The expectation that the price of Bitcoins will continue to rise in the distant future has a lot to do with the belief of many people that Bitcoin, and other “cryptocurrencies”, are the money of the future. Nothing could be farther from the truth. In fact, the Bitcoin is an archaic currency like gold used to be. Archaic currencies are created by using scarce production factors. Gold had to be digged deep in the ground by using a lot of labor and machinery. Keynes called gold a “barbaric relic”.
The same can be said of Bitcoin. Bitcoins are made (“mined” as it is called in Bitcoin terminology by analogy with gold) by using large amounts of computing power. The computers needed to mine Bitcoins use a lot of electricity and thus large amounts of scarce energy sources (crude oil, coal nuclear energy, renewable energy sources). According to some estimates, the energy needed to produce Bitcoins for one year is equivalent to the energy consumption of a country like Denmark. A phenomenal cost, if we also take into account the external costs, such as the CO2 emissions, associated with the production of electricity.
Although Bitcoin is perceived as the currency of the future, it is in fact, like gold, a currency of the past.
Eulogy made by Paul De Grauwe
