I make Bitcoin, and in a previous life, I covered the oil industry as a journalist. Increasingly, I’m realizing the two worlds are alike. Bitcoin is oil.
And one day, Bitcoin will become big oil, and all who dabble in it will be reborn as enemies of the environmental movement, seen as plunderers of the planet and the bad guys in the fight against climate change – just like oil.
Bitcoin’s environmental footprint will haunt it. Nobody has pointed this out, but it is painfully clear: if we can at all predict an industry’s growth by that of a different one, then oil is Bitcoin’s crystal ball.
Most cryptocurrencies, of which Bitcoin is the first and most valuable, are created by running servers to crunch mathematical puzzles, or “mining”.
I have a facility that does that in Canada’s oil capital of Calgary, and its business model is similar to that of the city’s dominant industry. Both profit by generating and selling a product whose price swings with supply and demand. Some in Calgary partake in both.
The cryptocurrency world is bigger than mining, just as the vaguely defined big oil is more than those who extract crude. But shares in either industry move in sync with the value of the underlying asset.
Oil is considered volatile in finance. In the two years after 2014, its price fell more than 70%, similar to Bitcoin’s crash in 2018. Layoffs swept both industries.
While oil has tangible uses, most buying and selling is done on paper by traders seeking profit, with barrels never changing hands. Long ago, I learned cryptocurrency trading from oil professionals.
Then there is the environment. Oil is a big offender. So is Bitcoin. Mining uses as much power as a small country, according to some estimates. Miners compete for limited coins, resulting in an arms race, and that power usage increases constantly and rapidly.
In China, which leads Bitcoin mining, 60% of energy comes from coal. Even if mining uses clean power, it carries the opportunity cost of not using said power for greener purposes, such as charging electric cars, which replace fossil-fuel-guzzling vehicles.
The two industries are hardly the only environmental offenders, but they make great targets. Oil is currently the biggest one. That is in part because the industry is prominent, represented internationally by organized and high-profile groups. Attacks on it are visible.
Environmentalists also see oil as futureless and unnecessary. Cars pollute, but few protest outside a General Motors factory – one day, its products could all be electric, but oil remains forever oil.
Those two points apply well to Bitcoin. “How to buy Bitcoin” was third-ranked in Google’s how-to searches for 2017. With mergers and acquisitions more than doubling in 2018, cryptocurrency is becoming increasingly organized.
Big cryptocurrency players have been accused of price manipulation, and their conflicts have rocked the market. Sounds just like the Saudi Arabia-dominated Organization of Petroleum Exporting Countries cartel.
Bitcoin, too, has been accused by pundits of being futureless and unnecessary. It does have great potential to revolutionize finance, but a decade after its birth, the everyday person still has no practical use for it.
Granted, the total value of all cryptocurrencies is only one-tenth of the over-$1tn worth of oil produced every year. But the International Energy Agency has said global oil demand will peak by 2040, as the world seeks cleaner energy.
It is not this day, but a day may come when big oil shrinks or changes, becoming less of a target for environmentalists. Bitcoin is the natural next enemy.
The caveat is that cryptocurrency continues to grow. Bitcoin – both the currency and industry – has endured worse crashes than 2018’s and emerged stronger. But the past is no map for the future.
The battle lines, however, are already being drawn. While academics and the media have long noted mining’s electricity usage, 2018 marked the year environmental and progressive publications started sounding the alarm.
Last December, a writer for the green publication Treehugger gloated over the cryptocurrency’s fall in price: “Bitcoin is a colossal waste of energy that will soon be no more. Good riddance.”
Canada’s Hut 8 Mining Corp, which says it is the biggest of its kind to be publicly listed, uses so much power that a small town has a contractual right to pull the plug should residents not have enough electricity.
Abkhazia has announced the shutdown of 15 mining sites over electricity use concerns. Municipalities in Washington state have reined in the activity. Norway has excluded miners from power subsidies, with one leftwing politician calling the activity “the most dirty form of cryptocurrency output”.
Miners have a lot to think about – if not for the planet, then for survival – for this is a fight that is coming.
And one day, […]