The raconteur Augustus
Hare claimed that "Talk of strange relics led to mention of the
heart of a French King preserved at Nuneham in a silver casket. Dr
Buckland, whilst looking at it, exclaimed, 'I have eaten many strange
things, but have never eaten the heart of a king before', and, before
anyone could hinder him, he had gobbled it up, and the precious relic
was lost for ever." The heart in question is said to have been
that of Louis XIV.”
Who said that history wasn’t curiously entertaining?
But back to money and finance and the bit that is a tad scary.
Credit is such an innocent word but without credit there is no growth.
Without credit we would be living in a 14th Century hand to mouth
economy. Because if we tied the amount of money to actual existing,
tangible assets, things like crops and horses, labour and castles
that exist in the here and now, there wouldn’t be enough money
suddenly to build countries full of railways and seas full of ships.
So we need more money than there actually is. And how easy that is,
because we just say that it exists! Really!
The banking system allows banks, starting with Treasury or our Reserve
Bank, and all the dependent banks and Credit Unions to lend (or print)
more money than they actually have in their vaults and in your low
interest saving account. In America this is up to ten times the amount
that they have on deposit. Which means that there is nine times more
imaginary money than real bank notes and coins. A lot of imaginary
money that can be sent to any part of the globe where it can be tax
free and hopefully productive.
Or you can employ that other wonderful financial device ‘quantitative
easing’, which is another term for just printing more money.
It’s what you do when you can’t think of anything else
to do when the economy is going nowhere. What this means is that after
a few years of printing money, the great tidal wave of cheap money
gets hungrily turned into real things like houses in Melbourne. And
because money is cheap and houses are relatively scarce, the price
of housing goes up.
In fact, when you factor in all the more creative financial instruments
such as derivatives or collateral debt obligations, you have yet another
multiplier of imaginary money.
Actually this is mostly well and good most of the time. The vast inverted
pyramid stays more or less upright, wobbling considerably, until we
lose faith in it, we stop believing, and everybody wants their money
back. Which they can’t have as there is far more than 90% shortage
of the ready stuff and so banks go belly up or have to be bailed out
by governments who print more money to fill the holes in the financial
fabric.
The Great Depression of the thirties and the Great Financial Crisis
are the obvious examples of when things go wrong – when people
stop believing in the fabulous merry-go-round.
So, this is actually a useful form of shared belief most of the time,
provided one has a large degree of scepticism about the wonderful
ability of people to forget the valuable lessons of ten years ago.
But we are of course entirely willing to believe the most wondrous
useless tosh imaginable.
Which naturally brings me to the realm of Bitcoin and bitcoin mining.
Is this a useful form of money? Given that it was initially much favoured
for users of the Dark Web, as it sits outside the standard traceable
banking system, it has been certainly useful for various criminal
purposes, which puts it off to a poor start.
As Wikipedia says “Bitcoin (?) is the world's first cryptocurrency,
a form of electronic cash sent peer-to-peer without the need for a
financial intermediary. It is the first decentralized digital currency:
the system works without a central bank or single administrator. Bitcoins
are sent from user to user on the peer-to-peer Bitcoin network directly,
without the need for intermediaries. These transactions are verified
by network nodes through cryptography and recorded in a public distributed
ledger called a blockchain.
Bitcoins are created as a reward for a process known as mining. They
can be exchanged for other currencies, products, and services. “
Just like real money, with all the same necessity to believe.
There are about fifty different ‘Bitcoins’ around, as
people realised that you could make money out of nothing and electronic
processes which, when they work, should be totally secure. Except
that there are more than a few instances when it hasn’t worked
and large amounts of bitcoin have been hacked or ‘lost’.
You may also see that the value of bitcoins fluctuates wildly with
bitcoins this year fluctuating from $14,000 to $6,600. Given that
in 2009 it was valued at eight cents you might either wish you had
got in to this in the early days - or are glad you have nothing to
do with it.
This fluctuation in value makes it a bit difficult to work out how
much a cup of coffee will cost, but nevertheless the crypto currency
market is valued at around $18 billion.
This may well be an interesting economic bubble. A lot of respected
economists think so. A lot of governments are also looking at it with
a quizzical eye.
But my beef with cryptocurrencies is not the concept, which may actually
be useful, but its extreme energy consumption which renders the whole
thing totally stupid. New coins are created and exchanged via cryptocurrency
mining. This process uses vast amounts of energy through what is now
a major industry which, among other things, has soaked up just about
every high end graphics board being produced.
All these 24/7 processes are currently consuming at least 2.55 gigawatts
of electricity. By the end of the year it is expected to rise to almost
8 gigawatts. As a comparison, Ireland consumes 3.1 gigawatts and Austria
8.2 gigawatts.
As the magazine PC & Tech Authority said, “ ……
a whole lot of coal is being burned for an arguably intangible purpose.”
This is total unforgiveable insanity is a danger in an age of global
warming. So the best we can hope for is that the whole thing does
a South Sea or Dot-Com bubble.
Be afraid, be very afraid. |
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