Are crypto currencies bad due to their energy usage?

Lots of things use tons of energy, and have massive environmental impact:

• Mastercard, VISA and other payment processors. These are large companies, who’s networks not only use a lot of energy, but on top of that they have buildings, employees, events and more that all consume a ton of energy. In fact, let’s just say companies in general.
• Space exploration. This creates tons of waste material, and uses lots of capital that could be put to more humanitarian use as well.
• Mining gold, silver and other precious metals.
• The Internet.
• Basically anything worth doing.

So the question really shouldn’t be, are crypto currencies bad because they use a ton of energy. Instead, the question really is…

Is the utility of crypto currencies worth their energy usage?

In my opinion: yes. For this discussion, let us limit our scope to just Bitcoin. Bitcoin uses the energy that it does in order to maintain security for its global, distributed, and decentralized network. I believe the utility of having a distributed and decentralized financial network, is worth the usage of energy. We have seen first hand the inequality perpetuated by centralized finance. Companies and banks that are too big to fail get bailed out anytime anything goes wrong: socialism for the rich and capitalism for the poor. Most recently we saw just how scummy centralized finance can be with the GameStop fiasco, where hedge funds and market makers stopped trading in order to save their own asses. I think it’s pretty clear at this point that as long as financial networks are controlled by a select few, and they will do everything in their power to enrich themselves. Thus, a truly decentralized and transparent financial network, that is reliant on its integrity for value, is the only true way to achieve an equitable system.

What about proof-of-stake?

I believe proof-of-stake is the superior system. The reason proof-of-work works so well is because as the network grows, and it becomes more profitable to take down the network, the compute power (and thus capital) required to take down the network scales as well. Proof-of-stake achieves this game theory conundrum with much less energy usage and environmental impact: the amount of investment it takes to bring down the network makes it unprofitable to do so. Furthermore, with proof-of-stake you are directly investing in the network, rather than compute itself, which makes it more resilient to leaps in computing technology, or pivoting the computing investment into a competing network or some other venture after attacking the network. Some critics complain that proof-of-stake makes it so that the richest people can gain influence in the network, but that’s is exactly the same in proof-of-work; the only difference is that the capital needs to be invested in the network rather than computing power.

So then is Bitcoin dead? Ethereum is the future?

No, I believe Bitcoin still has its place. While Ethereum presents a lot of new innovations in the space, there will always be value in a network that does not change. Bitcoin has a fixed supply and structure, unlike Ethereum, and is almost impossible to change. While Ethereum will have many more applications and projects built on top of it in the future, Bitcoin will always have its place as a deflationary asset. Once Bitcoin’s price achieves more stability, it will also serve as a great store of value, with deflationary properties and relatively easy global transact-ability.

Then what about Ethereum?

Ethereum presents an interesting technology platform for building distributed applications. Smart contracts allow for the decentralization of not only finance, but pretty much all platforms as well. A great example is Uber. Currently we need a company to act as the middle man between the consumer and service provider; however, with a platform built on top of well written smart contracts, this middle man overhead can be vastly reduced to just gas fees of running the network. This same decentralization can benefit many platforms such as Youtube, Twitch, Patreon etc. Anything where a company is just acting as a middle man between producers and consumers and extracting value in that manner. Honestly I believe almost every industry can benefit from decentralization, as centralization and corporate control skew incentives away from what is best for the consumer. Are there still a ton of problems to be solved before smart contracts are usable? Absolutely. Are smart contracts unsafe and untested? Of course. Is it an uphill battle because corporations will fight tooth and nail not to give up their control? Definitely. However, despite all this, I think there is a future for decentralized networks; as for every player than stands to gain from centralization, everyone else will stand to gain from decentralization, and thus the incentives will eventually push as in this direction.

So, crypto to the moon?

Well, if 30K BTC is a bear market, then I think it’s pretty clear crypto is here to stay. I think soon we will see a consolidation of investment in the crypto space, as well as huge influxes of investment from major investment funds and banks across the world. We currently see multiple banks looking into crypto investments; hedge funds starting crypto portfolios; FAANGS investing into crypto and discussing accepting crypto payments; countries investing in crypto, accepting crypto payments and setting up crypto infrastructure; and even the Federal Reserve discussing crypto and what their policy will be around it. Even with countries like China banning crypto, one thing cannot be denied: crypto is in the mainstream and it cannot be ignored.  I think at this point, it’s a bit foolish not to invest a small part of your portfolio in crypto, at least as a hedge.

Are NFTs a scam?

Yeah, but so is Art, so I guess it’s fine. However, it might work out for some people that have purchased select NFTs I think, because humans are dumb. In the future, I believe NFTs may have value once two things become true:

1. A solid network is established that all or most NFTs standardize too
2. A digital place or hangout becomes mainstream, and integrates with NFT networks to allow you to show off your digital goods.

Until then, I believe NFTs are just completely speculative, with very little real value in sight. However, once again, this won’t really matter as value is in the eye of the beholder.