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Britain: the new El Salvador?

John Quiggin14 Comments

When I first found out that the UK Treasury proposes to issue Non-Fungible Tokens (NFTs) as part of a general push to make Britain a world centre for crypto-currency, I assumed that this was a Boris Johnson stunt. The obvious model is El Salvador, where Johnson-style demagogue Nayib Bukele has made Bitcoin legal tender, with results ranging from disappointing to disastrous depending on who you read.

It turns out, however, that the source of the push is Rishi Sunak, until recently Chancellor of the Exchequer and now the favourite to become Prime Minister when Johnson leaves office. I don’t know anything about Sunak, but assumed on the basis of his job title that he would be a believer in “sound money”, hostile to, or at least sceptical of dodgy innovations like crypto.

I’m not fully on top of the issue yet, and would welcome clarifications from anyone better informed. It appears that Sunak is at least as confused as I am, and is pushing different, contradictory proposals.

The first to emerge, in 2021, was the idea of a central bank digital currency (CBDC). Such a development, would, in my view be kryptonite for crypto as it now exists, providing all the supposed benefits with none of the energy waste, scams and volatility we now observe. A CBDC would have radical implications which are still being discussed. In particularit, in effect, allow households and businesses to bank directly with the central bank, rather than holding digital deposits in existing banks. If successful enough, it could amount to nationalisation of the banking sector.

Unsurprisingly, banks and their advocates hate this idea. Here’s a critique from the Cato Institute, pointing to the likelihood that a CBDC would “give the central bank and the politicians that set its mandate the tools to much more easily manipulate economic activity.” https://www.cato.org/commentary/why-sunak-should-think-twice-about-central-bank-digital-currency pointing

It looks as if the predictable opposition of the UK financial sector has killed off the CBDC idea. Instead, Sunak has been pushing proposals to put the UK at the centre of the existing crypto market. Strikingly, it’s the dodgiest forms of crypto (NFTs and “stablecoins”), that are being pushed hardest.

As I’ve argued in the past, the fact that something as provably valueless as Bitcoin is now an accepted part of the financial system is evidence that any claims about the efficiency of financial markets are indefensible. The same can now be said about the idea that the UK Conservative party stands for sound economic management.

14 thoughts on “Britain: the new El Salvador?”

  1. … Rishi Sunak, until recently Chancellor of the Exchequer and now the favourite to become Prime Minister when Johnson leaves office.

    Not any more, at least not according to oddschecker.com: the bookies are now offering him at prices ranging from 21-17 to 6-4, while Liz Truss is now at even money or shorter odds.

  3. “kryptonite for crypto”
    i) blackouts
    ii) free rider problem – when the public realises
    iii) “none of the firms seemed to think they had any reason to fully comply with Congress’ request for information”

    “Crypto Is Straining the Power Grid. Congress Wants to Rein It In
    …
    ” The letter provided the EPA and DOE with new information from Congress’ investigation into the environmental impacts of “seven of the largest crypto-mining operations in the US.” It’s just a fraction of the whole, but together, these firms plan to increase their total mining capacity by nearly 230 percent, requiring an added electricity consumption greater than that of all the homes in Los Angeles. None of the firms said that they track the impacts on consumers connected to power grids, and none of the firms seemed to think they had any reason to fully comply with Congress’ request for information.”
    …
    https://www.wired.com/story/cryptomining-us-power-grid-regulations/

    Who is the biggest Australian crypto miner?

  4. JQ, new headline:- (ymmv)

    Britain joins U.S. in protecting U.S. dollar’s share as a reserve currency against Digital Yuan, shoots themselves in the cryptOh.

    Sub…

    COTTON, BRAUN, RUBIO INTRODUCE BILL TO LIMIT USE OF CHINESE DIGITAL CURRENCY IN THE U.S.

    Cotton, Rubio & Sunak. What could go wrong!
    *

    Don’t mention zeevor … over “The digital renminbi has been described as a “national-security issue” threatening the US dollar by Josh Lipsky at the Atlantic Council think tank.[2] It is also seen by commentators as a tool to allow Chinese authorities to keep domestic control and surveillance capabilities.[2][33]”
    …
    “The U.S. dollar’s share as a reserve currency is above 60%, while that of the renminbi is about 2%.[34]”
    https://en.wikipedia.org/wiki/Digital_renminbi
    *

    COTTON, BRAUN, RUBIO INTRODUCE BILL TO LIMIT USE OF CHINESE DIGITAL CURRENCY IN THE U.S.

    MAY 26, 2022

    “Cotton, Braun, Rubio Introduce Bill to Limit Use of Chinese Digital Currency in the U.S. 

    … introduced the Defending Americans from Authoritarian Digital Currencies Act, legislation to prohibit app platforms in the United States from hosting apps that enable transactions using the Chinese Communist Party’s Digital Yuan (e-CNY). Text of the bill may be foundhere. 

    “The Chinese Communist Party will use its digital currency to control and spy on anyone who uses it. We can’t give China that chance—the United States should reject China’s attempt to undermine our economy at its most basic level,” said Cotton.

    “The Chinese Communist Party’s digital yuan allows direct control and access to the financial lives of individuals. We cannot allow this authoritarian regime to use their state-controlled digital currency as an instrument to infiltrate our economy and the private information of American citizens,” said Braun.

    “It makes no sense to tie ourselves to the digital currency of a genocidal regime that hates us and wants to replace us on the world stage,” said Rubio. “This is a major financial and surveillance risk that the United States cannot afford to make.” 

    https://www.cotton.senate.gov/news/press-releases/cotton-braun-rubio-introduce-bill-to-limit-use-of-chinese-digital-currency-in-the-us
    *

    “The Wait Is Over! 
    Now You Can Trade China’s Official Government-Backed Cryptocurrency!
    “Bitcoin went from €0.2 to €52,312. Ethereum went from €0.01 to €3,559. Digital Yuan could be next.”
    https://yuanpaygroup.com/

  5. K2 asked “Who is the biggest Australian crypto miner?”

    AFAIK the largest Australian owned bitcoin miner operates exclusively in the US. Australian power prices are way too high to support this activity except in niche areas such as using flared gas where it is uneconomical to collect the gas and sell it. This use of flared gas is starting to become quite a thing world wide, with some large oil and gas companies becoming interested.

    That wired article is interesting. You have to remember that senator warren is totally against all forms of non government ‘crypto’ and jumps on any excuse to try to ban it. However the article then hints to how bitcoin mining is actually helping roll out renewables by providing a near perfect balancing load, taking only excess power and stopping when required. This is also staring to become a thing – the ERCOT CEO reckons it is fantastic in helping roll out renewables in Texas.

  6. Joe Blow “how bitcoin mining is actually helping roll out renewables by providing a near perfect balancing load, taking only excess power and stopping when required.”.

    Now all we need to do for load balancing is replace crypto mining with … hmmmm?
    Big capacitor mining? No.
    AI model of optical society ala Hitchhikers Guide to the Galaxy? 42? No.
    Any ideas?

  7. KT2: As many have pointed out, the sane solution for grid balancing is electric cars, buses and trucks, with or even without V2G. You would never guess it from the over-ventilated fuss about highway fast chargers, but overwhelmingly EVs will be slow charged overnight, with time to spare for grid support.

  8. Yes batteries and V2G are obvious solutions as are desal and various other possibilities. The thing is, these all take time and in the meantime bitcoin mining helps provide a profitable load that can be moved in and out in short order. There is currently 10 years worth of renewables in the pipeline – largely in Texas – and they are being held up waiting for the grid to catch up. Bitcoin mining doesn’t even require a grid.

  11. Cryoto is going curtail  power generation ownership. And the power consumption numbers in article are scary.

    JQ, you said “Bitcoin mining is functionally equivalent to curtailment” which is currently (pun) correct. 

    As to JQ’s next sentence “The grid is stabilized and the electricity is wasted” which at this time seems correct, yet with grid, incentive and technical improvements, power may not be wasted. Please correct me if you believe such a change is not prudent or possible…
         “Curtailed energy is a problem in the US because the grid is inflexible, as it is based on a legacy architecture of equalizing supply and demand, and it’s not designed to handle the volume of clean energy that is in the pipeline, he said.”

    Yet crypto are arguing to change the generation and distribution such that wasted energy is used for miming (bitcoin) crypto, going so far as to say energy may be stored ala batteries… with the monster caveat “if the market price of the coin makes sense compared with the time and energy required to mine it”…
         “Fenske said that if there is a power source such as wind, solar, or flared natural gas, but there is no use for the electrons at that time for conventional users, the electrons could be stored in a battery, or stored in the form of a cryptocurrency if the market price of the coin makes sense compared with the time and energy required to mine it.”

    Elizabeth Warren has “sent letters 27 January to crypto mining companies seeking answers on their grid and climate impact.”…
         “Warren said in December that GHG emissions from the Dresden operation increased nearly tenfold between 2019 to 2020 to more than 220,000 mt of CO2, which she said was the equivalent to the emissions of 50,000 cars. Warren also highlighted local residents’ concerns over water quality.”

    I do think “curtailment” will be turned into “we generate and use only wasted  or net zero energy”, which elides the fact that any excess power may be stored, or delivered to a different location with lagged time usage.

    One of the crypto miners is using “over 840 piles of mining waste”,  running a coal fired power station…
      “Pennsylvania-based Stronghold, which operates 165 MW of coal refuse-fired generation to power its mining operations, said its home state had deemed reclamation of coal refuse sites an environmental priority. Pennsylvania has over 840 piles of mining waste, with estimates of as much as 8 billion cubic yards of coal refuse lying unused around the state, it said. “The company’s operations “efficiently convert damaging waste product” into power while helping achieve governmental priorities, it said. Those facilities also supply power to the grid when dispatched, it added.”

    Groan. And nuclear next I’ll bet.

    And Crypto is also being justified relative to gold as a store of value with less environmental damage.

    Crypto needs some strong regulations BEFORE they disrupt and take over generation. Or Trevor St John will be next. With an SMR + waste. Double groan!!
    *

    Long d3tailed article, lots of facts and links. Lots of bluster from crypto miners.

    “Crypto miners hit back at US climate critics, promise added grid benefits”
    …
    “Crypto mining is a useful grid management tool in that it can be turned on and off quickly, said Webber, adding that such flexibility as well as its profitability can help power producers. Crypto mining can help producers and grid operators “do their job better,” he said.

    “John Belizaire, CEO of Soluna Computing, told the House subcommittee hearing the company builds data centers and crypto mining operations on-site at clean power plants to repurpose energy that would otherwise go to waste.

    “Curtailed energy is a nearly universal problem in clean energy development with up to 30% of clean power generated on solar and wind farms wasted, Belizaire said. Curtailed energy is a problem in the US because the grid is inflexible, as it is based on a legacy architecture of equalizing supply and demand, and it’s not designed to handle the volume of clean energy that is in the pipeline, he said.

    “Over the next decade, meanwhile, Webber expects crypto mining to become a strategic tool for power producers, arguing that the “only people” mining for cryptocurrencies in 10 years’ time will be large-scale electricity generators. This is because they’ll be the only entities with the access to enough power, he said.

    “Lawyers at global firm Norton Rose Fulbrightnoted in December that already some power producers have entered into joint venture partnerships with crypto miners or have become vertically integrated crypto mining operations.”…
    https://cleanenergynews.ihsmarkit.com/research-analysis/crypto-miners-hit-back-at-us-climate-critics-promise-added-gri.html

  12. JQ said “Bitcoin mining is functionally equivalent to curtailment. The grid is stabilized and the electricity is wasted”.

    From your anti bitcoin perspective yes, but from the generators perspective definitely not. They make money from the sale of the bitcoin, generated from the otherwise wasted energy. They can even make money before connecting to the grid – which is starting to take quite a while due to various regulatory issues.

  13. John Quiggin says:
    July 24, 2022 at 9:27 am
    “Bitcoin mining is functionally equivalent to curtailment. The grid is stabilized and the electricity is wasted”

    Is arbitrage the opposite of curtailment?

    Renewables strorage as arbitrage for profit, not power. 

    Good – US battery storage has jumped battery storage capacity more than tripled in 2021,”

    Bad –
    “In 2021, arbitrage was cited for over 50% of the batteries installed, representing over 2,700 MW of battery capacity. Notably 83%, or 1,887 MW, of the battery capacity added in the California Independent System Operator (CAISO) service territory cited arbitrage as a use case.”. See “Electricity Monthly Update” below. 
    *

    “Cryptomining Capacity in U.S. Rivals Energy Use of Houston, Findings Show

    “The findings, by a congressional investigation, highlight how the surge in activity has caused consumers’ electrical bills to rise and makes it harder to fight global warming.”
    …
    nytimes.com
    /2022/07/15/climate/cryptocurrency-bitcoin-mining-electricity.html
    *

    “Electricity Monthly Update
    With Data for April 2022

     Date: July 26, 2022

    Highlights: April 2022
    – “New 52-week high wholesale electricity prices were set in the Midwest (MISO) and in Louisiana (into Entergy).
    – “New 12-month low electricity system demandlevels were set on Progress Florida’s system on April 9 and in California (CAISO) on April 17.
    – “Total U.S. coal stockpiles had a month-over-month increase of 6.0%, reaching 91 million tons in April 2022, but still remain at a relatively low historical level.
    …
    “Battery storage capacity more than tripled in 2021 as reported applications expanded beyond ancillary services

    “According to the early release of the 2021 EIA-860 data, battery storage capacity more than tripled in 2021, from 1,438 megawatts (MW) in 2020 to 4,631 MW in 2021. The increase was driven by the addition of 106 utility-scale batteries with 3,202 MW of capacity that went into commercial operation. About 78% of the battery storage capacity added in 2021 was built in regional transmission organization (RTOs) service territories, which is consistent with historical averages.
    [Graph]

    “Accompanying this sharp increase in capacity, how battery storage capacity technologies are deployed has also significantly shifted. Operators report more applications, or use cases, for battery storage beyond the traditional ancillary services that have been predominant since 2016. Although ancillary services, particularly frequency response and ramping or spinning reserve, continue to represent a significant share of the use case capacity, other use cases such as arbitrage, load management, and response to excess wind and solar generation saw significantly increased levels of participation.
    …
    “In 2021, arbitrage was cited for over 50% of the batteries installed, representing over 2,700 MW of battery capacity. Notably 83%, or 1,887 MW, of the battery capacity added in the California Independent System Operator (CAISO) service territory cited arbitrage as a use case.”…
    …
    https://www.eia.gov/electricity/monthly/update/

  14. “The Dystopian Dream of Global Central Bank Digital Currencies (CBDCs) Hits Another Snag: The Japanese People’s Love of Cash

    Posted on August 5, 2022 by Nick Corbishley

    “Japan is not the only G7 economy where cash is still King, and that could complicate the roll out of CBDCs in so-called “advanced” economies.

    “On June 20, Asia Times ran an op-ed by Sayuri Shirai, a former policy board member of the Bank of Japan, on the Bank of Japan’s recent decision to shelve its plans to introduce a central bank digital currency (CBDC). Given Japan is the third largest economy on the planet and is often at the leading edge of technological advances, this is a major development. Yet it received virtually no airtime in the international mainstream press.

    “Cash Still King in Tech-Obsessed Japan

    “Since 2021 the BoJ has been conducting experiments to test the technical feasibility of the core functions and features of a retail CBDC ecosystem. The second phase of testing began in April 2022. But according to Shirai, the bank has decided to abandon the idea, at least for the foreseeable future. 
    …
    https://www.nakedcapitalism.com/2022/08/central-bank-digital-money-hits-a-stumbling-block-the-japanese-and-germans-love-for-hard-physical-cash.html
    *

    “Central bank digital currency cast aside in Japan

    “The Bank of Japan needs to keep studying digital but, in an unusually cash-based economy, needn’t set it up yet”

    By SAYURI SHIRAIJULY 20, 2022

    https://asiatimes.com/2022/07/central-bank-digital-currency-cast-aside-in-japan/

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