The economist cover bitcoins

A t the Black Blockchain Summit, there is almost no conversation about making money that does not carry with it the possibility of liberation. This is not simply a gathering for those who would like to ride whatever bumps and shocks, gains and losses come with cryptocurrency. It is a space for discussing the relationship between money and man, the powers that be and what they have done with power. Online and in person, on the campus of Howard University in Washington, D. What they are is a cross section of the world of Black crypto traders, educators, marketers and market makers—a world that seemingly mushroomed during the pandemic, rallying around the idea that this is the boon that Black America needs. And this summer, when the popular money-transfer service Cash App added the option to purchase Bitcoin, its choice to explain the move was the MC Megan Thee Stallion.

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Content:

• Why a Nobel laureate in economics thinks bitcoin is toast
• Article Info.
• What if bitcoin went to zero?
• The high price of a crypto salary
• Why has the price of Bitcoin risen/fallen in the past day/week/month?
• Inside the World of Black Bitcoin, Where Crypto Is About Making More Than Just Money
• How Bitcoin's vast energy use could burst its bubble
• ‘Future of Money’ economist says the end of cash is coming—here’s what could replace it

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Why a Nobel laureate in economics thinks bitcoin is toast

Cryptocurrencies are all over the news these days. Bitcoin prices have been excessively volatile in recent months. Anyone looking to use Bitcoin as a storage of value should think twice before buying in. He writes: "Bitcoin became cumbersome, slow, and expensive to use" and "Bitcoin's unstable value has also made it an unviable medium of exchange.

The environmental harm of Bitcoin mining has been well publicized. The method that is used to process and validate Bitcoin transactions and add them to distributed ledgers, known as "proof of work," is immensely computation-intensive and therefore electricity-intensive.

Bitcoin mining is carried out in several jurisdictions with a high coal content in their power supply, notably China. Worldwide Bitcoin mining is estimated to exceed Terawatt hours TWh , although estimates are not very reliable at this point. All this power use contributes to climate change and, ultimately, can also drive up electricity costs.

The rising environmental footprint of Bitcoin mining is worrisome and worsening. Proof-of-work cryptocurrencies are wasting enormous amounts of resources. An April study by a group of Chinese researchers published in Nature Communications concluded that "without any policy interventions, the annual energy consumption of the Bitcoin blockchain in China is expected to peak in at But will Bitcoin mining continue to grow or will it eventually fail because it is no longer profitable?

In fact, Bitcoin mining is standing on a fatally flawed business model. The essence of using distributed ledgers means that many people must carry out Bitcoin mining in order to verify transactions. The people who carry out Bitcoin mining and thus provide transaction verifications to the network are rewarded by receiving new, freshly-mined bitcoins.

However, the total number of bitcoins is limited at 21 million. As of today, This is the reward that is being chased by Bitcoin miners, and it explains why people are buying up specialized GPUs. As The Economist reported on June 19, Crypto-miners are probably to blame for the graphics-chip shortage. But how many more transactions can be processed before it is no longer profitable to do so? Our financial system charges fees for each transaction, with an unlimited revenue stream for the future.

Not so for bitcoins: the revenue for processing all future transactions is limited, and eventually will dry up because prices will not rise forever. Research also suggests that the marginal cost of production of a bitcoin is a floor for its value Hayes Let's apply some economic thinking to the Bitcoin mining problem. As more bitcoins are being mined, the remaining number will shrink.

At the same time, Bitcoin mining will get harder as the transaction ledgers grow in size and the mining algorithm requires more and more proof of work to receive the next bitcoin. In other words, marginal costs of Bitcoin mining are rising. The only way for Bitcoin mining to remain profitable is therefore through rising marginal revenue; that is, a rising price of Bitcoin.

Unless the Bitcoin price rises to astronomical levels, the economic logic implies that at some point, marginal costs will exceed marginal revenue. When Bitcoin mining is no longer profitable, it will cease. And with nobody processing transactions, the entire system collapses.

The only way for Bitcoin to survive is to become infinitely precious, but if confidence in this ever-growing price bubble weakens, collapse is the only logical outcome. Bitcoin mining cannot defy the laws of economics.

One such principle is self-evident: there is no free lunch; someone has to pay for it, even if you don't pay for it yourself. In the case of Bitcoin, someone has to pay for processing these cryptocurrency transactions. Either Bitcoin prices keep on rising faster than the cost of proof-of-work computations or the system implodes. Owners of Bitcoin should be well aware that the entire Bitcoin system is built on quicksand. The decentralized system of Bitcoin makes it impossible to introduce a transaction fee system because of the unlimited potential for free-riding.

The way I see it: the inventors of Bitcoin whoever they may be should have taken a course in economics first. Should regulators wait until market forces reign in Bitcoin all by themselves? There are significant costs to the current laissez-faire approach. The environmental cost is significant. There are also important societal costs. Bitcoin remains the payment method of choice for criminal activity of all kinds, including money laundering, Internet fraud, ransomware attacks, and the financing of terrorism.

While a significant number of Bitcoin users are simply speculators, there can be no doubt that Bitcoin has facilitated criminal activity as well. While Bitcoin is harmful, the same is not true about all types of crypto-money. There are alternatives to the computation-intensive "proof of work" approach, such as proof of stake or proof of bid.

CBDCs could deliver what Bitcoin cannot: lower transaction fees, value stability, full fungibility, and immediacy. The latter point is about the problem that confirming Bitcoin transactions takes considerable time, on average about 10 minutes, but on occasion much longer. CBDCs would facilitate true, real-time transactions as they can be processed in fractions of a second.

The Bank of Canada is conducting active research on this topic see here as are other central banks. There is a bright future for cryptocurrencies, but not for Bitcoin. Elon Musk, please take note! Insights at UBC Sauder. Related Links. Werner Antweiler. Strategy and Business Economics Division.

Article Info.

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What if bitcoin went to zero?

Bitcoin, a digital asset, was originally seen as a new type of currency. But its growing popularity has exposed its limitations as money while vastly increasing its price, making many of its early adopters millionaires. As a result, it is now primarily seen as a speculative investment Baur et al, The price of Bitcoin is highly volatile, and it often makes the news for dramatic rises and falls. What is driving these price movements? To answer this, we first need to look at what the Bitcoin price reported in the media actually is. Since Bitcoin is a global phenomenon, it trades against many other currencies.

The high price of a crypto salary

As regulators increased actions against the e-gold currency because it helped criminal activities run more smoothly, a new cryptocurrency named bitcoin came alive. Martin C. Walker writes that the timeline of the e-gold prosecution and birth of bitcoin seems more than coincidental. He says that d ecentralisation, the model for avoiding accountability, has been used over and over again to avoid regulation. If you read recent comments from both regulators and leaders of the cryptocurrency industry you might get the impression they are heading towards a meeting of minds, perhaps followed by the final legitimisation of cryptocurrencies as a mainstream financial asset.

Why has the price of Bitcoin risen/fallen in the past day/week/month?

Things you buy through our links may earn New York a commission. During the past year of COVID-induced market mania, cryptocurrencies have gone up so much — bitcoin is up about fivefold, while many other crypto projects are up far, far more — that even reluctant Wall Street institutions have begun to tiptoe into the arena. A blazing rally that began this month has helped bitcoin shoot up nearly 50 percent in two weeks. The ETF could begin trading as early as Monday. But doubters remain — and their ranks just happen to include many of the same prominent investors who saw the financial crisis of coming.

Inside the World of Black Bitcoin, Where Crypto Is About Making More Than Just Money

However, the latter is valuable because it is issued by a monetary authority and is widely used in an economy. Bitcoin's network is decentralized, and the cryptocurrency is not used much in retail transactions. One can argue that Bitcoin's value is similar to that of precious metals. Both are limited in quantity and have select use cases. Precious metals like gold are used in industrial applications, while Bitcoin's underlying technology, the blockchain , has some applications across the financial services industries. Bitcoin's digital provenance means that it might even serve as a medium for retail transactions one day.

How Bitcoin's vast energy use could burst its bubble

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‘Future of Money’ economist says the end of cash is coming—here’s what could replace it

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Support Scroll. John Maynard Keynes was the greatest economist of the twentieth century. Less well known is that he had a parallel career as a successful investor : fairly successful early in his career and spectacularly successful later on when he changed his strategy. It was said Keynes achieved these high returns while only devoting half an hour every morning to the task before he got out of bed. Keynes quoted approvingly to his friends a line from Volpone , a classic poem:.

Bitcoin provides its users with transaction-processing services which are similar to those of traditional payment systems. We find that this decentralized design protects users from monopoly pricing. Competition among service providers within the platform and free entry imply no entity can profitably affect the level of fees paid by users. Instead, a market for transaction-processing determines the fees users pay to gain priority and avoid transaction-processing delays.