We have a perfectly good system in place for punishing people who waste energy - it is called "the economy". It applies constant pressure to people who waste things.
If crypto manages to run that gauntlet, there is a good chance that someone with a track record thinks it is socially useful. People confidently declaring that it is useless are in the same bucket as people confidently declaring that the internet was a fad in the first big tech bubble - lacking humility. The truth is we don't know if this (likely outrageously large) bubble is a complete waste or masking something transformative.
We have a perfectly good system in place for punishing people who waste energy - it is called "the economy". It applies constant pressure to people who waste things.
That's a good theory, but it doesn't seem to be working. Because, well... gestures broadly at everything
I think the problem here is that "the economy" is not punishing miners but rewarding them.
Only a small minority of people who buy crypto genuinely have a considered belief that it's socially useful. The overwhelming majority are simply speculators who believe that they can sell it for more than they bought it for.
> ...speculators who believe that they can sell it for more than they bought it for...
Which, assuming that the individual speculators are intelligent and rational, has the emergent property of providing something that is socially useful. And if they are stupid and irrational, it'll bankrupt the lot of them so that they can't waste that much money again.
The economy is a cruel beast, but it is much better than you or I at deciding what needs to happen to get people what they need. If something like bitcoin really is just a money burning exercise with no redeeming property, sooner or later it'll go bankrupt and disappear back into obscurity. It can't be a hot new thing forever. And "speculators" only have power when they are consistently right. If they routinely make big gambles and get it wrong then they don't get to speculate for long.
>Libertarianism's attraction is based on ignoring externalities, and cryptocurrencies are no exception.
The economy as currently regulated doesn't correctly price in externalities such as the ongoing cost of global heating generated by burning fossil fuels.
I'm all for including externalities. My usual argument is if you look at positive and negative externalities, fossil fuels are a massive win.
People seem to struggle with positive externalities so the argument usually falls flat, and the situation is too clear to me to be able to spell it out easily. But without fossil fuels, 40-80% of the modern world would have been all but impossible. The knock-on effects of abundant cheap energy (and precursor materials to plastics) aren't being priced in.
The 'positive externalities' of fossil fuels are already accounted for in our economic system: When mining for raw materials, the price that the miner is paid in the first sale is payment for that. And ditto in every subsequent sale: The benefits to the buyer goes into setting the price.
I am not an expert on economics nomenclature, but ISTM you can't really call that externalities when it's already being rewarded by the current economic system. Wouldn't that be an "internality" or something? They are already included.
Unlike the negative externalities from pollution. In the absence of something like a carbon tax, they are not included.
I've never bought any oil directly. It is beyond question that if oil & gas producers disappeared I'd be much worse off (it'd be physically quite difficult for me to get food, for example, and I'd likely starve to death). That is the informal definition of an externality right there; my entire lifestyle is being enabled by a deal that I'm not party to.
And even if I've got the definition wrong, the oil and gas producers are creating huge amounts of value that are being captured by other actors in the economy (like me). If we fairly evened out the harms and benefits, they deserve subsidies rather than taxes. Obviously nobody sane is going to advocate for that, but if we want to price in externalities that is the logical outcome.
This isn't obscure logic. People often point out that the measurable value of what blue collar workers produce is far in excess of their pay and follow it up with the idea that we should force the market to pay them more. It isn't a good idea but it is logical in as far as it goes.
>That is the informal definition of an externality right there.
You pay a grocer who pays a farmer who pays a fertiliser manufacturer who buys some natural gas. You wanting to eat has a reasonably direct impact on demand for fossil fuels, and therefore prices and profits. The oil company doesn't capture all the value, partly because they're not doing all the work, and partly because of competition.
If the oil companies went away tomorrow, the price of oil would skyrocket, because people want to eat, and new oil companies would form to meet the demand. There is no need for subsidy.
Positive externalities are things like "I financed construction of a road for my own commercial reasons, but other people can use it for free". Or "I wanted to renovate the rundown building I live in, but doing so made my neighbour happy too".
But to come back to the point, finally. The argument is that we know crypto mining has negative externalities (crypto miners don't have to reimburse people negatively impacted by climate change). The article argues that permissionless blockchains are doomed, ultimately, to fail anyway. So they will destroy value, by pointlessly wasting fuel AND by harming the climate (which doesn't factor into a miner's decision-making because it's an externality).
There is if we add on a tax for the negative externalities, we need to consider both positive and negative externalities to get the tax right. The evidence is that the more fossil fuels we use the better off people are. If we add a tax on we'll use less, which is pushing the market in the wrong direction.
It is very hard to argue coherently that less & more expensive energy leads to better outcomes. The evidence is that in countries like China, Africa & India everyone benefits a lot more from using more fossil fuels than the cost of any negative externalities. We've run a big natural experiment here, the outcome is that more fossil fuels == rapidly improving living standards. Less fossil fuels leads to poverty.
Breaking growth in fossil fuels with a tax would be doing much more harm than good, even to bystanders. So there must be a large positive externality here somewhere. Because if you reduce the negative externalities and the outcome is much worse for everyone then there was probably a big positive externality in there somewhere.
I dunno, I suppose as a question - who do you think is bearing the cost of these negative externalities right now? Because it sounds from your reasoning like you are imagining a group of people who don't use fossil fuels or sit downstream of fossil fuels (so they can't influence the market with price signals). Who are these people, demographically speaking? And to preempt my argument, would they not be better off if we got them access to fossil fuel rather than worrying about negative externalities as they sit outside the system? It worked great for China.
> There is if we add on a tax for the negative externalities, we need to consider both positive and negative externalities to get the tax right.
There are few positive externalities directly associated with the act of burning oil, except some associated with global heating.
There may be positive and negative externalities from the things people choose to do with the power generated. Companies are generally better at internalising positive effects than negative ones, for obvious reasons. If my chemical plant produces hot water as a waste product, I can sell that to the plant next door or to a district heating system. Competent business try not to leave value on the table, and try not to pay costs that they don't have to. But where they can be identified, sure, subsidise away. Just not crypto mining.
> So there must be a large positive externality here somewhere
Not necessarily. There is/was a large positive asset: ie. a huge store of chemical energy underground. It has allowed us to do incredible things. If the cost of it included the negative impacts of burning it, the market would use less of it, smarter, more efficiently, towards the most valuable outcomes, and in better balance with the harms.
>who do you think is bearing the cost of these negative externalities right now? ...would they not be better off if we got them access to fossil fuel
I'm not a climate scientist and I'm not qualified to re-litigate the scientific consensus, which is that global heating is dangerous. Some will be more affected than others by increased incidence of extreme weather, water wars, mass migration, cost of flood defences etc. But ultimately it is a "tragedy of the commons": few of us are innocent, most of us are impacted or at risk in some way. It isn't even in the interests of those of us with economic power to stop polluting, because the cost of each of our individual actions is externalised. If I take a flight, I get the full benefit, but experience only one eight billionth of the total harm. That's why it needs a systemic fix.
Sure. Fossil fuels are valuable to society. They made the industrial revolution possible. If they were to disappear tomorrow, much hardship would ensue.
They are, however, overused, because the negative externalities are not properly accounted for.
> And even if I've got the definition wrong, the oil and gas producers are creating huge amounts of value that are being captured by other actors in the economy (like me).
That's how all market transactions work: Whenever you buy something, it's because the value you derive from the purchase is higher than the price you pay. All business has this value-add aspect. When you buy a jacket so you don't freeze to death in the winter, that doesn't mean you are beholden to the clothes manufacturer for your life.
> If they were to disappear tomorrow, much hardship would ensue. They are, however, overused...
No, that isn't true. There is a reason the environmentalists have had so much trouble getting their policies to catch and it is the fact that statements like this are manifestly wrong. The hardship caused by fossil fuels is minute compared to the benefits. If anything, oil and gas are underused. There is little question that if we could get more people more oil & gas, lifestyles would improve more than damage done by negative externalities. We've seen this play out in multiple countries. The only reason not to be pushing them like mad is that we're about to run out of useful reserves.
The benefits of a modern economy powered by cheap energy substantially outweigh the negatives. More cheap energy pretty much inevitably increases the general good. Taxing that energy doesn't help.
> That's how all market transactions work: Whenever you buy something, it's because the value you derive from the purchase is higher than the price you pay.
Yeah, but that isn't an externality. An externality is something that happens to a third part to a transaction - which is my relationship to the fossil fuel industry. I purchase very little fossil fuel.
The externality is they enable other deals to happen that would otherwise be impossible. Like my groceries.
>"lifestyles would improve more than damage done by negative externalities"
Just because you assert this doesn't make it true. Tragedy of the commons is at play - we have no good way to measure if your statement is true or not - which is it's own issue.
It is easy to imagine how your statement could be wrong, despite what we see.
Starting with a non-industrialized society, you add in some tech, like cars. Some people use them for personal benefit. Of course a few cars don't cause everything to go suck just by themselves, and even so, the benefit for their users outweigh the harm to them personally, so they use them! Some other people are now going to need to use cars to compete with the people who do use them. Eventually the harms really become apparent, but there is no going back. And even if some people would choose not to use cars because of the harm, it is much harder to choose to abstain when practically speaking, things are still going to suck because everyone else is.
So, taking cars as an example, how do you know you are right?
There surely are positive externalities, but the very useful things we burn fossil fuels for are reflected in the price - cheap or no. Those primary reasons for burning fuel will have all sorts of externalities, positive and negative. And one would expect similar externalities from the work done by renewable energy.
If your position is simply that we are fortunate our planet was/is abundant in fossil fuels, I don't disagree (ideally there wouldn't have been enough to completely wreck the climate we depend on, but...). But the issue is whether we should trust the market in respect to cryptocurrency mining specifically. The history of human civilisation seems a bit beyond the scope.
> but the very useful things we burn fossil fuels for are reflected in the price
If we imagine a counterfactual where there were no fossil fuels, double-digit percentages of the world's population wouldn't exist.
There is no way that the oil and gas producing companies have made money on the same scale as the value they've created by enabling billions of humans to exist. No way at all. There is obviously something very powerful happening that is more than offsetting the notional damage that they will theoretically do at some point in the future to a relatively small percentage of humans.
If we balance out the harms and benefits that the coal and petroleum miners have caused to the rest of humanity, the ledger is overwhelmingly in their favour. I can't even estimate the numbers involved but based on the fact that I'm not slaving away for a fossil fuel company double digit percentages of my life I can tell it isn't close.
This is flawed libertarian thinking. For example, if a scammer called your grandmother and got her to send them her life savings, it wouldn't be a good thing just because she is "too stupid" to have the money.
The logic does break down for criminal activity. But:
(1) Mr. Wog93 was talking about speculators, not criminals.
(2) If any of my grandmothers were still alive then they could be scammed in any asset class. Bitcoin is riskier but, frankly, anyone crazy enough to "invest" in bitcoin is probably going to lose all their money regardless of whether they get scammed or not. So this grandmother test is a bit of a wash in my eyes.
The only thing that makes me special is I'm humble enough to say maybe I'm completely wrong in my opinions so other people should be allowed to take risks I think are stupid. There is a fair-enough system that will sort out who is right and who is wrong based on evidence.
>Only a small minority of people who buy stocks genuinely have a considered belief that it's socially useful. The overwhelming majority are simply speculators who believe that they can sell it for more than they bought it for.
Replaced crypto with stocks, how does it read now?
When someone makes an argument of the sort that just because there is a market for something then it magically becomes useful, it tells me they haven’t heard or understood this quote:
“The market can remain irrational longer than you can remain solvent”
Sounds like you have to read up a lot more on tulips.
Also, strange how such prominent tulip story never resulted in adoption of tulips by any country? So weird, why is that?
And yet with Bitcoin, we see adoption not by one, but by several G-7 countries as a valid payment mechanism, one small country as legal tender, another small country preparing a bill this year, and Russia signalling it will regulate Bitcoin as currency, not property?
But anyway, here you actually presented some arguments and explanations for why bitcoin can be useful.
Now, I don’t think bitcoin will actually end up anywhere useful in the end because it doesn’t really solve anything that fiat doesn’t (except perhaps for people in the illegal payments market) but we can disagree on that.
My point was about the previous argument, that there was inherent usefulness or value in bitcoin just because there are people speculating on it, that is fallacious.
If Bitcoin, or something like it, can ever become the only monetary asset - this would probably be an amazing achievement for humanity.
This would mean much cheaper commodities(including gold and silver), much cheaper land, much cheaper housing, a lot fewer bubbles in the stock market. Much more healthy fiscal environment overall, with other stores of value "demonetized" and devoid of the monetary premium. A stretch goal for sure, but maybe can be eventually approached asymptotically on a longer time scale.
However, a pure monetary asset doesn't need to have any intrinsic value. It just needs to be a widely accepted store of value (and preferably, but not necessarily medium of exchange).
As such, it would seem that an entirely speculative asset would be one of the greatest achievements we will ever make.
Seems contradictory at first, but if you really think about it, I see nothing of fundamental importance that comes even close to it today. Especially today.
> This would mean much cheaper commodities(including gold and silver), much cheaper land, much cheaper housing, a lot fewer bubbles in the stock market. Much more healthy fiscal environment overall, with other stores of value "demonetized" and devoid of the monetary premium.
How would you suppose bitcoin or any other crypto would lead to this?
It’s a big IF, and something we probably won’t live long enough to witness even if it somehow works out.
If it becomes the global reserve currency, and remains accessible to everyone - the world would end up on a disinflationary Bitcoin standard.
In a disinflationary/deflationary environment the cost of borrowing/interest rates goes up, thus the leverage that is fueling asset inflation is removed. Blackrock doesn’t buy single family houses cash, they have access to the fed discount window.
During the gold standard we’ve had prices stable for hundreds of years in some examples, so at least we’ve seen that historically prices can be quite stable.
Today, land has become the primary saving vehicle and that’s less than ideal.
Personally I’d love to see land demonetized as an asset via Georgist taxes.
Pretty spot on, it’s a fairly popular criticism of the stock market that it’s disconnected from providing much social utility. For example that some companies have massively outsized valuations.
small people invest money in hopes of being less poor. They never get truly wealthy doing that.
The ultra-wealthy deploy or deny capital to mold the society to their views.
"Social utility" is just this mind virus the ultra-wealthy spread in everyone's mind to make their rule-by-proxy feudalism palatable to the peasant class.
Stock markets are tiny compared to private equity and privately held biz and real estate.
but to your point, you are exactly correct. Stock markets is a game, designed to methodically transfer wealth from the peasant pockets to the ultra-wealthy that write the rules of the game.
One, and most common, game is to have peasants as suckers of the last resort and have their pension funds buy all kinds of garbage because "mandates". Why would anyone want to hold negative yielding debt? But they do.
>Stock markets is a game, designed to methodically transfer wealth from the peasant pockets to the ultra-wealthy that write the rules of the game.
What the fuck are you talking about?
If the stock market didn't exist, it would literally be impossible for average people to own (parts of) extremely productive and profitable large companies.
The average Joe would just fall even further behind.
You obviously don't understand the pricing mechanism and utility of basically a decentralized equity valuation engine. I mean that is what the stock market ultimately is.
These articles are pointless. No one is going to bother reading Brian Arthur of all people to have any clue.
Just the same dumb conversations over and over and over.
>Replaced crypto with stocks, how does it read now?
It reads like a false equivalence.
I do own stocks in companies such as Woolworths (retailer), BHP (mining company) and Westpac (banking company). The fact that they produce goods or services that they can sell at a profit was a huge decision in my decision to invest (and a big reason why I didn't invest in crypto).
I don't have data, but I suspect this is how most stockholders think. They accumulate shares over their lifetime and rely on the dividends to pay for their lifestyle during retirement.
Yes, Wall Street Bets exists, but the average person with stocks is not a day trader leveraging themselves up to their eyeballs to gamble on some crazy contracts.
and all of your investments did worse than Amazon or Tesla, that haven't been particularly profitable.
Amazon hasn't been profitable on paper for decades. Tesla took until 2021 to make a profit.
You'd underperform terribly if you were to wait until they make a profit, as markets are forward looking and you are paying attention to trailing indicators.
Profits today for an organization size of Amazon is execution of a plan put in place 5 years ago.
If you are about to dive into value investing: Berkshire made most of their money from Apple, which was a side bet made by a hired portfolio manager, not Buffett himself.
The system doesn't work because crypto currencies (and thus energy they use) is used directly to bypass laws of regulations we have.
It's like saying that we perfectly good system called economy and thus drug cartels are the natural results. Who knows, maybe their bloody rule will result in something transformative as well. Still I wouldn't be happy just accepting the state of things.
If crypto manages to run that gauntlet, there is a good chance that someone with a track record thinks it is socially useful. People confidently declaring that it is useless are in the same bucket as people confidently declaring that the internet was a fad in the first big tech bubble - lacking humility. The truth is we don't know if this (likely outrageously large) bubble is a complete waste or masking something transformative.