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Bitcoin vs Cash: Which is a Bigger Waste of Energy?
Bitcoin uses a massive amount of electricity to maintain the network. This fact is one of the most common critiques against bitcoin. My counter question is, how much energy does our current form of money consume? Which form of money is more costly in terms of energy and its impact on the environment. At the time of writing, the bitcoin network is calculating approximately 115 quintillion “hashes” per second. A “hash” is simply a term referring to a core operation of the bitcoin network. The term is often used to refer to the strength, or overall security of the network. We can then calculate how much electricity would be needed to achieve this 115 quintillion hashes per second. On the other hand, calculating the energy expenditure needed to maintain physical cash is much more complicated.
The Lifespan of Cash
Physical cash has a lifespan. Depending on how much a physical bill is circulated, the bill will wear out, and need to be removed from circulation. An average American $1 bill needs to be replaced every 6.6 years. On the other end of the spectrum, a $100 bill lasts about 22 years. Nowadays, money isn’t made from wood pulp paper, it is a blend of cotton and linen. These crops require both time, energy, and water to grow. Furthermore, old bills do not get recycled into new bills, they are incinerated and taken out of circulation forever.
Every Country Needs a Currency
The United States grows hectares of cotton every 6.6 years to replenish the supply of $1 bills. Other countries make their money out of a variety of materials including polymer in Canada, and a special type of paper in Japan. Every country that produces cash (which is every country) needs to use a physical resource to do so. With the exception of the reserve currencies such as the US dollar, other countries typically do not hold the currency of other nations on hand. In that sense, every country creates their own money to be used within their borders. This limits the scope and the utility of the currency.
Cryptocurrencies are Energy Efficient
When we compare even the most inefficient cryptocurrencies to government cash, we start to see a compelling case made for a global, internet based money.
Cryptocurrency Recycle Themselves
Cryptocurrency has zero need to replace the units in circulation. There is no wear and tear, no missing bills, and no counterfeit. Excluding the electrical input requirements, it sounds like cryptocurrencies were designed to be an efficient form of money. The underlying software to cryptocurrencies is called blockchain. Quite frankly, blockchain is the digital accounting system that governments wish they could move their money to. This idea is made evident by China opting to move their money onto a blockchain based platform called DCEP. Although China likely has an agenda of surveillance built into the money platform. I predict that they will save billions of dollars by taking a large chunk of their physical cash out of circulation.
Global Money
A global money would be a massive simplification to the kind of financial system we are all entrenched in currently. Global money has been suggested by the United Nations in the past. In order to create a global money that governments agree to, a high degree of trust must be had between all participating nations. Forgive the sceptic in me, but I don’t see this happening.
The other alternative, is for the people to choose a currency other than the one that is provided to them by their respective governments. This is exactly what we are seeing play out in the world of cryptocurrency. The adoption of bitcoin, and other cryptocurrencies has been steamrolling over the financial world for more than a decade. About 1% of the world (70 million people) population uses, owns, or has dabbled in cryptocurrency in the past. Considering that cryptocurrency didn’t exist 12 years ago, that is very rapid adoption of something to be considered radical money.
Government Adopts Blockchain
It is unlikely that world governments will ever get on board with bitcoin. Although, Bulgaria has a bitcoin stockpile worth billions of dollars. The more likely scenario is for governments to move a portion of their circulating supply onto a centralized version of blockchain technology. Most countries have already taken steps to adopt digital versions of their currency. The world has been trending in this direction ever since in the invention of the internet. Banks have been digitizing their balance sheets since the technology became available in the 60’s and 70’s.
The differences between banks digitizing their balance sheets, and governments providing a centralized digital ledger, is control and accessibility. Auditing becomes a lot easier if transactions are recorded, and linked together in a centralized ledger controlled by the government. Although this may sound dystopian, I believe it is possible for governments to implement digital money without jeopardizing civil liberties.
The icing on the cake is that there exists forms of blockchain that are orders of magnitude more efficient than bitcoin. One form of blockchain actually has democratic values built directly into the codebase. These new versions of blockchain are capable of performing elections in order to delegate control and make collective decisions.
The Future is Digital
Future governments will begin to make large efforts to move a digital money based system as early as 2025. The reasons why governments will do this, may vary. In the case of China, their motivations are likely based on control and surveillance. In the case of Sweden, their reasons are closer to efficiency, and utility. As more research comes out about the efficiency gains of digital money, eco conscious nations will opt to make the shift to digital currency. For the United States, I surmise that their reasons will be to compete with the growing force that we know as bitcoin.
