The Cryptocurrency Thread 2

[captain3d]

I know, nameless faceless computers with zero recourse. Go fish.

Crypto bad

4. In short, if you want to participate in crypto, do it. If you don't, then don't. You will not convince each other of the righteousness of your respective positions, so stop trying. It just annoys people.

 

[MichaelB]

<mod note>
If this thread gets shut down and the topic barred from future discussion, it won’t be a view on crypto, it will be because members are unable to have polite and thoughtful interaction without being rude.

 

[ERD50]

....“The more energy that Bitcoin’s network uses, the more secure that its latest transactions are against most types of attacks. ...

Both of those other blockchains only have 1% or less of the Bitcoin network’s total processing power, ...

OK, maybe there is some logic to that, but I can't help the feeling that I'm living in Bizarro World, where energy inefficiency has become touted as a "feature"!

There’s a lot to unpack in your statement but I’ll try:

1) As mining, which largely relies on free or cheap stranded, green energy resources, ....

Please tell me more about these "free or cheap stranded, green energy resources". Maybe it deserves it's own thread?

In any case, you'd need to convince me that using that energy for bitcoin is a better use than the alternatives, or it all kind of falls apart anyhow.

-ERD50

 

[Gumby]

I have no particular bone to pick with bitcoin. I just don't know how to value it properly. As Benjamin Graham would tell you about stocks if he were still with us, the market price of anything is not necessarily its value.

 

[Markola]

ERD, the article I posted in #325 above addresses energy use better than I can.

 

[Aerides]

Markola, I'm not sure I'd take a Lyn Alden blog piece as the definitive "no problem" on the energy impacts. At best you can say there are differing opinions, and from all I've read, currently, it's still not great.

https://www.investopedia.com/tech/whats-environmental-impact-cryptocurrency/

"According to Digiconomist, Bitcoin mining generates about 96 million tons of carbon dioxide emissions each year—equal to the amounts generated by some smaller countries.8 Mining for Ethereum produces more than 47 million tons of carbon dioxide emissions annually."

 

[ERD50]

ERD, the article I posted in #325 above addresses energy use better than I can.

Well even so, it does a pretty poor job of it. And I'm being generous, it's really more like smoke and mirrors. [MOD EDIT]

First, they use total world-wide energy production for their basis, rather than electrical energy production. Try mining bitcoin by burning some natural gas, kerosene, coal, wood, or dung w/o first turning it into electricity. Not gonna happen.

So let's substitute WW annual electrical energy production, which was reported as 25,606 TWh (Terra is 10^12) in 2017, in place of their 170,000 TWh of energy per year. So they minimize Bitcoin electrical energy % by a factor of 6.64x by using the wrong metric. How "convenient".

https://en.wikipedia.org/wiki/World_energy_supply_and_consumption

So they estimate current Bitcoin energy consumption at 140 TWh, ~ 0.08% of energy production, and estimate that "it should reach several tenths of one percent of global energy usage." So @ 0.2% (a generous number for 'several tenths'), that would be 340 TWh annually. Which makes it 1.33% of annual electrical energy production.

Is it OK to use so much energy just because it is 'only 1.33%' of the total? That's not a very helpful way to improve energy efficiency. These are big numbers, let's try to add some context. What can we do with 340 TWh?:

Assume an EV uses 330 Wh per mile, and the average driver drives 12,000 miles/year. That is 3.96 MwH per year per EV (3.96*10^6 watt-hours to keep decimal points straight).

That could supply all the power needed for 85.86 Million EVs (85,858,586 to keep those decimal points straight)!

That's a lot of electrical energy, any way you slice it.

So yes, that article 'addresses it', using bad metrics, and does a hand-wave at a large number. If you break it down, the article actually does demonstrate just what a huge amount of energy Bitcoin requires. But they try to dismiss it by (falsely) claiming it is a low % overall. [MOD EDIT]

-ERD50

 

[aja8888]

Well even so, it does a pretty poor job of it. And I'm being generous, it's really more like smoke and mirrors. [MOD EDIT]

First, they use total world-wide energy production for their basis, rather than electrical energy production. Try mining bitcoin by burning some natural gas, kerosene, coal, wood, or dung w/o first turning it into electricity. Not gonna happen.

So let's substitute WW annual electrical energy production, which was reported as 25,606 TWh (Terra is 10^12) in 2017, in place of their 170,000 TWh of energy per year. So they minimize Bitcoin electrical energy % by a factor of 6.64x by using the wrong metric. How "convenient".

https://en.wikipedia.org/wiki/World_energy_supply_and_consumption

So they estimate current Bitcoin energy consumption at 140 TWh, ~ 0.08% of energy production, and estimate that "it should reach several tenths of one percent of global energy usage." So @ 0.2% (a generous number for 'several tenths'), that would be 340 TWh annually. Which makes it 1.33% of annual electrical energy production.

Is it OK to use so much energy just because it is 'only 1.33%' of the total? That's not a very helpful way to improve energy efficiency. These are big numbers, let's try to add some context. What can we do with 340 TWh?:

Assume an EV uses 330 Wh per mile, and the average driver drives 12,000 miles/year. That is 3.96 MwH per year per EV (3.96*10^6 watt-hours to keep decimal points straight).

That could supply all the power needed for 85.86 Million EVs (85,858,586 to keep those decimal points straight)!

That's a lot of electrical energy, any way you slice it.

So yes, that article 'addresses it', using bad metrics, and does a hand-wave at a large number. If you break it down, the article actually does demonstrate just what a huge amount of energy Bitcoin requires. But they try to dismiss it by (falsely) claiming it is a low % overall. [MOD EDIT]

-ERD50

Just imagine how many homes can be supplied with power from the annual power used to mine bitcoin. Huge number I would bet.

 

[Markola]

Markola, I'm not sure I'd take a Lyn Alden blog piece as the definitive "no problem" on the energy impacts. At best you can say there are differing opinions, and from all I've read, currently, it's still not great.

https://www.investopedia.com/tech/whats-environmental-impact-cryptocurrency/

"According to Digiconomist, Bitcoin mining generates about 96 million tons of carbon dioxide emissions each year—equal to the amounts generated by some smaller countries.8 Mining for Ethereum produces more than 47 million tons of carbon dioxide emissions annually."

That’s a good, recent article, written after China’s ban came down this fall, handing the U.S. dominance of a new $2 trillion tech industry. From your article:

“Why Cryptocurrency Mining Requires Energy
The energy intensity of crypto mining is a feature, not a bug. Just like mining for physical gold, mining for Bitcoin or another proof-of-work (PoW) cryptocurrency is designed to use large amounts of energy. The requirements for both expensive hardware and plenty of electricity to power that hardware create barriers to entry, which in turn make it extremely difficult (although not impossible) for a small group of miners to take control of an entire crypto network.”


The article is also hopeful and shows that the markets are working to bring people what they want, which is greener crypto. Re-centering the industry in our democracy, with ESG demands and vast capital markets was China’s gift to the world in 2021. An open minded reading of the Alden article shows how portable and flexible mining operations are relocating to use wasted flare gas, wasted hydro power and non-peak wind and solar in western countries like ours, because it is cheap or free. Much of that explosive growth is being funded by the US capital markets, which I assume we believe in.

Unfortunately, the article is too simplistic by equating decentralized Proof of Work Bitcoin from far more centralized and manipulable Proof of Stake and other systems that use less energy and are therefore weaker. Folks will have to go read and understand those significant differences themselves if they want to.

As for energy, my view is, if we believe in free markets, who is to say that one use of electricity is inherently better than another? No one, because the markets decide. Think about the enormous energy use of the legacy global financial system, which now has some competition from people who think there is utility elsewhere. I suppose people who don’t like the change can pound their fists on the table.

Finally, our privileged lens is from a wealthy western country with 300 million people. If you were one of the billions of people living under currencies inflating at 10, 20, 30% and you could use your cell phone as a way out of the trap, would you care where the electricity came from? No, but you might be glad that more of your sats are coming from the US of A.

 

[target2019]

I have no particular bone to pick with bitcoin. I just don't know how to value it properly. As Benjamin Graham would tell you about stocks if he were still with us, the market price of anything is not necessarily its value.

Crypto, NFT, what-have-you change value as humans speculate and trade. The speculation and pricing is beyond the influence of traditional institutions at this time.

This is part of human systems evolving to a greater digital influence.

Anyone can use the schema of respected advisers, but this is a "game-changer" in my opinion. It doesn't fit nicely into the main stream assumptions.

For about 10 years (85-94) I tried to convince corporate mainstream thinkers that the Mac GUI was far superior to what they were using, as it would bring their employees much quicker into the digital revolution. The greatest mass of people at that time were completely against something that required more computing power. But the core beliefs of the early Xerox/Apple developers won out over time.

 

[joesxm3]

Some bitcoin miners are using the excess "flare gas" that cannot be transported away from the oil drilling location.

https://www.reuters.com/business/su...coin-miners-bond-over-natural-gas-2021-05-21/

Other miners are using geothermal energy. The quick Google search turned up a lot of articles on El Salvador and its volcano, but I think there are miners doing it in other countries.

Hydroelectric is also being used. I heard of one company using old mills in New England to run generators and found this article.

https://www.reuters.com/technology/...gets-new-lease-life-crypto-mining-2022-01-11/

https://www.forbes.com/sites/greats...able-energy-than-any-major-country-or-industr

Some other commentators have said that instead of proof of work, the USD is backed by proof of war.

https://www.eurekalert.org/news-rel...2017 alone, the US,and Marines at $36 million.

There is a thinker in Space Force who has argued that a bitcoin standard would be a stabilizing force in geopolitics since the USA would not need to police the world with its military to enforce the petro-dollar system.

https://www.trustnodes.com/2021/08/...s-national-security-says-space-force-engineer


https://www.marketwatch.com/story/e...red-by-volcanos-geothermal-energy-01637529596

https://usa.inquirer.net/75088/how-bitcoin-mining-will-go-green-with-geothermal-energy

 

[Markola]

^^^^. Thanks, Joe. I look forward to reading those.

Hot off the presses, today Vladimir Putin embraces mining using Russia’s excess electricity:

“We also have certain competitive advantages here, especially in the so-called mining,” Putin said during a government meeting, while acknowledging risks associated with crypto. “I mean the surplus of electricity and well-trained personnel available in the country.”

Mining Bitcoin, the world’s most valuable cryptocurrency, requires special computers that work to solve complex encrypted problems, and the biggest operating expense for the business is electricity.

Russia has a number of regions that have a surplus of electricity due abundant supplies from hydroelectric plants or because energy-intensive Soviet-era industrial facilities shut down. “

We can map all kinds of values onto this development but Bitcoin is agnostic about who helps strengthen it. I hope it isn’t behind a paywall. https://www.bloomberg.com/news/arti...pto-mining-despite-bank-of-russia-s-hard-line

 

[ERD50]

Some bitcoin miners are using the excess "flare gas" that cannot be transported away from the oil drilling location.

https://www.reuters.com/business/su...coin-miners-bond-over-natural-gas-2021-05-21/

Other miners are using geothermal energy. The quick Google search turned up a lot of articles on El Salvador and its volcano, but I think there are miners doing it in other countries.

Hydroelectric is also being used. I heard of one company using old mills in New England to run generators and found this article.

https://www.reuters.com/technology/...gets-new-lease-life-crypto-mining-2022-01-11/

https://www.forbes.com/sites/greats...able-energy-than-any-major-country-or-industr

Some other commentators have said that instead of proof of work, the USD is backed by proof of war.

https://www.eurekalert.org/news-rel...2017 alone, the US,and Marines at $36 million.

There is a thinker in Space Force who has argued that a bitcoin standard would be a stabilizing force in geopolitics since the USA would not need to police the world with its military to enforce the petro-dollar system.

https://www.trustnodes.com/2021/08/...s-national-security-says-space-force-engineer


https://www.marketwatch.com/story/e...red-by-volcanos-geothermal-energy-01637529596

https://usa.inquirer.net/75088/how-bitcoin-mining-will-go-green-with-geothermal-energy

I'll look through those articles later, but offhand (other than a few specific cases), it's a little hard to believe that there is much energy just sitting around looking for a home.

Beware of the shell game - just like the idea that solar panels on the home of an EV owner means they are running their car on renewable energy (they aren't - w/o the EV, that solar energy would offset a grid generator, then the EV uses that up! The EV is running on the grid generators), just because some coin miners are using this energy, doesn't mean it couldn't be put to better use elsewhere.

But we will see, I'll try to catch up later.

-ERD50

 

[jim584672]

Warren Buffet and Charlie Munger on crypto.

I guess they fall into the crypto bad camp. Buffet doesn't like it because he thinks investments need to return something and it will have a bad ending. Munger calls it bad for civilization and rat poison.

 

[target2019]

Warren Buffett May Not Be Into Crypto, but His Granddaughter Is

My post is about the article, "Warren Buffett May Not Be Into Crypto, but His Granddaughter Is."
https://www.institutionalinvestor.c...y-Not-Be-Into-Crypto-but-His-Granddaughter-Is

The article comes from Institutional Investor News, which describes itself this way:

For 50 years, Institutional Investor has built its reputation on providing award-winning editorial for the world's most influential decision makers in global asset management and banking. This prestigious audience relies on Institutional Investor to provide in-depth coverage of the people and events impacting the world's economy and all facets of institutional asset management.

I feel that this raises the likelihood that my post may be seen as relevant. Yesterday I discussed BTC and ETH with my sister-in-law, and it's apparent to me, at least, that there is no amount of bad youtube videos that can make crypto go away. It is a sea change.

I found this article extremely interesting, and have posted about it previously. It highlights and speaks to the very wide generational gap. NFT is covered as a topic, also.

The article also goes on to mention certain things about WB, about how visibly upset WB becomes when asked about BTC. WB calls blockchain "Ingenious" and "important", but publicly has strong reaction to its mention. But the article author has looked behind the scenes, and sees that WB has invested $500M in a crypto-friendly foreign bank.

Nicole Buffett (NB), an artist, sees her foray into decentralized finance as similar to WB's (her grandfather) approach to value investing. So she is in this not for short term gain, but the long game. "It’s about what’s behind it. How does this serve the world in general, beyond a financial game that is being played? I think there is a responsibility and a moral perspective there, and that is very much a Buffett thing."

There is certainly a difference in how competing generations view the world.

 

[Markola]

I recall them both avoiding tech in the dot com era, and 25 years later, Apple is Berkshire’s largest position of over 40%.

It doesn’t have to be a generational difference, but paradigm shifts are always controversial. Similarly, Dr. Paul Krugman has been writing a series of panicky, derisive articles about digital assets in the NYT, for instance. It upsets these leaders’ settled world view. I’m in my late 50s, as Boglehead as they come and, after some intensive study, decided I want a foothold in the fascinating, challenging, possible new paradigm with some unallocated but non-trivial money I’d saved up over the years and could afford to lose. In the parlance, through my research, I orange-pilled* myself.

* https://www.introtocrypto.com/take-the-orange-pill/

 

[target2019]

I recall them both avoiding tech in the dot com era, and 25 years later, Apple is Berkshire’s largest position of over 40%.

It doesn’t have to be a generational difference, but paradigm shifts are always controversial. Similarly, Dr. Paul Krugman has been writing a series of panicky, derisive articles about digital assets in the NYT, for instance. It upsets these leaders’ settled world view. I’m in my late 50s, as Boglehead as they come and, after some intensive study, decided I want a foothold in the fascinating, challenging, possible new paradigm with some unallocated but non-trivial money I’d saved up over the years and could afford to lose. In the parlance, through my research, I orange-pilled* myself.

* https://www.introtocrypto.com/take-the-orange-pill/

Thank you for responding.

I did not mean to suggest that the generational difference is everything, but I think we'll agree that it is something. I don't think I'll get into mincing phrases like paradigm shift and generational differences. But obviously there is some truth in both of our observations.

The orange pill phrase is interesting. It takes one into the Matrix movies looking for meaning. For now I'll stick with simple English words and hopefully get in a point or two.

 

[ERD50]

I recall them both avoiding tech in the dot com era, and 25 years later, Apple is Berkshire’s largest position of over 40%. ...

And it appears he was smart to do so. While BRK lagged in the dot.com run up, it passed up the market and stayed there after the bust.

I was surprised that AAPL makes up ~ 40% of BRK. Wow, that's a lot in a single stock.

edit/add - forgot to add image...

-ERD50

 

[Markola]

I was surprised, too.

Speaking of stocks, I spent some time this afternoon reading about the nascent technology of tokenizing stocks. If it could clear the obvious regulatory hurdles, we could end up in a trading environment someday that moves faster, runs 24/7, taps into new global liquidity, and tracks ownership on the blockchain ledger. This article ponders such a potential use of the technology:

“Security tokens have the potential to transform traditional securities markets. Even in this digital age, it takes stock exchanges up to two days to process the sale of shares. Just as email and instant messaging replaced postal letters, security tokens can replace traditional shares. With blockchain technology, exchanges can process transactions in a matter of minutes.

Apart from this speed advantage, there are myriad ways in which security tokens can shake up traditional financial markets…”

https://www.bitcoinmarketjournal.com/security-tokens/

 

[target2019]

What Is Tokenized Equity?

Tokenized equity refers to the creation and issuance of digital tokens or "coins" that represent equity shares in a corporation or organization.

With the growing adoption of blockchain, businesses are finding it convenient to adapt to the digitized crypto-version of equity shares. Tokenized equity is emerging as a convenient way to raise capital in which a business issues shares in the form of digital assets such as crypto coins or tokens.

Source: https://www.investopedia.com/terms/t/tokenized-equity.asp

From the summary at the bottom of the article, investor protection, level of complexity, lack of crypto regulation are major concerns.

In my opinion, just reading crypto-leaning publications colors one's judgment. I'm staying away from those links and the youtube crap and searching on my own.

Isn't the idea of putting already-slow transactions on a slower platform inherently bad? I realize that in the future there will be sufficient computing power and efficiency to make that blockchain snap in an instant, but we are dome distance from that time.

 

[jim584672]

The Securities Industry will move to T+1 in 2024. They have been slow to shorten the cycle for various reasons. I would not feel safe with some half baked "blockchain" system when the current system works well.

 

[Markola]

Source: https://www.investopedia.com/terms/t/tokenized-equity.asp



Isn't the idea of putting already-slow transactions on a slower platform inherently bad? I realize that in the future there will be sufficient computing power and efficiency to make that blockchain snap in an instant, but we are dome distance from that time.

The solution lies in the direction of this Investopedia article and, yes, as I said, too, commercial realization of this technology is all some time away yet (as is the modern model of protecting all of our data on centralized servers from hackers, apparently.)

https://www.investopedia.com/terms/l/lightning-network.asp

 

[MichaelB]

It’s not clear to me what specific problem is resolved by digital tokens or what advantage they offer to retail consumers like us.

 

[Markola]

“…retail consumers like us.” Exactly.

We are, what, 10% of 300 million Americans? What would happen to the price if several billion more customers around the world could buy an Apple token at any time day or night on their cell phone?

Yes, it’s years away, yada, yada.

 

[ERD50]

I'll look through those articles later, but offhand (other than a few specific cases), it's a little hard to believe that there is much energy just sitting around looking for a home.

Beware of the shell game - just like the idea that solar panels on the home of an EV owner means they are running their car on renewable energy (they aren't - w/o the EV, that solar energy would offset a grid generator, then the EV uses that up! The EV is running on the grid generators), just because some coin miners are using this energy, doesn't mean it couldn't be put to better use elsewhere.

But we will see, I'll try to catch up later.

-ERD50

Most of those were behind paywalls, but I got the first paragraph or so (the Forbes link was broken, I figured out it needed a 'y' in 'industry' - maybe Wordle practice is paying off! ).

But overall, I do think these fall into the shell game. Just because that energy is being used for bitcoin mining, does not mean it couldn't be used for other purposes. I mean, if it can run computers (which need a reliable, clean -as in signal noise clean - source) , why can it not be used for Google server farms or anything else?

I don't buy the military angle either (I just skimmed the ones I could read) - the military isn't solely in support of oil, and what difference does it make? The more energy that bitcoin uses, the more dependent we are on energy overall. Seems to be an argument against bitcoin mining?

And the assertion that bitcoin will stabilize the Geo-political world to the extent that we shrink the military to some significant degree? That strikes me as a pipe-dream. I have a hard time seeing any viable connection there.

And even the article questioned this:

It’s just as easy as it is difficult to attack this argument. Easy because if an opponent army seizes the mining farms, that’s a net gain for them and a net loss for you.

-ERD50