore, the paper estimates that Bitcoin emitted between 3m and 13m metric tonnes CO₂ in the first half of 2018. A team in Hawaii even suppose that, if Bitcoin’s adoption continues to rise, within a couple of decades, such emissions could help push global warming above 2°C.
However, both the study in Nature and the team in Hawaii make assumptions about the means of energy generation. In the light of the recent disturbing UN 1.5°C Report, humanity would be wise to act on the recommendation for an “unprecedented shift in energy systems”. The hope is that such a shift towards large-scale renewable energy does occur, thus invalidating the assumptions made in those papers.
Nevertheless, concerns over Bitcoin’s energy consumption remain, so Ethereum, another cryptocurrency, is investigating a more energy efficient consensus algorithm known as Proof of Stake. This method differs from Proof of Work because miners on this network use their economic stake to prove transactions and therefore, they are not performing energy intensive calculations.
That introduces some complications – not least, how to ensure that people in this network act honestly, as they would have nothing to lose by behaving dishonestly? Ethereum’s proposed solution is to introduce penalties through measures such as penalising miners for simultaneously producing blocks on two versions of the blockchain. After all, only one of those blockchains is valid.
Bitcoin’s Proof of Work overcomes such problems implicitly because it includes natural penalties since miners have to expend energy to prove transactions.
In economic game theory, a Nash Equilibrium is said to be reached when a system stabilises because no one gains by changing strategy from that which produces the stable state. Since Bitcoin rewards are given to miners only if their blocks help form the valid Bitcoin blockchain, the most profitable outcome, or the Nash Equilibrium, is for each miner to act in consensus with the majority.
As a result, Bitcoin’s Proof of Work algorithm has proven effective, despite the excessive energy consumption.
A price worth paying?
In essence, my work looks at whether blockchains are a rebuttal to the hierarchies of capitalism. If Bitcoin promotes a way of organising that does not rely on capitalist consumption, might that indirectly drive down society’s energy use and help lessen its environmental impact? After all, consider the recent alarming WWF report, which all but blamed capitalism for the dramatic decline in wildlife populations. We need alternatives.
Perhaps, then, Bitcoin’s revolutionary offer, as an alternative to capitalism, means its energy use is a price worth paying? That argument holds some weight if it drives down consumption in other areas of society because Bitcoin mining is not the primary driver behind climate change. However, even then, given the urgency of environmental degradation, if we continue to produce energy in a manner that creates so much warming CO₂, that argument may provide scant consolation.
Perhaps alternative consensus schemes, such as Ethereum’s Proof of Stake, provide part of the solution. However, Bitcoin or not, if humankind is to avoid climate catastrophe, we need to take urgent action and find solutions that produce clean, sustainable energy. If we do that, humanity will benefit, and as a by-product, so will Bitcoin.
Bitcoin, the world's first and most famous cryptocurrency, celebrated its tenth birthday on Wednesday.
Its emergence has spawned a multitude of other digital currencies, brought blockchain technology to global attention, and vexed regulators worried about its crime misuse and weakness to hacking.
The following are some major milestones in bitcoin's first decade:
Oct. 31, 2008 The still-unidentified Satoshi Nakamoto releases a nine-page academic paper that sets out how bitcoin would work. "Bitcoin: A Peer-to-Peer Electronic Cash System" also gives the first description of the blockchain decentralized ledger, the technology that underpins the digital currency.
Jan. 3, 2009 Nakamoto mines the first "block" of bitcoins on the blockchain. Days later, Nakamoto sends bitcoins in its first ever transaction.
Jan. 12, 2009
The first bitcoin transaction takes place between Nakamoto and developer Hal Finney. The transaction is recorded in block 170.
Oct. 12, 2009
Martti Malmi, a software developer from Finland, sends 5,050 bitcoins for $5.02 to NewLibertyStandard, one of the regulars in a bitcoin forum. The transaction is realized using PayPal. The bitcoins are used to seed a new bitcoin exchange site called New Liberty Standard.
The New Liberty Standard establishes the value of bitcoin at 1,309.03 bitcoins to 1 dollar.
The world's first bitcoin market is established by dwdollar.
May 22, 2010 Software developer Laszlo Hanecz buys two pizzas for 10,000 bitcoins, widely seen as the first time the digital currency is used for its intended purpose - the purchase of goods.
July 7, 2010
Bitcoin's new software is released by the community of developers and over the next five days, there is a ten-fold increase in its exchange value - from US$0.008 per bitcoin to US$0.08 per bitcoin.
July 17, 2010
Mt. Gox is launched, which eventually becomes the world's largest bitcoin exchange, prior to going bankrupt in 2014.
Nov. 28, 2013
As media attention intensifies, Bitcoin tops $1,000 for the first time. It falls below that level only days later, and does not reach the landmark again for over three years. Feb. 28, 2014
Tokyo-based Mt. Gox files for bankruptcy protection after hackers steal some 850,00 bitcoins - worth around half a billion U.S. dollars - and $28 million in cash. The theft, the biggest of digital coins ever, underscores security flaws at exchanges and the risks faced by investors in the unregulated sector.
Aug. 1, 2017
Bitcoin's underlying software code splits to create Bitcoin Cash, a clone of bitcoin. The move is spearheaded by bitcoin miners in China unhappy with scheduled improvements to the currency's technology meant to increase its capacity to process transactions. Dec. 10, 2017
Chicago exchange operators Cboe Global Markets Inc and CME Group Inc launch bitcoin futures trading, allowing professional mainstream investors to bet on the price of the digital currency. Dec. 18, 2017
Bitcoin hits its record high of $19,666 on cryptocurrency exchange Bitstamp, the high water mark of a frenzied year that sees bitcoin climb by more than 1,300 percent as retail investors scramble to buy. June 29, 2018
Bitcoin slides to its lowest level since its December peak, hurt by tighter regulatory oversight across the world and waning interest from retail investors. Oct. 19, 2018
The global money-laundering watchdog says it will set out by next year rules for how governments should regulate cryptocurrency exchanges in a bid to stamp out the criminal use of bitcoin and other digital coins.
Cryptocurrencies are now one of the most talked about technological shifts of recent times, with new companies announcing regularly that they are either going to start accepting them for their goods and services, or even going to start paying their employees with them.
With this uptake and increasing global acceptance of cryptocurrencies, we wanted to find out what percentage of people would accept them as part or all of their salary. From interviewing 1,000 people, we found that 31% WOULD be happy to be paid in a cryptocurrency.
So, how do the numbers break down? The current landscape of Bitcoin ownership shows that 90% of those with them are male. Therefore, it’s largely unsurprising that males are more likely to answer ‘yes’ to our survey. However, we found that 25% of women are interested in cryptocurrencies, they just may not own any yet.
There were also some surprising results within age groups. As expected, the most interested age group for being paid in cryptocurrencies were between 25 - 34 years old, leading the charge with 33%. This steadily decreased as respondents were older. However, those in the 65+ age group were more likely to answer ‘yes’ than those in the age group below, 55 - 64 years old.
During our investigation, we also wanted to find out what percentage of income people would be interested in receiving in this new form of currency. The majority here were on the risk-averse side, with 37% answering between 1 -20% of their income, favouring the majority of their income be paid in fiat money. The numbers again slightly decreased until we approached the higher end of the scale, where a total of 15% answered that they would be interested in 80 - 100% of their income as a cryptocurrency, demonstrating that the higher end if the scale is dominated by people ‘all-in’ on the new wave of currency.
For more information, have a read through our infographic below.
Nothing comes for free, especially online. Websites and apps that don’t charge you for their services are often collecting your data or bombarding you with advertising. Now some sites have found a new way to make money from you: using your computer to generate virtual currencies.
Several video streaming sites and the popular file sharing network The Pirate Bay have allegedly been “cryptojacking” their users’ computers in this way, as has the free wifi provider in a Starbucks cafe in Argentina. Users may object to this, especially if it slows down their computers. But given how hard it is for most companies to make money from online advertising, it might be something we have to get used to – unless we want to start paying more for things.
Units of cryptocurrencies such as bitcoin aren’t created by a central bank like regular money but are generated or “mined” by computers solving complex equations. Cryptojacking involves using someone’s computer without their knowledge, perhaps for just seconds at a time, to mine a cryptocurrency.
In the case of bitcoin, mining requires specialised hardware and consumes masses of energy. For example, each bitcoin transaction takes enough energy to boil around 36,000 kettles filled with water. In a year, the whole bitcoin mining network consumes more energy than Ireland.
But bitcoin is not the only show in town and there are many competing cryptocurrences. One of the most successful is Monero, which builds a degree of privacy into transactions (something bitcoin doesn’t do). Currently it requires no specialised hardware for mining, so anyone with computing power to spare can mine it.
Mining usually takes the form of a competition. Whichever computer solves the equation the fastest is rewarded with the money. With Moreno and other similar cryptocurrencies, a pool of computers can work together and share the reward if they win the competition. This allows individual computers to work on a just small part of the mining task. The larger the pool, the more chance there is of winning the reward.
This means the website or internet provider doing the cryptojacking can mine cryptocurrency with little cost to themselves. One estimate is that 220 of the top 1,000 websites in the world are conducting cryptojacking, making a total of US$43,000 over a three week period. This might not be very much but file-sharing sites in particular have been searching for new businesses models in order to support their operations and cryptojacking could grow into a new income source.
The problem for the computer’s owner is that this takes up processor power, making other operations take much longer. Pirate Bay users have complained that their processors have been using up to 85% of their capacity compared with less than 10% for normal operations. This can be accompanied by a large battery drain. The Pirate Bay has since said this high processor usage was a bug and the system should normally use between 20% and 30% of processing power.
How do you avoid being cryptojacked?
Coinhive strongly advises the websites that deploy it that they should inform users they are being cryptojacked. But it’s common for the code to run without users realising and without a way to opt out of it. If you want to prevent your computer from being cryptojacked you need a software tool which checks the code as it runs such as an ad-blocker.
But you might feel that allowing a site to use a little bit of your computer’s processing power is a better alternative to being bombarded with advertising. Whatever you do, you’ll likely end up paying for “free” services somehow.
Two U.S. exchanges, including the parent of the venerable Chicago Mercantile Exchange, are racing to embrace bitcoin, dragging federal regulators into a realm skeptics call a fad and fraud.
The development shows how some big financial players are moving to co-opt the volatile cryptocurrency and lure more mainstream investors into the market, even before regulators have agreed on just what bitcoin is.
CME Group Inc.’s contracts will debut Dec. 18. Cboe Global Markets Inc. didn’t announce a start date. Both got the green light Friday after going through a process called self-certification -- a pledge to the U.S. Commodity Futures Trading Commission that the products don’t run afoul of the law. The news pushed bitcoin’s price higher.
The moves are a watershed for Wall Street professionals -- including institutional investors and high-speed traders -- who’ve been eager to bet on cryptocurrencies and their wild swings, but worried about doing so on mostly unregulated markets. The new products are subject to CFTC oversight. CME, Cboe and Cantor Fitzgerald LP’s Cantor Exchange -- which is creating another kind of bitcoin derivative, binary options -- promised to help the agency surveil the underlying bitcoin market.
“Bitcoin, a virtual currency, is a commodity unlike any the commission has dealt with in the past,” CFTC Chairman Chris Giancarlo said in a statement Friday. “We expect that the futures exchanges, through information sharing agreements, will be monitoring the trading activity on the relevant cash platforms.”
Trading in bitcoin and other cryptocurrencies is largely unregulated, and that’s the point. Bitcoin was introduced in the wake of the 2008 financial crisis as a way of avoiding governments and central banks. Now with its meteoric rise and the proliferation of cryptocurrencies, banks, brokers and mainstream investors want in. And they want regulation, something they’ll get plenty of in a market like CME or Cboe’s.
“The launch of the futures will actually make the market healthier,” Cboe President Chris Concannon said in an interview after the news broke Friday. “It will create pricing equilibrium in the market. Clients who are holding bitcoin now have no way to hedge their risk. These products allow them to hedge, and to take opposing views. More importantly, it brings a wave of regulatory oversight.”
U.S. financial regulators have struggled for years to agree on what, exactly, bitcoin is and what risks it might pose. That’s left its enthusiasts and financial professionals unsure which government agencies might try to police the rapidly growing market. In addition to the CFTC, there’s the Securities and Exchange Commission, the Internal Revenue Service and the Treasury Department’s FinCEN, which tracks illicit payments.
The CFTC declared in 2015 that it would treat bitcoin as a commodity. “But the IRS says it’s property, the SEC said now some digital currency is a security, and FinCEN says digital currency is a ‘money-like instrument,’” said Adam White, general manager of GDAX, a cryptocurrency exchange owned by Coinbase. His company is trying to work with all of them, he said, while offering his own definition: “It’s a new asset class.”
After Friday’s announcement, exchanges and the CFTC will have to keep tabs on that underlying market, according to Jeff Bandman, who until June advised Chairman Giancarlo on financial technology issues.
“It’s well understood that bad actors can take actions in the spot market for a commodity where the reward or payoff is the derivatives market and vice versa,” Bandman, who now runs Bandman Advisors, said in an interview before Friday’s announcement. “This would represent a new opportunity for mischief.”
Are ETFs Next?
There are other ways the new futures could spur more vigorous oversight of the cryptocurrency. The contracts, for example, could make it easier to create an exchange-traded fund tied to bitcoin -- even after a previous attempt was knocked down.
That could enlist the SEC. In March, the agency rejected a bitcoin ETF proposed by Tyler and Cameron Winklevoss -- the co-creators of the Gemini exchange -- saying necessary surveillance-sharing agreements were too difficult given that “significant markets for bitcoin are unregulated.” Cboe is basing its futures on prices from Gemini.
On Thursday, a top SEC official weighed in. David Shillman, associate director in the agency’s division of trading and markets, said a strong bitcoin futures market could make the regulator more comfortable approving bitcoin ETFs.
The Reserve Bank of Zimbabwe (RBZ) has warned members of the public against using Bitcoin, saying its use is not legal in the country. The RBZ has been lax towards regulating the crypto currency arguing that despite its popularity, the central bank discouraged its use due to lack of a regulatory frameworks for exchanges and start-ups providing digital currency related financial services.
The central bank said whilst it recognised the economic benefits of using digital currencies such as Bitcoin, it believed that any type of unregulated alternatives should be approached with caution, even if it provided the unbanked an opportunity to regain financial control.
RBZ director and registrar of banking institutions, Norman Mataruka, said Bitcoin was illegal and the regulator would not allow its use in Zimbabwe. "In terms of the Bitcoin, as far as we are concerned, it is not actually legal. In Southern Africa, what we have done as regulators, we have said that we will not allow this in our markets," he said.
"Research is currently being undertaken to ascertain the challenges and risks associated with these particular products and until we have actually established and come up with a legal and regulatory framework for them, it will not be allowed," he said.
Recently the RBZ adopted an approach of warning citizens not to get involved with crypto currencies saying if they did, they risked losing their investments and not having any recourse should that happen. Bitcoin, which was brought to popularity in Zimbabwe through the MMM pyramid scheme, whereby members could "give help" and "ask for help" in the form of Bitcoin, managed to attract as many as 66 000 people.
However, when it crashed, a number of people were 'burnt' and left with a sour taste in their mouths.
Some Bitcoin startups in Zimbabwe include Bitmari, a company which enables Zimbabweans to send money across other countries in Africa, at substantially lower costs.
- New Ziana.
Bitcoin hit a new record high this week after smashing through the $8,000 level for the first time over the weekend, marking an almost 50 percent climb in just eight days.
The new high came after leading U.S. payments company Square Inc said late last week that it had started allowing select customers to buy and sell bitcoins on its Cash app.
Bitcoin traded as high as $8,197.81 on the Luxembourg-based Bitstamp exchange, up over 2 percent on the day and around 48 percent up since dipping to $5,555 on Nov. 12.
An eye-watering eightfold increase in the value of the volatile cryptocurrency since the start of the year has led to muliple warnings that the market is in a bubble, and institutional investors are broadly staying away.
Retail investors, however, as well as some hedge funds and family offices, are piling into the market. The “market cap” of all cryptocurrencies hit an all-time high of over $242 billion on Monday, according to trade website Coinmarketcap.
Got some bitcoin burning a hole in your digital wallet? And paradise on the mind? You may be able to use it to buy a second passport.
Fork over 49.3 bitcoins, the equivalent of about $280,000 to a brokering agent, and your family of up to four might be able to receive passports to Vanuatu via so-called investment citizenship. The New Economics Foundation, a U.K.-based think tank, calls the South Pacific archipelago of some 80 islands the fourth-happiest country in the world. (It ranked No. 1 when the list was first published in 2006, but like the vagaries of the market, happiness can be a fleeting thing.)
As volatile as the cryptocurrency itself, so has the local reaction been to this idea, which was first reported by Investment Migration Insider, a website focused on investment citizenry.
“The Citizenship Commission is only recognizing USD as prescribed under the Citizenship regulation and no other form,” said Samuel Garae, Acting Secretary General of the Vanuatu Citizenship Office, in an emailed statement on Oct. 20, correcting earlier reports that Vanuatu would accept payments directly.
“This might be from the Agents but not Citizenship,” he continues, referring to a non-binding letter from Vanuatu’s Parliamentary Secretary that lent support to the idea of allowing bitcoin payments. All final payments would still need to be handed to the government in American dollars.
Vanuatu joins other island nations such as Antigua, Grenada, Malta, and St. Kitts and Nevis in offering citizenship for a price. Advantages include the 34th-most-“powerful” passport in the world, providing visa-free visits to 116 other countries, according to the Passport Index, a list of rankings maintained by Arton Capital, a company that facilitates foreign residence and citizenship applications. Vanuatu falls right below Panama and Paraguay (tied) and above Dominica; the U.K. is in a tie at third place, the U.S. at fourth, and Russia at 40th.
The country also has no income, inheritance, or corporate tax. It’s not even customary to tip there, according to the Vanuatu Tourism Office. The archipelago is relatively accessible: about a three-and-a-half-hour flight from Sydney to Port Vila, the capital. And scuba aficionados will appreciate that it’s home to the world’s largest diveable wreck—the SS President Coolidge, a luxury liner-turned-troop ship that sank during World War II.
Should you really want a place to escape, Vanuatu’s abundance of islands and relatively small population (about 290,000) mean that your own private island may be within reach. The least expensive one currently on the market, according to real estate website Private Islands Online, is Lenur, priced at about $645,000. For that you get 84 acres including three sandy beaches, a handful of sleeping bungalows, and an open-plan kitchen. Most of the property is covered in coconut, fruit, and nut trees.
Still, like investing in cryptocurrency in the first place, tropical life doesn’t come without risks. Earlier this month, residents had to be evacuated from the northern island of Ambae because its volcano, Manaro Voui, had rumbled to life and was spewing steam and rocks.
When I began to teach in 2012, I decided to start my course with an analysis of how money affects social order. What my students found particularly fascinating was the then-nascent world of cryptocurrencies, which I described at length as a crucial feature in the future of money.
Some colleagues criticised my approach. They accused me of indirectly encouraging students to invest in what they saw as a shady, crime-ridden financial underworld. But I was simply exposing young minds to a fast-evolving, complex phenomenon that in my view would have a major impact on power distribution in the global economy.
Behind most cryptocurrencies is a simple technology known as “blockchain”, a system residing in multiple computers that allows for peer-to-peer financial ledger recording of all transactions occurring in a network.
This results in a transparent open-access registry of monetary flows which makes the intermediation of banking authorities unnecessary. Thus it challenges the conventional belief that money can only work through central planning.
As I explain in my book, Wellbeing Economy: Success in a World Without Growth, money systems are undergoing an unprecedented transition from centralised authority to decentralised networks.
Conventional money is managed by states and banks, with users on the receiving end of monetary policy decisions. By contrast, most alternative currencies are peer-to-peer. That means they are managed by users themselves and do not require intermediaries. Some of them have global outreach thanks to digital technology, while others are locally based.
Take BitCoin, the most popular peer-to-peer currency in the world, with a market capitalisation above 40 billion US dollars. A person buying the equivalent of $1 in BitCoin in 2009 would now possess roughly $25 million. One BitCoin is currently equivalent in value to two ounces of gold. Other rising stars include Ethereum, Litecoin and Ripple.
Taking the world by storm
Many of these currencies remain quite volatile in the short term. Their upward and downward swings reach over 10% of the value on a weekly basis. But the long-term trend is impressive. States are warming up to them.
In April 2017, Japan accepted BitCoin as a legal payment method for retail markets. After threatening digital currencies last year, the Russian government took a U-turn. President Vladimir Putin met the developers of Ethereum and committed to recognising cryptocurrencies in 2018.
Following an initial freeze, the People’s Bank of China readmitted withdrawals in BitCoin in June 2017, catapulting the currency to new heights. In the US, cryptocurrencies are becoming increasingly accepted as both a method of payment and store of value.
The Australian government will soon make it easier for new innovative digital currency businesses to operate, exempting traders and investors from goods and services tax.
It’s clear that cryptocurrencies will in the near future become much more common as methods of payment for a wide range of purchases, from online shopping to the local supermarket.
Developing countries are leapfrogging
Developing economies, too, are opening up to cryptocurrencies. In Venezuela, BitCoin has become the leading parallel currency. It provides millions of citizens with an opportunity to perform transactions and generate livelihoods, including buying food and other basic necessities in a country where official money is worth almost zero. It also allows them to purchase goods from overseas, overcoming ever-stricter capital controls.
In East Africa, local innovators have introduced cryptocurrency systems to support cross-border transactions, as exemplified by initiatives like BitPesa.
In South Africa, cryptocurrencies are becoming particularly popular. In Nigeria, local traders and activists believe this new money presents an opportunity to democratise the economy. This is propelled by the fact that people in Nigeria have been failed by conventional money.
According to my colleague Verengai Mabika, founder of BitFinance in Zimbabwe, the collapse of his country’s formal financial system has made BitCoin an attractive alternative. This is especially the case for online payments, which are restricted by banks, and for remittances, which constitute the backbone of the economy.
A growing number of Zimbabweans are also using cryptocurrencies as a saving mechanism (37% of all Bitfinance customers use it for that purpose), Verengai tells me. This is after the massive loss of personal savings during the hyperinflation period of 2008, which led to the collapse of the country’s banks.
Decentralisation and local economic development
The decentralisation of money is indeed at the core of this new trend, with potential repercussions in other fields. For instance, Ethereum is designed as a smart contract platform, that is a trading system completely based on peer-to-peer property rights. FairCoin was developed as the preferential currency for cooperatives, social economies and fair trade networks around the world.
Cryptocurrencies are just the tip of an iceberg. According to recent estimates, there are over 6,000 complementary currencies in the world, over 50 times the number of conventional money systems. Most of these are user-controllled and are interest-free. One cannot make money by simply trading in them.
Hoarding makes no sense in this new world. This is because value is not in the accumulation but in the exchange.
The scope is often limited to certain territories or types of transactions (for example, personal care, sustainable mobility and local trade). This creates an incentive to support local economic development and forms of exchange that are valued by communities of users.
Regiogeld, a network of local currencies which I studied when I was a researcher in Germany, has proliferated throughout the country. It has become the world’s largest system of local currencies, supporting small businesses and empowering communities.
In the near future, we will have a variety of money with different qualities and different purposes. This will make economies more resilient against shocks and will support more equitable and sustainable development, by putting users in the driver seat and reinforcing local economic development.
As my research demonstrates, a combination of regional, national and local currencies could also be the best way forward for the European Union, engulfed by its monolithic and unsustainable euro, and for any other process of regional integration, from Africa to other continents.