Critics Claim Bitcoin Is A Threat To The Environment. They're Wrong

bitcoin mine

The popular critique of bitcoin is energy cost per transaction. This doesn’t begin to capture bitcoin’s massive energy savings compared to fiat currency.

Bitcoin’s cost per transaction is well known, and often critiqued; one article in Wired magazine called bitcoin “[a] big middle finger to earth’s climate.” This is because bitcoin’s security, redundancy, and architecture are more energy-intensive than traditional payments relying on a single point of failure.

Comparing the energy of a single transaction barely scrapes the surface of the dollar’s carbon footprint, which includes the entire financial infrastructure supporting fiat—8.4 percent of GDP in the US alone, slightly behind manufacturing. This includes 80,000 bank branches470,000 ATMs in the US alone, and forests of skyscrapers towering over most cities on earth.

Alas, that’s still only the beginning. Because paper money allows governments to print unlimited amounts of debt, that causes various collateral damage including inflation, recessions, and trillions in wasteful spending or endless wars whose costs are hidden by debt financing. These all, of course, carry catastrophic human costs that can only be imperfectly expressed in a carbon footprint.

Still, we can take a stab at addressing that disconnect by estimating the carbon footprint of just one element of fiat collateral damage: the modern recession.

First, how does fiat money cause recession? This was well known in economics for centuries before the Keynesian dogma turned mainstream economists into court jesters.

The key element is that central banks push interest rates below the market rate, flooding easy money into the economy. This boom gradually sparks price inflation, at which point central banks slam on the brakes and jack up rates, tightening money. That whipsaw leads to a mass extinction of low-quality projects funded by easy money.

The end result is a boom-bust cycle that, like a tissue fire, burns too bright and too short, leaving behind ashes.

How does bitcoin fix this? Bitcoin takes purchasing power out of central banks’ manipulation space, dulling their ability to cause cycles. If enough dollars are sold for bitcoin, this drains that space until central bank manipulation no longer sends the entire economy into recession.

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