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Letter to a Bitcoin Skeptic (Part II)
An explanatory resource for anyone who thinks Bitcoin is unethical.
You were probably sent this link by a friend or loved one who is hoping you will give Bitcoin a closer look. This is the second part of a two part essay meant to address common doubts and concerns about Bitcoin. Part I focused on the practicalities of Bitcoin (i.e. does it work?) and Part II focuses on the ethics of Bitcoin (i.e. is it good?). If you’re looking for more of a getting started guide, check out this one here. Or if you’re more interested in a reading list to deepen your understanding of the space you can find that here.
Bitcoin is good for the world
Bitcoin is often accused of being principally useful for criminals but that isn’t really true. Criminal activity on Bitcoin peaked at ~2% in 2019 and fell to ~0.34% in 2020. Bitcoin transactions create permanent and public records. Most criminals would rather do business in US dollars. Bitcoin is actually mostly used for saving.
Bitcoin is good for the poor because inflation weighs most heavily on the poor. If your net worth is mostly cash and future cash-denominated wages inflation is a drain on your wealth. If your net worth is mostly investments and property inflation just changes the numbers next to your accounts — it doesn’t cost you anything. In the countries with runaway inflation Bitcoin is a safe haven for the poor.
Bitcoin is also valuable for activists like feminist protestors in Nigeria or dissident politicians like Alexei Navalny in Russia or disenfranchised groups like unbanked women in Afghanistan. Alex Gladstein of the Human Rights Foundation has called it an "essential tool for preserving freedom."
Bitcoin is good for the planet
In spite of the reputation it sometimes has in mainstream media Bitcoin is actually good for the environment. Bitcoin uses a lot of energy, but it is a scavenger that feeds on low-cost waste energy. Energy is much, much easier to produce than it is to store or transport which means a lot of energy is wasted.
For example oil mining often produces natural gas as a side effect. When it is convenient oil companies will sell that natural gas — but often oil is mined in remote locations so it is not easy or cheap to bring that gas to market. Instead in practice oil companies simply vent that gas into the air and light it on fire, a practice called flaring. By the estimates of the CBECI enough gas is flared globally to power the Bitcoin network ~6x over. Here is how large flaring is relative to other sources of carbon dioxide emissions:
Several companies are building traveling Bitcoin mining rigs that can go to the vents and use that natural gas on site to mine Bitcoin. That causes Bitcoin’s energy use to go up, but it actually has a positive impact on the environment because using natural gas is much better than flaring it. Both flaring and using natural gas produce carbon dioxide but flaring (which is often inefficient and incomplete) can also release methane and NOx into the atmosphere as well. Methane damages the ozone layer and NOx contributes to acid rain. Using the graph of Bitcoin’s energy use as a proxy for its environmental impact is misleading.
Bitcoin mining is also really useful for renewable energy because lots of renewable energy is produced at off-peak hours when it is less valuable. The Bitcoin network acts as a "buyer of last resort" for energy producers, which makes renewable power more economically viable. Bitcoin effectively subsidizes the creation of more renewable energy by creating a market for their excess power. That’s why renewable energy companies are starting to add Bitcoin mining to their operations.
A lot of anti-Bitcoin critics cite environmentalism as a concern but not as many environmentalists cite Bitcoin as a concern because if you sincerely care about the environment it is fairly obvious that Bitcoin is a footnote.
Energy use can be surprising. Bitcoin uses more energy than Argentina but less energy than Christmas lights. Neither comparison is especially useful — a better comparison would be to the energy use of the entire legacy financial system or the environmental cost of the petrodollar. In proper context Bitcoin’s energy use isn’t so much large as it is easy to measure.
Bitcoin is an alternative to war
The history of warfare is a history of the defense and acquisition of wealth. If that wealth has a physical location it will require defending physical territory, which implicitly means violence. As wealth migrates to non-physical systems like Bitcoin, it can be defended by non-violent means (i.e. Bitcoin mining). The more wealth leaves physical goods the less wealth requires physical defense.
Bitcoin also makes it harder for governments to prolong a losing war by spending their citizens’ wealth by hyperinflating the currency. It is much easier to fund a war with the creation of new money than through direct taxation because people understand the impact of direct taxation more clearly. That’s why most of the countries involved in World War I had to abandon the gold standard. If the people understood how much money war cost them they would put a stop to it sooner.
None of which is meant to imply that Bitcoin is the end of war — power plants and population centers will always need to be defended. Governments will always find reasons to quarrel with their neighbors. But to the extent that Bitcoin gains traction it does meaningfully reduce the means and incentives for violent conflict.
You should own some Bitcoin either way
It is entirely possible that even having considered all the arguments above and in the first essay you remain unconvinced about the value of Bitcoin — you should probably still own a little bitcoin either way. That’s because if Bitcoin succeeds in becoming the best possible way to store value it will capture most of the value currently stored in other ways. It’s not just that the price of Bitcoin will go up — it's also that the value of everything else will go down.
That’s why whether you like Bitcoin or not everyone needs to think about how they will protect themselves from the possibility that Bitcoin is real. Owning a small amount of bitcoin is one way to safeguard against that risk — and you probably need less than you think. If everyone in the world wants bitcoin there won’t be very much to go around — owning 0.074 BTC (~$3400 at time of writing) will likely be enough to put someone in the top 1% of Bitcoin wealth.
Given that it takes such a small amount of bitcoin to hedge against a Bitcoin future owning no Bitcoin at all is actually an extremely confident stance. Being doubtful about Bitcoin’s chance of success is very reasonable but being 100% certain that it will fail is overconfident. Intelligent skeptics are skeptical of their skepticism.
Keep your mind open
Regardless of how you feel about Bitcoin I encourage you to stay curious. I’ve been immersed in the space since 2014 and I am still learning new things and changing my mind every day. If you want to read more I’ve curated a reading list of pivotal essays that I think are worth your time. Consider also subscribing to this newsletter (Something Interesting) — I write ~2-3x a week about cryptocurrency news and topics and I try to answer all reader questions. Paid subscribers get also get access to additional content, the archives and the Something Interesting discord.
Thanks for reading.