The Other Bitcoin Problem
It is not just the carbon footprint.
During the Civil War, a postage stamp to mail a letter cost 3¢. It was still 3¢ when I was a kid. There had been times of inflation, but the price of the stamp had not changed. In fact, during the Civil War, when inflation was outrageous, the government issued paper money that was backed by postage stamps, and people accepted it at full value, or close to it.
I was a kid a long time ago, at a time when commuter trains that went into Chicago were still drawn by steam engines. But as a young coin collector, I was aware of both encased postage stamps, a system allowing protection to stamps as they circulated like coins, and Notgeld, an answer to hyperinflation put into effect by towns and cities in several European countries after WW I. Encased postage stamps were always outside my budget, but I could afford Notgeld. You could buy specimens of one mark or less in new condition for a quarter, and for a buck or two, you could buy a well worn 20 billion mark note.
I was well aware of the potential for trouble when the United States withdrew silver coinage from circulation, and with it silver backing for the dollar. Why would anyone trust the Federal Reserve, after all? But the Fed did have a function and powers it could use to address the question of inflation, to balance it with employment and other economic activities. It could regulate the amount of money in the marketplace. And while that seemed a rather weak system, it was not subject to the whim of a demented President, a corrupt Congress, or a misled citizenry, it was only subject to the whim of people who had been carefully chosen because they understood economics and were able to put the country’s finances above those of the President and the Congress (we hope).
I have had a lot of friends who were altogether too suspicious of the Fed to expect good things to come from it. Some of them have actively promoted local currencies. And I have been in business establishments where local currencies are accepted in payment. They have some pretty big advantages, and no one really minds that the Fed does not approve. (Come to think of it, perhaps the Fed doesn’t really mind either.) In fact, the feeling people seem to get of being somewhat successful at rebellion with local currencies may be the thing that holds up their value.
Some people may have been attracted to Bitcoin for the same reason. They also know that Bitcoin is really hard to mine, they may even know that only a limited number of Bitcoin can be made, because the algorithm for producing them guarantees that. Bitcoin is accepted over much of the planet, though some countries have decided the system is a sort of Ponzi scheme and have banned its use.
Now let’s step away from the economics for a moment and take a look at corporations as they function in America. Twenty-some-odd years ago, I spent time doing penance (aka, working) in corporate America, where I was able to learn from some pretty heavily engaged capitalists. I am not talking about salesmen working for stock brokers, I am talking about working in an office where people like Rupert Murdoch would walk through the door. (He shook my hand, though I doubt he remembers it. I shook his hand. Oh well. But I don’t lose sleep over it.)
One thing I learned is that companies or people who have a lot of money can take the position that they are somewhat immune to the laws. This is not a matter of official corruption with bribes and so on. It is a matter of a system that enables corrupt practice on the part of the businesses. They can often step on other people’s rights with impunity. If those with enough money feel like it, for example, they can simply not pay a bill, provided that the money is owed to people without enough money to sue successfully. If there is a suit, then those with the money pay their lawyers to keep the suit going at a sufficiently slow pace that the person who is owed the money runs out of funds. When that happens, the suit is automatically decided in favor of those who have the money by default. The wheels of justice don’t grind finely. They don’t grind at all. The default mode when people drop out of a fight is to decide for the other guy. It may not have been intentional, but it favors a lack of justice.
Under such a system, there is very little incentive to protect human beings or the environment. The corporation has no reason to take any responsibilities for anything it does, unless there are laws regulating its activities. And even then, it may feel free to break the laws if the chances are high that it will not be caught – at least until another management team has taken over.
Please don’t get me wrong. I am not against capitalism. I just came to believe that it has to be kept under control. I even have a solution, I think, which is to make all C-Corp businesses reorganize as B-Corps. It would not really cost all that much and would allow them to make respectable profits. It would just require them to be transparent on how they do it and disclose their societal and environmental side-effects. Many of them will oppose any such idea, of course, because they don’t want respectable profits – they want obscene profits.
But back to Bitcoin. Bitcoin is mined by organizations that are only engaged to make money, like C-Corps. If Bitcoin fails, they will simply go out of business, with liability limited to their assets, which are a bunch of computers (and now, power plants). And the payout would go to people they owe money to, such as their stockholders and landlords. That does not mean owners of Bitcoin products.
In other words, Bitcoin has even weaker backing than national currencies, weaker than the Fed. It has no backing at all, in reality. Eventually, it will fail – nothing lasts forever. And when it fails, those who hold it will be left holding a bag of virtual money, and even the bag is virtual. And in the meantime, a lot of carbon dioxide has been released to produce nothing of lasting value. At least that is my opinion.
Disclosure: Very few people are worse money managers than I am.
Featured image via Wikimedia (public domain image).