A barbarous relic

That’s what Keynes called the gold standard nearly a century ago, and he was right. I was reminded of this by the commentary on my latest piece on Bitcoin, published in the Conversation and also the ABC. I restated the points I made in my 2015 article on the massive and wasteful use of electricity in Bitcoin mining. The key points are that the cost of mining Bitcoins will inevitably rise until it is equal to the price for which Bitcoins can be sold, and that the great bulk of this cost is the electricity used to run specialised computer systems.

The responses included a great deal of huffing and puffing to the effect that I know nothing about cryptocurrency and shouldn’t comment, but showed no understanding of the central point, let alone any attempt to refute it. The scale of Bitcoin’s electricity use (which was hard to observe directly when I wrote in 2015 is now so massive as to be undeniable.

The other response, standard in cases like this, is whataboutery, that is, attempts to point out other wasteful uses of electricity compared to which Bitcoin is allegedly insignificant. I addressed one of these in the article, responding so someone who claimed that the electricity used by Bitcoin (serving at most a few million people) is “only” one-third of that of the rest of the global financial system.

Some other whatabouts led me to some interesting thoughts. One, which I plan to look at further is the use of electricity in electronic equipment on standby. The other, pushed with some vigour by commenters is gold. So, is gold worse than Bitcoin

The first point to observe is that the fans of gold as an alternative to government-backed fiat money overlap pretty closely, in political terms, with the fans of digital cryptocurrencies. Both are typified by a mixture of libertarianism, anti-politics and conspiratorial thinking. The main difference is that gold bugs tend to be older and less technologically sophisticated than digital crypto fans.

Coming to the numbers, Wikipedia suggests that gold mining uses about 25 kW·h of electricity per gram of gold produced. If I get the order of magnitude right, that corresponds to 25 GWh per tonne. Current annual production is about 3000 tonnes, so that gold mining uses about 75 TWh per year, compared to a widely cited estimate of 30Twh/year for Bitcoin. But the majority of gold is used for jewellery and industrial purposes, with only around 40 per cent being used for private investment (governments hold gold in reserves, but they have been net sellers for many years). Entirely coincidentally, 40 per cent of 75 is 30.

So, the barbarous relic and its high-tech replacement use about the same amount of electricity every year. Gold is probably more widely used as a pseudo-currency than Bitcoin. On the other hand, gold mining has a lot of destructive effects in addition to the electricity used.

So, at least arguably, gold and Bitcoin, considered as alternatives to the standard financial system, are about equally destructive in environmental terms.

29 thoughts on “A barbarous relic

  1. @Greg Pius
    I remember (few year ago now probably) when Christine Lagarde from the IMF was invited on Q&A for one of those frank discussions covering a broad range of topics. IIRC the final topic raised was that of bitcoins and the various financial innovations springing up that circumnavigated the established financial institutions (eg “greedy banks” etc) to which there was audible excitement from the audience who were obviously (post GFC fallout) ready for a change in the way money and financial transactions are handled. Lagarde could obviously sense the mood and enthusiasm in the room for change.
    Her response was quite striking as she acknowledged the excitement for fundamental change, but also went on to highlight many of the concerns involved – some of which you mention.


  2. This comment thread is a good one, which is a surprise. In the past as soon as anyone mentions “gold” and “money” in the same post the comments thread rapidly degenerates into vicious (and amazingly ignorant) arguments about fractional reserve banking.

    Whatever the other faults of Bitcoin it seems to have at least diverted the attention of “libertarians” away from that.

  3. numerobis, computer bits can’t be halved, therefore a satoshi can’t be halved. There’s no smaller unit, so the series can’t be asymptotic. Difficulty is calculated from the difference in timestamps of previous entries in the blockchain. Everyone knows the algorithm, so can calculate it themselves at any time.

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