The Fiat Maintenance Costs versus the Crypto Network SupportJune 1, 2019
Among the many criticisms that bitcoin and other digital currencies receive on a daily basis, one of the most prevalent ones is the fact that they are all high on energy consumption. It looks like every few months, there is a big news report that examines the energy needs of the bitcoin network and compares it to an energy grid of a particular country.
Not surprisingly, those countries keep growing and becoming ever larger in the same comparison, mirroring the actual growth of the blockchain needs. All crypto that is based on the proof of work principle showcases the same trend, but media reports usually focus on bitcoin because it is the biggest one.
Yet, there are plenty of issues with perceiving bitcoin or any cryptocurrency in that manner. These are especially underlined by the notion that the fiat currencies also come with maintenance needs and their requirements far surpass the crypto energy consumption.
Observing any cryptocurrency network as a system that simply draws power and then does nothing with it is very reductionist. This means that the same perspective takes into consideration just one isolated element and then observe it out of context. That kind of notion is best explained on some other example, outside of the crypto industry. For example, a single transcontinental flight and its fuel consumption could be measured in the number of trees which need to be cut for the same energy expenditure.
While the calculation might be true in the end, it still presents a very isolated picture that does not take into consideration the actual benefit each of those flights provides to its users and the society as a whole. Like with that example, this one also fails to see the wider picture, but more importantly, ignores the same factor in bigger, more established systems.
Dirty Crypto, Clean Fiat
Recently, in spite of the fact that the usual bastion of anti-crypto sentiment was huddled around Wall Street, the environmentalist also entered the fray against cryptocurrencies. The thesis was this: crypto uses a waste amount of energy, more precisely electricity. The same energy goes into feeding the network of its hashing power, which in turns creates new tokens. This, however, goes nowhere else and the amount of needed energy is constantly going up.
But, this is not the entire story. All over the world, the production of electric power is gradually going greener and greener. Renewable energy tech is improving steadily and shifting from fossil-intensive mining of bitcoin in developing countries to renewable energy sources in developed nations.
These include feeding bitcoin farms with hydroelectric or geothermal power sources. This is clear evidence that those who support and run the bitcoin network are conscious about their carbon footprint and are working diligently on lowering it.
The profits are there as well, so it is a case of double necessity for the miners. In the future, the energy sources will keep getting cleaner and more abundant. This is riding in particularly on improvement in solar power cells that could one day see the bitcoin farms move to the sunny parts of the globe. There lie plenty of under-developed nations which could use this chance to do business inside of the crypto industry.
Federal Reserve Maintenance
Of course, there is no denying that cryptocurrencies do take up a lot of energy. But, what about the US Federal Reserve or any other national bank and its fiat money? What do these systems entail and use on a daily basis to keep operating? In the case of the US dollar, there is the building of the Federal Reserve, manufacturing plants for the paper and coin money, machinery in them and a range of other things needed to operate a system like that.
It might sound strange, but the security aspect alone needed for guarding so much physical cash is astounding.Federal Reserve can and does use law enforcement and security resources that most likely end up at a level of a standing army. All of that is bad enough, but from the environmental perspective, there is an even worst element – the cash itself. In the US in 2018, about 7.4 billion banknotes were made.
A big number of bills were destroyed like it happens every year. People rarely consider what are the actual costs of operating such a big and wasteful system, or the fact that the Federal Reserve is not a private company.
It is funded by taxpayers money and demands the same fund every year. By comparison, bitcoin is self-funded and it does require any outside financial aid to keep working in the proper manner. Instead, the setup of the same system, like in esports or other digital ventures, actually pays for itself by covering the costs of the miners who keep it operational.
Price of Bills
Finally, the fiat system remains drastically burdened by physical money. Notes require a huge level of effort to get them into circulation. In the US case, they are made out of cotton paper but include numerous layers of protection like special ink, gelatin to make them durable. Every year, the costs of all of this get elevated.
This all does not take into consideration that notes need to be transported, their quality detailedly checked and then enter a system that has to track them all. The exact thing happens not just in the US, but in every country that uses its own fiat system. Clearly, fiat currencies are not the glowing image of effectiveness.
The process of mining bitcoin will only become more streamlined and less energy-wasteful. Ethereum, on the other hand, is looking to move away from proof of work to a proof of stake setup. It, in theory, will not even include the presence of mining farms.
As this takes place, cryptocurrencies will only become more and more efficient, always reducing any waste they can find. Fiat, however, will be in the same position as now, even when physical cash is finally phased out at some point in the future.