Noah J Nelson on Monday, Apr. 22nd
Here’s the thing: I’m a voracious neophile and even I can’t quite wrap my head around Bitcoin.
For those of you who are late to the party: Bitcoin is an online currency that is “mined” using a sophisticated algorithm. This mining process is open to anyone who is willing to put in the processor cycles. There’s an upper limit on how many Bitcoins can ultimately exist–21 million–which creates an artificial scarcity in the Bitcoin system.
Bitcoins can be traded anonymously. They are not backed, and thus not controlled, by any government. In the worst of the debt crisis in Cyprus the value of Bitcoins skyrocketed. It was assumed that currency speculators began viewing the digital currency that is favored by deep geeks and Silk Road traders alike as a new storage medium for value.
This is only the tip of the weird iceberg. How strange is Bitcoin? Think Antarctica.
Here’s one of the things that gets to me: for being a creature of the 21st Century, Bitcoin isn’t very green. Take this quote from Electronic Frontier Foundation board member Brad Templeton in a Quora discussion about how much energy it takes to make a Bitcoin for example:
While nobody is burning gasoline to make BTC, making one is like filling the tank on an SUV, with similar pollution issues. Making them in Washington state is fairly renewables-based. Making them in New Mexico or the midwest is mostly coal based and less efficient than the average.
This just strikes me as a profound kind of crazy. Real resources are being bled off to create a form of money that is even more of a consensual illusion than what most people use. One that isn’t just experimental in nature, but profoundly unstable and susceptible to electronic manipulation.
In a blog post over the weekend Emil Protalinski of The Next Web speculated that a series of Distributed Denial of Service (DDoS) attacks might actually be deliberate currency manipulation:
Bitcoin fluctuates wildly as it is, but it is particularly dependent on Mt. Gox as the exchange is the world’s largest (last week’s series of events was a prime example). Many believe those behind the DDoS attacks are performing them to drop the digital currency’s valuation so they can buy low and sell high, before doing it all over again.
In a sense Bitcoin is the ultimate form of fiat currency: conjured from nothing, pegged to no value beyond what the market will bear. It consumes real value to sustain imagined value. The teleological attractor that late-stage finance capitalism has been groping blindly towards.
Now that we’ve found it, it should be clear how badly it sucks.
I understand the desire to seek alternate forms of currency. It is the same impulse that informs boosters of crowdfunding. It is the desire to get around the entrenched financial systems that seem these days to only reinforce class divisions. Yet Bitcoin as far as I can tell, while leveraging peer-to-peer networks and working under an open source license, only seems to activate the worst of of financial instincts: wild speculation and the accelerating disconnect between “value” and reality that made the derivatives market such a nightmare.
Image: Bitcoin cupcakes from Cups and Cakes bakery. (At least Bitcoins are good for something.)