There is a broad consensus that Bitcoin's open ledger and blockchain technology is superior to any previous forms of money because of several reasons:
- Extremely hard or impossible to counterfeit bitcoins
- Easy to exchange bitcoins at extremely low or no cost
- Relatively easy to keep bitcoins safe
But being technically superior is one things, it's another questions whether it an ethical form of money?
I would argue: yes, very much so.
Western countries and especially North America has a huge appetite for the World's resources. And everybody else wants to consume as much as they West as soon as they can afford to. We buy too many clothes, too many electronics, we eat out too much, etc. For many buying stuff became an addiction, a hobby and a release.
Spending money according to the Keynesian school of economics is a good thing, because it generates business and jobs. Governments encourage us to spend our money instead of saving it by devaluing currencies. Spending beyond our means is made possible by loans that are based on fractional reserve banking which further devalues money and increases the risk of an eventual financial collapse.
In the past people had no choice but to use government issued money and thus they were indirectly forced to spend their money now or face the prospect of losing purchasing power in the future.
Such ever increasing and to a large extent irrational consumption creates an unnecessarily large environmental footprint on Earth. With our population approaching 10 billion and developing nations becoming rich we're facing an impossible situation. If we don't change our spending habits soon we will need more resources than than the Earth can provide. On one hand as resources become more scarce prices will go up making the problem worse because our savings will lose value even faster and will make life even harder for those with a low income. On the other hand high-income individuals will continue consuming which will lead to destruction of habitat.
Bitcoin on the other hand is designed to have a gradually decreasing inflation rate and this rate is controlled by an algorithm. In the past 4 years the inflation was 100%, 50% and 33%. This year and in the next two the inflation rate of bitcoin will be appr. 10%. Between 2017 and 2020 the rate drops to appr. 4%. Then, it drops further below 2% and then on all the way to zero.
One may rightly ask how come the price of bitcoin is growing if there is inflation? There are two reasons. For one, the number of people and the amount of wealth stored in Bitcoin has been growing faster than the inflation rate. And a significant numbers of bitcoins are lost due to mismanagement of private keys, passwords or storage. Thanks to these two factors for the last 4 years bitcoin was highly deflationary even when the inflation rate was high. It is expected that with such decreasing inflation even if the growth of adoption slows down the value of bitcoin will grow.
This means Bitcoin encourages saving with the prospect of the coins becoming more valuable in the future. Bitcoin helps reduce consumption and encourages more responsible spending habits. If people all over the world started saving a bit more because of owning Bitcoins it could help our civilization keep the use of our resources on a sustainable level.
Bitcoin can help create a more sustainable world.
Fairness and equality for all
Even in the poorest regions of the world people use solar power to charge feature phones and increasingly simple smart phones. Very soon we will have global internet coverage thanks to Google's Loon Project and various other services.
People who earn less than $100 a month and not able to open a bank account will have the possibility to open a bitcoin account and instantly become part of the world economy. They could effectively and safely save up for rainy days and raise capital to start projects that could help them create wellbeing for their families.
In both poor and rich nations Bitcoin can also be an effective tool to combat rogue governments who use their power over currency to economically enslave their population. Once Bitcoin is widely used rogue agents won't be able to take all of people's money that easily as they regularly do with savings deposited in local banks.
Bitcoin's global nature makes it much less immune to local problems that could send any local currency into hyper-inflation that wipes out people's savings regularly.
I wrote in more detail about this in my post: Bitcoin is not about us, it's about the poor.
Bitcoin can help create more equality and fairness in the world especially for those who need it the most.
What about mining power?
Currently the hashing power of the Bitcoin network is about 37M GH/s, which consumes several dozen gigawatts of power, which is appr. 0.1% of the world energy consumption. This is quite a huge number and it could theoretically still could go up if the price of bitcoin increases and could also go down as every new generation of mining equipment cuts the power consumption per GH significantly. This hugely powerful network can realistically provide an extremely secure, nearly indestructible distributed infrastructure for a significant part of the monetary transactions in the world.
Let's compare this power consumption to the traditional banking world. It's extremely hard to estimate how energy much banks consume because we don't exactly know how many banks there are and how much they consume. But we know there are at least 200,000 inhabited places on Earth and we can estimate that there is at least one bank in each on average, because large cities can have hundreds. If each of these banks only averages about 1MW of power consumption we have a total consumption of 200 GW, which is approximately 0.5% of the world energy consumption.
A precise calculation should of course on one hand include all the clients connecting to the Bitcoin network and on the other hand many hidden factors like the fuel consumption of all the cars the bankers use daily to get to work, etc. But roughly we can see that the amount of electricity required is comparable between the two alternatives. The more of traditional banking Bitcoin replaces the more electricity savings we can achieve overall.
Another important factor to consider is that the huge power consumption of Bitcoin's network is required to establish its value at its growing and wide adoption phase. It simulates the resources required to mine precious metals. But, once Bitcoin has been established as a global currency the algorithm that is currently based on proof of work which requires lots of energy can theoretically be replaced by a proof of stake algorithm that requires almost no energy at all. Just like we don't need gold mining for gold to retain its value as a precious metal once its value is established. Proof of stake is something several altcoins have explored already. So the savings Bitcoin can provide in the future could be tremendous.
Bitcoin is the greener and more ethical form of money.
Have I miscalculated something? Am I missing something from my analysis? Please let me know in comments!