Nouriel Roubini: Bitcoin is not a hedge against tail risk
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https://ourworldindata.org/uploads/2020/11/Price-of-electric...
Here's a hot take: Bitcoin subsidizes clean energy development. Miners buy cheap energy; clean energy infrastructure gets profitable return. Cost of development and manufacturing lowers further because of scale; pollution and externalities reduced; humanity wins. Bitcoin saves humanity?
This true in China where most mining happens?
That said, lets take a first principles approach.
- Miners want low cost energy.
- Renewables are the lowest cost energy.
- Miners are not restricted geographically (can mine anywhere cheap energy is, beam bits through satellite internet).
- Cost curves of renewable energy look very promising.
- Social trends and political trends look very promising.
If you believe in efficient markets, then it should be obvious as to what the next 10 years of energy production (and Bitcoin mining) look like.
https://www.aljazeera.com/news/2021/2/8/china-to-build-the-w...
Bitcoin alone isn’t the driver.
Bitcoin is, however, consuming some of that new energy generation with a new consumption: Doing useless calculations to mine Bitcoin.
Bitcoin increases energy demand which also drives an increase in supply. We can’t take old power plants offline if the new hydro power is taken up by new mining operations.
It’s silly that we’re going to such lengths to try to respin Bitcoin’s absurd energy inefficiency.
The Bitcoin network is literally designed to incentivize, with payment, bringing new energy-inefficient operations online to “mine”.
The efficiency of the network gets worse and worse all the time, all while processing the same limited number of transactions.
Worse yet, Bitcoiners seem to like it this way. Proposals to increase block size have not been welcomed, and they go to great lengths to discourage switching to other protocols with better energy efficiency (because it would harm their investment).
The entire system revolves around inefficiency, and unfortunately we pay for that inefficiency with energy consumption.
That's exactly why the Bitcoin Cash fork happened.
Energy on earth is not a finite, limited resource. Fossil fuels are finite, but energy is not.
The earth is bombarded with more potential energy every day then we could ever spend, aka solar energy.
Yes, the Earth is bombarded with a lot of sunlight. So what? Doesn’t change the fact that Bitcoin is consuming existing electricity infrastructure that we could be using for something else.
What problems do you want to throw energy at that is economically viable?
:-o
Is this... a joke? Your claim is that production exists, regardless of demand?
That simply isn't the case.
They consume energy in the form of electricity during the day. At night, they have no need for it shut off the turbines. This is unused and uncaptured energy that could have been put to use. The potential energy is "wasted" because the infrastructure is underutilized, the energy could not be preserved. This is starting to change as battery technology improves and makes it economically feasible to store energy. Otherwise, energy consuming applications could consume this supply, providing return to the townspeople's investment.
https://en.wikipedia.org/wiki/International_Control_Dam
And then most of the rest of the time, cheap, reliable power would get consumed by the grid.
[0] https://en.wikipedia.org/wiki/Sunlight#Total_solar_irradianc...
The idea that consuming more power is good for the environment is not supported by the evidence. Or any evidence.
The cost per kwh from a coal plant has not changed in 10 years. Solar has seen massive reductions and is cheaper than coal. Consuming more solar power is gives more profit to the solar power industry. I'm ok with that.
Increasing electricity consumption will increase all forms of electricity production.
I believe you don't even think about what you're saying. You start with the premise - "More energy consumed is naturally good" - and then invent an argument around it by throwing words together haphazardly.
Miners consume electricity.
Solar, wind and geothermal are the cheapest energy you can find, and their cost continues to fall.
Miners are therefore incentivized to increase profit by buying cheap renewable energy.
Renewable energy industry increases revenue and can continue to invest in R&D, infrastructure, distribution, etc. of said energy production. Costs go down for producing new units of renewable energy as a result of industry maturation.
The more energy we waste the more energy we need, the more profitable cheap energy sources are!
Of course the more profitable wasting energy becomes, the more coal and oil will be burned to make money as well.
But what they're not calculating is the cost and suffering caused by maintaining the underlying system (fiat currency, petrodollars, geopolitics). Calculate for me the economic and human damage done if the US falls into hyperinflation and obliterates the world's reserve currency. It won't just be 350m people suffering, it will be billions.
Decentralized, permissionless, censorship resistant systems suddenly seem very valuable to me.
Whether that's actually true or not, the possibility that bitcoin could find the low cost renewable sweet spots throughout the worlds power grid and make use of them is interesting and helps to address the efficiency criticism.
I think I'm still overall anti-bitcoin but I am questioning my assumptions.
Like humans would have no interest in cheap power if it weren't for bitcoin!
Can't this be said about literally anything?
Bitcoin and cryptos in general are actually worth more than $0 because people are tired of seeing their cash devalued on the whim of politicians and bankers.
No. Carbon taxes would not make everything worthless.
I think you already knew what I meant but just wanted to nitpick.
https://en.wikipedia.org/wiki/Pigovian_tax
It's obvious that you can tax anything by some amount to eat up the value.
He means if you tax it according to the amount of unaccounted-by-the-market negative value, it comes out negative.
But the economist in OP is essentially ignoring where bitcoin actually get's it's value from and only focusing on it's electrical consumption.
Bitcoin means different things to different people. But many see it as the single best hedge against modern monetary policy.
All this independence from states seems totally overrated to me. They can tax your crypto. They can participate in the crypto market.. many possibilities.
There haven't yet been any successful attempts at destroying it, which I think is what you're implying. Not to say it can't happen, but then if we prepared for every single possible scenario we'd all be quite exhausted.
This feedback mechanism doesn't exist when money can be created out of thin air. Then, if you run out of money, you just print more.
Second, this definitely cannot be said about anything. There are plenty of products and industries that produce positive economic value _even with_ the environmental impact added.
Not at all. Lots of businesses make money by turning materials and/or labor into products. Other businesses make money solving problems for people or other businesses. However, crypto (and most of the rest of the financial sector) burn shit tons of energy, materials, time, and human effort generating wealth; wealth expressed in either bitcoin that doesn't really exist, or money that also doesn't really exist. The only real product they consistently produce is said wealth, yes, and also huge amounts of human suffering when their given business goes sideways and tanks the economy. With that in mind, maybe we ought to add said carbon taxes. I'm extremely pro killing off businesses that do nothing but generate profit on a spreadsheet for some overpaid stuffed suit and contribute nothing to humanity, nothing to the economy, solve no problems, and in general just cause the economic equivalent of "wind drag."
Mind you, my definition of "contributing" here is purposely overbroad. Coca-cola, despite producing literal sugar water, is contributing, even if that contribution is literally just sugar water that slowly kills you. It made something you can hold in your hands that people want, even if it's horrible. Hell even tobacco companies fit this definition. In my mind, financial corps and bitcoin companies are below those: using the finite entropy of the universe and the limited resources of our world to do exactly nothing.
This specific problem — settling transactions — is an industry amounting to billions. Think of BTC like a MasterCard or Visa competitor, albeit a unique one.
If bitcoin went away tomorrow, a bunch of financial companies would have a lot of problems, a few big holders would be out money, and that's it. For every other human, it's Thursday.
Conversely, if gasoline didn't exist tomorrow, society would collapse.
But you posit that people choosing cigarettes provides some value, despite the negative effects. Why is there no value than in people being able to chose a money/investment vehicle they believe to be to their benefit?
Because the only thing generated is fake money on a spreadsheet. There is no product, there is only consumption of resources to generate nothing.
For all of what's involved here, you could just pull the same amount of money out of thin air, deposit it in their IRA, and nothing changes, apart from way, WAY less energy consumption.
Gold is one object that's served the money function in the past. It has properties (fungibility, durability, scarcity, etc.) that money needs. But it's "dumb" and cumbersome, as physical objects are.
Building digital objects that serve the money function is important. One solution is the centralized ACH/banking system. But this has drawbacks --- poor scarcity, high political exposure, etc. I view BTC as simply building a competitor. You get better money properties, at the cost of more energy, etc.
Is it worth it? I don't know. But that partly depends on how the future produces energy.
As a whole people we should include these externalities in the value prop of services despite the fact that businesses and individuals don't because it's a cost we collectively pay.
Trash is my biggest pet-peeve example of this. As an individual I have very little power to control the amount of trash I produce because goods I buy come with so much stupid packaging that I can't give back or recycle and there is no incentive for the people in the position to affect change to do anything about it because they don't bear the cost.
In a similar fashion carbon taxes help to capture the negative externalities of energy use. And if the article is true then collecting that tax would make it so that bitcoin mining is (right now) unprofitable. This is to be expected since such a collection would be sudden increase in the cost of mining when the market has pushed margins thin. The market would adjust, transaction fees would go up, and miners would find non-carbon producing energy sources and we'd probably reach a new equilibrium that is profitable for everyone involved again.
I'm optimistic that there is a better way to store a ledger as you describe. Perhaps a database?
We've done this with a network that can process 400k transactions per day (at $20/transaction in fees), as compared to visa, which does 150 million per day.
Surely, we can do better?
It's clearly an industry with huge potential if it is economically viable to spend money buying an Argentina's worth of power on it.
How do you justify this, given that inflation is so low? (at least in the EU it's been oscillating between 0 and 2% for a very long time)
https://tradingeconomics.com/euro-area/inflation-cpi
Is this what people are so tired of? 1% inflation? I'm just trying to understand whether you're parroting "libertarian" talking points, or whether you know something I don't.
As another commenter notes, CPI leaves out many of the most major expenses, e.g. housing.
There are estimates as high as 8% annually when you account for everything.
Thanks in advance.
Inflation serves a purpose. The cash is devalued not on a whim, but to prevent collapse. Bitcoin indeed prevents that. Fortunately it's just a fringe market. Lets hope it stays that way.
Tell that to Venezuela.
I bet they like it much more when the value of digital currency jumps up and down when a South African guy feels like tweeting.
Curious what HNers think about this - is it bad to have Bitcoin in light of how bad the environmental impact is, especially with analysis about the taxes/cost/impact like this? Or is not participating really not reducing the impact of this in any meaningful way so you're kind of only losing if you don't?
If we've decided that we're happy producing X much electricity as a society using nuclear, wind, solar, coal, etc, we shouldn't get caught up on who ends up using that electricity or what they are willing to pay for it.
If we think that the energy we are producing is harmful, we should regulate things at the production level. Ban power production that doesn't meet certain standards, put a cap on the total amount of coal burning per year, etc. And then let the market decide the best use for the energy that remains.
Bitcoin mining was a problem in college dorms for a while because students used their “free” electricity and cooling to pay for new video cards. Many landlords had to abandon “utilities included” rents when they were hit with the first $500 electric bill. IT administrators have stories of catching people trying to hide mining equipment in closets or under their desks.
But coiners are trying to get ahead of the narrative by planting articles about how mining is actually powered by hydro dams in Mongolia. Not only is this not true, but it would be quite a problem if the mining had become so massively centralized.
https://www.vox.com/2019/6/18/18642645/bitcoin-energy-price-...
I personally shy away from investing in Bitcoin in favor of those.
Bitcoin also does not provide any mechanism for "smart contracts" either so it has even less utility in my mind.
Having them actually has no or negligible impact. Unfortunately getting rid of them is a transaction which will incur an unreasonable cost to the environment. The best thing might be to destroy them (the media they're stored on). And no, nobody expects you to do so.
I'd would sell them before they get banned, as they must.
Define "controlled supply of money" with reference to counter-examples of uncontrolled money supply? Money supply needs limits, surely?
I believe the value of cryptocurrency is to neuter governments' abilities to inflate or devalue currency with the push of a button, and to improve our ability to transact freely with one another.
I absolutely agree with you that money needs limitations, such as hard rules on supply increases. A money supply that is uncontrolled in such a way that you can make more or less whenever you personally feel like it regardless of the other users' intentions won't be useful for very long.
I personally think of cryptocurrency like a constitution but for money - whereas before whoever had the biggest guns could decree How It Is Now, the guns will be powerless to what is written down. In this way, it removes power of a select few to control the supply of money for their benefit.
I don't know how this ends. Is it a net negative to the human experience? Anarchy? The select few who got into bitcoin early wielding all the power now? Taxation falling to the wayside and a deterioration of quality of life? Each of these is somewhat possible, but as someone who has 2nd hand experience of what a country can do when it has free reign to issue whole new currencies and remove old ones or devalue the existing one into oblivion, I don't really care.
Let's ride this puppy and annoy some people.
EDIT: some phrasing
Central banking is necessary function of government. If government saw their ability to do it being actually "neutered" then it would get shut right down.
I am not saying that it can't be mismanaged by a state, but you do not have anything better than state fiat money.
> personally think of cryptocurrency like a constitution but for money
(eyeroll)
> Let's ride this puppy and annoy some people.
You ride on. Ride off. Ride far away.
I agree with this! At the moment I don't see many things that are better yet. I hope to see an obvious winner someday.
EDIT: For the record, I hold no Bitcoin. While it has a lot of potential value in creating Freedom To Transact, I'm not convinced the current price per unit is anything but a Pump and Dump. If Bitcoin is a Constitution of Money, it's a pretty fucked up one.
Besides, government will stop all of this before we get to anarchy, if we want anarchy (or even moving in that direction, instead of the opposite as we're doing now) we need to get there politically.
Any government can say at any time: "Everyone holding cryptocurrency is a terrorist and will be persecuted" and use their monopoly on violence to enforce it.
Incidentally, that's the reason I never invested in BTC (and missed out on this generation inequality wealth transfer).
On the other hand, it's incredibly powerful / valuable if it's allowed to exist, and I think the cat is already out of that bag.
Of course, no country, democratic or otherwise, will allow this to happen. The idea that you can have monetary policy exist outside of government control is a bit ludicrous. Government does still control the guns after all, and they can make anything they want illegal, as the US has done with gold in the past.
Fiat currency has yet to cause wars of conquest to prevent deflationary lock up that proceeded to crash the economy through inflation after causing untold personal suffering /on success/. The maligned federal reserve already takes care of the "try to hyperinflate our ways directly out of problems to get reelected".
If anything it could have the more "neutral" role of financial network independence but it still suffers the flaw of interchange chokepoint control putting them back to square one.
I’m not a fan of the current inflationary economic policy, but in no way would a Bitcoin economy be a win for the average person. Early adopters and Bitcoin whales would love it because they hold the vast majority of Bitcoin. They want nothing more than to see everyone else forced to buy it from them at ever increasing prices if they want to join the Bitcoin economy.
The average person loses in this scenario, though.
That doesn't make it an equitable or even workable economic system.
Just get in at the ground floor and then promote it to everyone you know. They’ll invest, which makes money for you, and they’ll tell friends, who will invest...
It's like saying by the time a company IPOs, early VCs have benefited the most, while that is true, you could also argue they deserve it because of the risk they took.
If the balance of a Bitcoin economy relies on the assumption that certain people have lost their money, something is seriously wrong.
Regardless, a hypothetical Bitcoin economy would require much further buy-in from here, making current holders the early adopters.
> It's like saying by the time a company IPOs, early VCs have benefited the most, while that is true, you could also argue they deserve it because of the risk they took.
The VC analogy isn’t good at all. VCs invest to fund the creation of something. What did early Bitcoin investors fund? More mining and more hype?
From another angle: Imagine if PayPal created a new payment system that used shares of PayPal as the currency. Anyone who wants to use the tool must buy some shares of PayPal, because that’s the currency. And oh by the way, most of those shares are owned by PayPal founders and early adopters, who will gladly sell them at a massive gain.
Is Bitcoin supposed to be a speculative investment? Or a stable currency for a new economy? We can’t just pick and choose from either definition as convenient for the argument.
How do you feel about the government that's about to print 1.9 trillion dollars, therefore devaluing your money?
I keep my investments in companies and assets like most other investors. The economic stimulus might devalue the <1% of USD cash I keep around for transactions, but my actual investments will likely benefit from the stimulus. As a bonus, I get to operate in an economy that has been buffered against the effects of COVID.
It’s amazing that Bitcoin proponents only ever want to talk about the USD (or other local currency) value of their Bitcoin, yet they want us to ignore the fact that Bitcoin isn’t the only option for investing cash.
The same is the case with anything valuable that might become money, including the USD, if you consider that it was originally distributed in a manner that was pegged to gold and that gold was monetized in the same way as described above. The idea that you could materialize a money in any other way is unsupported by history.
they didn't take any risk though, they just "mined bitcoins", which were more abundant then.
What value did they create?
If the underpinnings of an economy accrue value purely to speculators while devaluing (in BTC-relative terms) actual assets and value creation, it has a major incentive problem.
What’s the one and only thing Bitcoiners want you to do with Bitcoin? Buy. That’s it. Any other use, including spending, is actively discouraged.
Visa is not worried.
Don't confuse the cause and effect. If there's massive inflation and bitcoin becomes highly relevant, you're losing if you hold USD, no matter what! The arrogant central bankers are the cause. Nobody is cheering for that. Bitcoin is just a hedge.
If you're afraid of stagflation and you want to park your money in something that holds value, what should you buy? Precious metals, which have been manipulated for decades? Property, in the context of yet another housing bubble?
I'm not convinced that your average tax paying American will benefit from this - if anything the difficulty in taxing wealth and loss of ability to print/control money granted to Americans by American guns could lead to a noticeable decrease in quality of life for them.
That being said, there is a tremendous demand from people in many countries to defend their wealth from less stable environments that seek to control their ability to freely transact/store wealth.
No idea how it ends, or even if these cryptos deliver on their potential. Any idiot can see there are many roadblocks, and I personally think that Bitcoin's price is wildly manipulated (and most likely a ponzi).
However, as someone who has 2nd hand experience with poorly run govs stripping peoples' wealth for political reasons, I'm very excited by these possibilities in spite of some of the negatives.
For the record I have no Bitcoin, but I do run a node for another crypto I find interesting.
For them, someone actively controlling the supply of money is probably a good thing. Anything they have is pretty safe in a bank and somewhat covered by the government. Their taxes pay for police, sewage, the bins to be taken away, their roads to be repaired.
I love the idea that people are seeking to do incredible things in the crypto space, but all too often it seems to be lumped in with people's desire to transfer money across borders (again, useless for the everyperson) or avoid taxes - which if we all did would probably be a big negative. Assuming the government didn't step in pretty quickly, because what government wants to lose control?
As soon as you start talking about cryptocurrency with oversight to protect my mum and dad, where people aren't just trying to get rich quickly and make sure taxes are paid - people seem to dial out pretty quickly.
There is literally no role for the key feature of blockchain - decentralised ledger, proof of work-backed transactions - in this case. You might as well use a trusted, regulated party with a database. You know, like Visa do.
The "incredible things" are also pointless things. That also burn energy like there's no tomorrow. Double meaning intended.
As for social/economic systems such as capitalism that's neither here nor there. Apples and oranges so to speak.
That is not a stable state in our reality though, which is why it falls apart at some point.
Or pigeon. Sorry I meant pigeon.
In most countries I know, in-country transfers from bank to bank are free.
You take those generated bitcoins and sell them for cold hard cash
You spend cash
P.S. I own crypto including Bitcoin.
And to offset my energy expenditure I always activate the “ECO” function on my SUV.
I recommend other do the same
Also, deflationary money is the best thing that can happen to environment. It's time to stop destroying savings in order to accelerate pointless consumption (and production).
Do you have a cite for this?
There's one study I found (not quite recent though): https://www.cryptoglobe.com/latest/2019/06/74-of-bitcoin-min...
https://www.finextra.com/newsarticle/36672/renewable-energy-...
Since the fundamental value of a piece of paper with dead presidents printed on it is also zero, and would be negative if a proper carbon tax was applied to its massive polluting military, I predict that the current bubble will eventually end in another bust.
In literally no way is this guy wrong.
For example, mining the first bitcoin didn’t create $50K in carbon costs.
Ecosystem destruction is negative.
Using energy is not negative.
Focus on the problem. Bitcoin could disappear tomorrow and we'd still be fucked unless we address the real issue.
Does the Occam's razor apply here? Are people just salty they didn't buy a few back when they first heard about it, now trying to justify themselves?
So if you have a problem or comment on the article in question, please make it, we're all ears. But responding to valid criticisms of Bitcoin with hand-wavy "oh HN is so anti-Bitcoin" is not discussion, it's tribalism.
That is very different than the "HN is so anti-Bitcoin bringing up decade old strawmen" comment I responded to. Perhaps most obviously by the fact that there are many in the crypto community itself that believe the energy usage of BTC is a real problem and are attempting to come up with viable alternatives like proof of stake.
I love how people who are the most condescending are also usually the most wrong. Have you never heard of Ethereum 2.0?
I agree with Bitcoin being neither money nor commodity - nor anything else, really. To me Bitcoin is Gamestop on a grander scale, a bunch of people deciding something has value that really has none (or in the case of Gamestop very little). I don't regret "missing" the hype in either case, preferring investments that make sense based on the fundamentals (assets, cashflow, profits, etc) instead of bets on pure speculation.
I do, of course, want to be "right" about Bitcoin (who doesn't like being right?) but it's far more of a curiosity for me than anything else.
I honestly don't understand how people can continue to defend it. The only explanation I can think of is that the masses who showed up to the party late don't care if it's gotten out of hand and is now in danger of trashing the place or setting the building on fire. They just made the trip out there.
Consider how we define poverty.
Suppose we discover an as-yet unknown group of people who have been using traditional farming methods to sustain themselves in the same area for thousands of years.
How would you classify them economically? Are they in "abject poverty", the same as a group whose traditional means of sustenance have been destroyed and who rely on international aid? What distinction do we make?
Bitcoin is a non-issue.
edit: http://www.withouthotair.com/ I'm basing this argument on calculations from this book.
That doesn’t make the original point invalid, though. Bitcoin’s energy usage is absolutely significant. In a world where we’re chasing a couple percent efficiency improvements here and there, it’s ridiculous that people are promoting a currency that literally incentivized people to perform wasteful computing operations on the scale of a medium sized country.
I'm waiting for a time where programmers will find it completely rational to optimize the fastest functions in their code.
This whole environmental footprint of Bitcoin is absolutely meaningless. It's the most efficient and least destructive waste of energy imagined.
EDIT: I wouldn't take anything he says about it seriously, he's basically clueless on the topic.
EDIT2: In free markets value of something, e.g. Bitcoin is not decided by some panel of experts, like professor Roubini, but by people buying and selling it. If people want to pay $45k for a Bitcoin then that's it's true value. Roubini's claims that "fundamental value of Bitcoin is zero" is riddiculous. Bitcoins are collectibles, same as, say, baseball cards, and baseball cards can go for some insane prices despite having zero practial usefullness.
“originates from the fact that it escapes his alleged ‘expertise’”
“he’s basically clueless on the topic”
He has also been predicting that "Bitcoin bubble will burst" for the past few years, and he's been wrong about it so far.
So yes, I would say he is clueless when it comes to Bitcoin.
It crashed in 2018, it lost 65% of its value.
If tomorrow your government wakes up and make "dangerous cryptocurrencies" illegal because "criminals use them" they can do that.
The reason Bitcoin value is skyrocketing is mainly speculation. People buy because they want to get rich and quit their crappy job.
There is literally nothing that can't be replicated tomorrow and have the same technological characteristics of Bitcoin. Actually, other cryptocurrencies are even better.
At some point, governments will have their digital cryptocurrencies to track you even better than with the current system.