As Bitcoin surged through $12,000 last week it has ignited a number of debates about cryptocurrencies, not least of which is whether they have reached their mainstream moment and are a bubble that is about to burst.
Underpinned by blockchain – which most observers identify as the real star of the show – Bitcoin is on an upward streak this year that has risen as quickly as Steinhoff’s precipitous plunge last week.
From $1,000 a coin at the beginning of the year Bitcoin has surged in value, prompting many smug geeks and cryptocurrency pundits to gloat about this new technology, the new currency it enables and, especially, how much money these early adopters have made.
It’s not unlike a digital gold rush, where a frenzy of activity has followed the slow years of painstaking introduction of a new way of thinking about what money is and how it will one day work.
I may be mistaken but the current stratospheric rise of Bitcoin is more about currency speculation, and how speculators have worked out how to make a quick buck, than it is about confirmation of all of the virtues of blockchain and the currencies it enables.
Suddenly mainstream investors, stock brokers and ordinary people realised there was money to be made and jumped on the bandwagon. Anyone who lived through the initial bursting of the internet bubble in 2000 – called the “dot bomb” after the dot com registration mania – can see the patterns of how a new technology can be usurped by secondary forces who see it as a way to make a quick return.
The most ardent nay-sayer is JP Morgan boss Jamie Dimon, who threatened to fire “in a second” any of his staff who traded Bitcoin. “It is worse than tulip bulbs,” he said, referring to what is considered the first speculative bubble when bulb prices blossomed and then bombed in 1637.
This year has also seen the rise of initial coin offerings (ICOs) – with South African entrepreneur and blockchain enthusiast Vinny Lingham launching an early ICO to great fanfare. It’s a clever use of existing financial mechanisms to make cryptocurrencies more mainstream, whilst funding ventures and start-ups that may otherwise go unfunded.
Parallel to this current debate about whether Bitcoin is in a bubble that is about to burst, is another ardent discussion about whether cryptocurrencies are contributing to global warming. The computers “mining” bitcoin by completing difficult mathematical tasks use more electricity in a year than all of Ireland, according to The Guardian.
“Bitcoin mining ‘is using so much energy that it is causing electricity blackouts’ amid fears it will consume more power than the world by 2020,” the Daily Mail hysterically proclaimed last week.
“Bitcoin’s biggest problem is not even its massive energy consumption, but that the network is mostly fuelled by coal-fired power plants in China,” according to the Digiconomist website, on whose data such scaremongering is based. “Even with a conservative emission factor, this results in an extreme carbon footprint for each unique Bitcoin transaction.”
It calculates that the annualized global mining revenues are $14,903,171,089 but the estimated global mining costs are $1,628,248,236. The electricity consumed per transaction 237KWh, or enough to power about 30,000 kettles according to some estimates. Don’t say you weren’t warned. As Bloomberg warned in 2013: Virtual bitcoin mining is a real-world environmental disaster”.
If you were looking for a sign that cryptocurrencies have gone mainstream, then being compared to kettles must be it.
This column first appeared in Financial Mail