
Bitcoin, Energy, And The Future Of Money - simba-hiiipower
https://medium.com/armchair-economics/183c2ad47b50
======
bradleyland
If you want to hold assets as a store of value, go buy assets.

The desire for currency to have "intrinsic value" appears to be driven by the
fear of a sudden collapse of currencies that exist only as a system of
accounting (like the US dollar). Or the desire to have a store of value that
never suffers deflation or inflation. We all want that, but most of us
acknowledge that it is no more possible than a utopia.

You can't freeze the economic system. Whether you back your money with energy,
cryptography, flowers, or seashells, you can never control all the other
factors, and thus your currency will fluctate.

~~~
jules
Up to a point, yes. But the whole point of money is that it serves as an
intermediary for value, so that you don't need to do barter. If a currency is
extremely volatile this function is diminished because when you immediately
have to get rid of your money to hold some kind of stable value you get closer
and closer to a barter system. In the limit where nobody wants to hold money
and immediately wants to get rid of it you get a barter system.

For example if bitcoin is so volatile that every time people earn one they
immediately want to buy X with it to make sure they hold their value, you
might as well skip the bitcoin step and directly use X as a currency,
especially since a bitcoin transaction isn't free. X could be stocks, bonds,
gold, dollars, etc.

~~~
bradleyland
I agree 100%. One of the goals of a flexible money supply is to reduce the
volatility of currency. As your economy grows, so should your money supply.
This requires flexibility in money supply and tight analysis of the economy
and money supply.

There is a separate argument surrounding currency debt. That is, current
policy doesn't strictly regulate the money supply in a way that tracks
economic growth. They use debt as a means to "create" growth. I won't pretend
that this is some sort of foregone conclusion, but the whole debacle involving
Reinhart and Rogoff and their Excel error dealt a serious blow to those who
object to the theory that debt drives growth. Again, I'm not saying the case
is closed, but right now, the debt-driven-growth folks are winning the debate.

When you fix your currency to a commodity or other non-controllable factor,
you give up control of your money supply, which causes volatility of its own.

------
kcorbitt
This is a profoundly bad idea, and will likely never happen. The OP makes the
assertion that quality of life is directly proportional to energy usage, so
creating more energy is the primary way to grow an economy.

While this is true to a limited extend, do we really /want/ it to be true?
Using energy as the measurement of an economy's size would naturally lead to
economies across the globe investing in raw energy output, rather than other
equally (or more) important areas of technological progress like making future
infrastructure more energy-efficient. This wouldn't be so bad if it weren't
for the fact that the sources of energy we most commonly turn to today, fossil
fuels, are inherently limited and have huge negative externalities. We need to
come up with a standard that convinces markets to grow the standard of living
in a way that doesn't require increasing the energy supply. If we don't, we
risk exacerbating the global environmental and resource crises.

~~~
deathcakes
"Using energy as the measurement of an economy's size would naturally lead to
economies across the globe investing in raw energy output, rather than other
equally (or more) important areas of technological progress like making future
infrastructure more energy-efficient."

The first part is probably true, but surely if your currency is based on
energy, you will probably spend a hell of a lot of effort on squeezing the
most out of each dollar/joule?

------
hxa7241
Why? If you want to measure energy, measure energy. The point of currency is
something else.

 _Currency/money is a data-structure for a kind of cooperation algorithm_.
That is the way to understand it in an informational world. Note that money is
not really about being a 'medium of exchange', a 'unit of account', 'store of
value' -- those are tautological ways to look at it, they are its _particular_
forms of activity, the real purpose is cooperation (more) generally.

The radical thought is that we do not really want currencies. We want
something more information-rich -- something made for our current information
tech, rather than originated from cowry shells or whatever. Hardly anyone is
thinking in this way though, disappointingly. Yet it is myopia: if you look
around non-currency systems are beginning to evolve. What is reputation, or
'karma', are they currency? Not really. What are things like Flattr and
Kickstarter, are they markets? Not really.

Start deliberately thinking beyond currency.

------
cpswan
I was thinking the other day about Bitcoin using proof of work (which uses
energy), which makes it an energy proxy. It therefore seems to make little
sense that one would pay for energy to be used with energy that has been used.
Or is time arbitrage of energy something really useful?

~~~
maxerickson
The relationship between bitcoin and energy is not an equality. The energy
cost of mining should approximately match the available reward, but that is
because miners are adjusting their activity.

You wouldn't purchase my heating bills from me...

~~~
fnordfnordfnord
_The relationship between bitcoin and energy is not an equality._

Exactly, technology improvements can and do change the energy used.

~~~
venomsnake
Bitcoin has adaptable difficulty and it will always be very close to the most
efficient way to mine them. The only way to decrease total energy is to crash
the price of bitcoins or cartel. In both cases the system is already screwed
anyway.

------
nwatson
The very premise that the value of a "fuel" is in its energy content alone is
wrong. We'd be quick to lower the value of a "dirty Joule" (eg coal) compared
to a "clean Joule" (hydrogen). Also, some fuels are inherently much cheaper to
extract than others (coal is so cheap, and hydrogen so expensive). These costs
of extraction also change over time -- ten years ago some applications
naturally called for liquid fossil fuels (heating oil, diesel, gasoline), but
after the fracking revolution a new operation starting today would better and
more cheaply use natural gas. Natural gas will continue to be cheaper for some
industrial applications in some areas until deployed fuel-using industrial
capital equipment and vehicles using natural gas increases to take advantage
of the cheaper energy.

Other factors that affect the pricing of a "Joule": convenience of application
(I can't burn coal in my car, I pay a premium for gasoline; gasoline won't get
me to the moon, I pay a premium for rocket fuel); ease of refining the mined
resource into finished product form; ease of transporting fuels from source to
"refinery" to distribution to end user; we'll pay a premium for fuels with a
reliable steady supply; outside risks, e.g., political unrest in the Middle
East increasing production costs and risk.

The "joule" measure for the value of a fuel is flawed. We already have a great
measure for the value of a fuel, it is the US$.

Also, as many point out, the energy required to create a bitcoin has little
bearing on its value. Energy costs help determine the mining effort and
technology put toward mining bitcoin, but the value of a BTC will fluctuate
depending on other factors. The total energy required to manufacture,
transport components of, and assemble a house, along with the "inherent" value
of those materials, is less than the US$-denominated utility of that house. If
I shock a turd with the same energy used to build the house, it doesn't have
any value approaching that of the house unless I'm Andy Warhol.

~~~
SonicSoul
those factors would be covered by the "utility" aspect.

"The energy supply defines how much productive work can be done, while the
efficiency with which we use energy defines how much utility can be created
from that energy supply (widgets per kilowatt-hour)."

the $ is driven by more factors such as FX, inflation, interest rates and
therefore not a clean measure of energy value.

possibly the purest current value of energy today would be in energies futures
markets?

~~~
nawitus
Can you clarify what that digets per kilowatt-hour means? If I own 1 million
Joules, then how is efficiency specified? Since 1 million Joules in oil has a
different worth/value than 1 million Joules in hydrogen, I don't understand
how one can trade Joules. The point of currency should be interchangeability.

If people don't actually own money as joules, but money as "widgets" or
"joules of oil"+"joules of hydrogen".., then you can just abstract away the
energy stuff.

I'm not impressed by the energy as currency concept. Money should reflect
_all_ resources, including energy, human labour etc. Binding currency to
something (like gold) doesn't seem to be useful.

------
colemorrison
Why this is ridiculous and in need of some very basic economics lessons:

1\. Hopefully the words "Monetary Policy" and "Fiscal Policy" ring a bell. The
ability to control market fluctuations, let alone wield some level of
political power as a government, lies heavily within a government's ability to
utilize its money supply. Not all regulation/rule is evil - what would a
programming language be without regulation/rules? Additionally, the great
depression was more than proof at the need for some level of market regulation
(John Keynes).

2\. Basing money on a fixed supply, IE FUCKING ENERGY (since it can't be
created or destroyed), would imply that there is a fixed amount of wealth.
That's called Mercantilism and it was disbanded by Adam Smith... and 1000s of
other economists/governments/times/etc

3\. Bitcoin and friends decrease the transaction costs of money exchange
(government regulation, forex, taxes). Money creates liquidity for the value
you've created, and Bitcoin and friends makes that value more liquid -in
certain ways- but it does not replace money.

4\. Stability. Knowing that there is an entity that will back their currency,
filled with fail safes, etc. encourages proliferation of that currency. It's
why most investments (forex wies) are done in US dollars. Thing such as
bitcoin, do not have that type of security. (FDIC anyone?)

5\. Decentralization of currency often leads to destabilization of currency.
If anyone can make it (and yes, it is far more likely someone will create a
bitcoin instead of forging a US dollar), then the value in and of itself will
drop.

6\. "But WallStreet and all the finance people are up in a yipyap about it!"
That's because it's an investment - many people play the forex (foreign
exchange market) because there is much profit to be made from arbitrating
currencies.

7\. Inflation is needed - Milton Friedman has this at about 4% or so a year to
keep up (check on that). Why? Try playing monopoly with 4 players with the set
of cash they give you. Then try it with 10. There's not enough money to
represent the players, therefore you need more. Inflation isn't always bad.

~~~
oleganza
Since you advocate inflation, is it okay to distribute new money among
everyone proportionally to their balances? If so, isn't it equivalent to mere
change in denomination? (By the way, all bitcoins are divisible to 2000
trillion units.)

~~~
DavidSJ
Price rigidity means the costs of goods does not adapt immediately to
fluctuations in money supply (e.g. employment & rent contracts take time to be
renegotiated, price changes take time to ripple through the supply chain,
etc.), so it's not equivalent.

~~~
Groxx
So, if our economy _were_ to be immediately influenced by inflation efforts
(say wages and costs automatically tracked it to the day)... then what?

Though that's kind of crazy, it's far from a possibility. And, given the
increasingly-global nature of business, anything like online sales could
easily track this to the minute by watching exchange rates. It's definitely
not there yet, but it almost seems inevitable given time.

------
michaelfeathers
I'm trying to imagine the inflation that would result from reliable fusion
technology. That said, currency that is destroyed as the backing energy is
consumed is an interesting concept.

~~~
DennisP
There'd be no use in printing vouchers for more energy than people have a use
for. If more abundant energy means usage expands, that means the size of the
economy is expanding, and the currency would simply be adjusting to fit. You
only have inflation if the currency expands faster than the economy does.

------
DennisP
A similar idea I came up with a while back was to back a currency by carbon
sequestered from the atmosphere. Anyone who absorbs atmospheric carbon in an
auditable way would get vouchers denominated in tons CO2, and anyone who emits
would submit those vouchers or pay a fee. Practically, the "emitters" would
just be primary sources (coal mines, oil wells) who would pass the costs to
the rest of us.

Fees paid could be distributed to citizens, making the whole thing work just
like Hansen's fee-and-dividend, but adding an incentive to absorb carbon when
it's more efficient to do that than to avoid emissions.

------
Siecje
This doesn't consider rarity and usefulness. Oil is a lot more useful than
hydrogen. As oil becomes rare it will be worth more though it still has the
same amount of energy (specific gravity).

~~~
javert
True, though oil won't become rare for the foreseeable future (e.g. next 100
years) unless it is made so by force (i.e. government regulation).

The US has insanely massive oil reserves given the new fracking technology.

------
michalu
Whats the point, if you want to have your wealth in energy you can do so any
time, energy is a currency by itself you can trade it, exchange it hold it
etc. What difference does it make whether that piece of paper you use to buy
bread is at the time of exchange backed by government that holds and taxes the
economy producing energy ( and more ) or whether it's backed by some
particular asset? ( or backed by nothing except false hopes of few amateur
speculators like bitcoin )

------
qdog
I'm sure if you read my previous comments, it's obvious I'm not an economist,
but here goes:

All money has only the intrinsic value of your labor. That's it. Gold, Silver,
U.S. Dollars, wooden coffee tokens, they all represent a claim on human labor.
There is effectively an infinite supply of gold on earth(unfortunately most is
believed to be in the molten core and no one is able to process it of seawater
yet), the only reason it's reasonably valuable by itself is the labor input
required to harvest it.

At some point, maybe robots will fix themselves and human labor will no longer
be required, in which case the whole basis for a money system is going to
disappear. However, that hasn't happened, and doesn't look to happen in the
near future.

People should keep this in mind when thinking about money. Fluctuations in
value in a currency leads to the arbitrage of labor. Currency itself has no
value, it only represents value. Backing it with energy or some other
resource, still simply links it to how much labor that energy source requires.

So far, there has been no perfect currency, and I doubt there ever will be.
Bitcoin may solve some problems, but it doesn't solve all of them, and it's
not clear it solves more problems than many other solutions. While some people
may get rich from the arbitrage, not everyone can sit around trading 1's and
0's. Someone has to do the labor.

I'll reference Adam Smith again, who's theory was that Late Stage Capitalism
would end in the destruction of the Capitalist State when the profits of
finance were so high in proportion to the profits of labor, labor ceased.
Right now the trading of bitcoins is much more profitable than selling stuff
for bitcoins, so bitcoin has pretty much skipped the labor input part and gone
straight to finance, so I still don't think it's addressed the main problem
with currency, which is that people still think of currency as the value, not
the labor it represents.

------
snarfy
This was my argument with a friend the other day, that a bitcoin is worth the
amount of energy needed to create it.

The other point was that it is not important for a currency to be a long term
store of value. It's only needed to facilitate transactions.

------
cagenut
we have an energy backed currency, its called the (petro)dollar.

~~~
michaelfeathers
That is just a count of US dollars used in currency transactions.

------
wcoenen
This reminds me of kilowatt cards[1].

[1] <http://www.kilowattcards.com/>

~~~
randallsquared
It appears that kilowatt cards are priced at "$3.50 or less", which removes
the actual advantage of using energy as money. If they were really good for
delivery of energy, this would incentivize people to move energy from places
it's now cheap to places it's expensive. By removing the possibility for
arbitrage they've destroyed most of the point.

------
coin
Why disable pinch zoom for iOS devices?

