The fourth essay in the Gradually, Then Suddenly series (originally published 16 Aug 2019) explains the relationship between energy use and the stability of monetary systems. In it, Parker Lewis argues that concerns about the amount of energy bitcoin consumes is a red herring.
Every time you board a commercial flight you will hear essentially the same safety briefing—put your own oxygen mask on before tending to children. Instinctively, it’s counterintuitive, but it highlights the dependent nature of the relationship.
Every time you board a commercial flight you will hear essentially the same safety briefing—put your own oxygen mask on before tending to children. Instinctively, it’s counterintuitive, but it highlights the dependent nature of the relationship.
The same principle applies to the coordination function of money in an economy and the resources required to protect that function.
Swipe up to sign up for a free webinar where you can learn how to set up cold storage for your bitcoin.
Every time you board a commercial flight you will hear essentially the same safety briefing—put your own oxygen mask on before tending to children. Instinctively, it’s counterintuitive, but it highlights the dependent nature of the relationship.
Money is the good that allows for specialization and the division of labor. It enables individuals to pursue their own interests by communicating their preferences to the world. It is what creates the range of choices we all take for granted.
Every time you board a commercial flight you will hear essentially the same safety briefing—put your own oxygen mask on before tending to children. Instinctively, it’s counterintuitive, but it highlights the dependent nature of the relationship.
A more philosophical safety briefing may be: “Please first make sure the money supply is secure so that we can coordinate the activity of thousands of people to build these incredibly complex planes that afford you the opportunity to fly.”
Every time you board a commercial flight you will hear essentially the same safety briefing—put your own oxygen mask on before tending to children. Instinctively, it’s counterintuitive, but it highlights the dependent nature of the relationship.
Monetary debasement distorts the price mechanism of a currency, which then creates economic imbalances. As economic coordination deteriorates, complex supply chains become disrupted resulting in a decline in the supply of real goods.
Think about the basics: clean water, sanitation, food, medicine, basic healthcare, etc. The coordination of resources to deliver these basic services is dependent on a functioning monetary system.
Venezuela provides a tangible macro and micro example of the vital role money plays in economic coordination and the dysfunction that follows when a monetary good fails.
Every time you board a commercial flight you will hear essentially the same safety briefing—put your own oxygen mask on before tending to children. Instinctively, it’s counterintuitive, but it highlights the dependent nature of the relationship.
Venezuela can no longer import the technology or coordinate the resources it needs to extract its primary trading currency—oil. This has caused significant deterioration in its local economy, impairing its ability to power its own energy grids.
Many sitting comfortably in the developed world look at Venezuela and think that it could never happen here. But this ignores all first principles. Whether it is well understood or not, the underpinnings of all fiat currency systems are the same.
Every time you board a commercial flight you will hear essentially the same safety briefing—put your own oxygen mask on before tending to children. Instinctively, it’s counterintuitive, but it highlights the dependent nature of the relationship.
To highlight the U.S. as an example, the Federal Reserve expanded the monetary base from $180 billion in 1984 to a peak of $4.2 trillion following QE3, a 23-fold increase.
Every time you board a commercial flight you will hear essentially the same safety briefing—put your own oxygen mask on before tending to children. Instinctively, it’s counterintuitive, but it highlights the dependent nature of the relationship.
An honest review of history demonstrates the ill-temperament of those put in charge of managing our economies from central command, with profound gaps in their ability to understand the implications of actions taken on the real economy.
We have a choice between two great contrasts: a) A centrally-planned form of currency designed to lose its value. b) A decentralized currency with a fixed supply.
Every time you board a commercial flight you will hear essentially the same safety briefing—put your own oxygen mask on before tending to children. Instinctively, it’s counterintuitive, but it highlights the dependent nature of the relationship.
Bitcoin is a fundamentally more sound monetary system from the ground up. And, it is one secured by the production and consumption of energy.
Every time you board a commercial flight you will hear essentially the same safety briefing—put your own oxygen mask on before tending to children. Instinctively, it’s counterintuitive, but it highlights the dependent nature of the relationship.
Concerned onlookers raise the red flag about the amount of energy consumed by the bitcoin network. This concern stems from the idea that the energy consumed by the bitcoin network could otherwise be utilized for more productive functions.
It is not that we should sacrifice electricity that could otherwise power homes; instead, it’s that we will never have the electricity to power those homes if we do not have a reliable monetary system to coordinate economic activity and marshal resources.
Every time you board a commercial flight you will hear essentially the same safety briefing—put your own oxygen mask on before tending to children. Instinctively, it’s counterintuitive, but it highlights the dependent nature of the relationship.
The risk inherent in even the possibility of hyperinflation is so negatively asymmetric that the price of bitcoin energy consumption is of small relative cost.
Every time you board a commercial flight you will hear essentially the same safety briefing—put your own oxygen mask on before tending to children. Instinctively, it’s counterintuitive, but it highlights the dependent nature of the relationship.
Bitcoin will consume any and all energy resources necessary to secure its monetary network, which is inherently driven by the base demand to hold it as a currency. The more people that value the long-term stability it provides, the more energy it will consume.
Bitcoin represents a backup switch to the current global financial architecture and is soon to be the system's primary engine. The true justification for the amount of energy bitcoin should, and will, consume is the economic freedom a stable monetary system provides.
Swipe up to read the full essay. Illustrations by @anilsaidso.