How does cryptocurrency generate value, and why is this a problem?

The prices of cryptocurrencies have risen dramatically in the 12~ years of their existence. Bitcoin’s value in particular has increased monumentally; $100 worth of Bitcoin in 2009 would be $488,100,000 now. This kind of meteoric rise in value is not universally true of every cryptocurrency (there are thousands of cryptocurrencies, which fluctuate like any currency) but this has been the general trend. Ethereum, which is what cryptoart is traded on, has increased 354086% since launch.
There are a lot of reasons you could point to to explain this value growth, including general adoption, the anonymity cryptocurrency allows in illegal purchases, and a robust scene of scammers manipulating prices for quick returns. But there is also a very simple and obvious reason, and this is that it is wasteful. It requires value (the price of electricity) to be wasted in order to be made, and inherits all of that value in the making.
Proof of work places a direct lien against the future.
A cryptocurrency’s energy cost is tied to its current price. This is because cryptocurrencies are designed to incentivize miners- if they were not tied together, the potential value return of a making a bitcoin could fall below the price of electricity required to make it.
Because of this, Bitcoin’s continued financial return depends on coins being harder to make in the future. The people who invest in cryptocurrencies- like any kind of futures speculation- are betting that it will be better to be holding this resource tomorrow than making it.
While I don’t believe that we have to live under physical scarcity, through a combination of bad economic policies and incredible wealth inequality, we do. No one who has watched the price of food staples go up in a crisis has to imagine how scarcity can affect the market.
However, in a digital context scarcity must be constructed- there is nothing that demands the next block in the blockchain be harder to make than the last. If anything, the opposite should be true- computers grow ever more efficient and powerful. This means any scarcity is artificial, a process that demands ever more energy, ever more resources lost to continue to operate and return, for no other reason than to insure that tomorrow it will be even more expensive- which makes the wastefulness of today a good investment.
This is why cryptocurrency is valuable. There is nothing high-tech about it. There is no miracle. It is simply futures speculation without the speculation- no guessing required, because we know it will be more wasteful tomorrow; it is baked into the tech.
All that cryptocurrency does is abstract resources into a market by making those resources unavailable to the future.
Aren’t there alternatives to Proof of work?
Proof of work is not the only schema around. The biggest alternative is proof of stake (PoS), and it is never very long into any argument around the ecological cost of cryptocurrencies that proof of stake is brought up.
While proof of work coins demand solving increasingly energy-intensive puzzles to enter the lottery of who gets to mint the next coin, proof of stake coins take a different approach; entries into a PoS lottery are doled out by “held stake” in a system, generally by coins currently in an individual wallet.
On paper- well, there it is, ecological problem solved!
However, PoS currencies operate within the same conceptual framework as PoW currencies, and despite a number of PoS coins that do function, a pretty standard use case for PoS has been for PoW to point at and say “we’ll be there soon”.
Ethereum “has been moving” to proof of stake for almost as long as it has existed. It has been so long that “Eth 2.0 PoS Coming Soon!” is something of a running joke. In all that time, any time the ecological cost of PoW is brought up, PoS is touted as the redemption just over the hill- if we can just hang on another few months, the whole network will be green.
Meanwhile, the Ethereum networks’s annual energy consumption is hovering around 24.43 TWh — roughly equivalent to the entire country of Ecuador.
We truly don’t have time to wait.
Proof of stake is, and always has been, valuable as a bait and switch, but there are other, obvious problems with PoS (and various other proofs), which are that to more or less degrees they don’t address any of the problems with access to cryptocurrency relying on existing wealth.
Proof of stake coins use a variety of mechanisms to determine “lottery ticket” allocation, but it essentially boils down to: 1 coin in your wallet, one lottery ticket.
Proof of capacity gives you a lottery ticket per available hard drive segment.
Proof of assignment gives you a lottery ticket per smart device / internet of things consumer electronics good you own.
Proof of donation gives you a lottery ticket per donation to a charitable organization.
I’m sure you’re seeing the problem here- there is not a schema that doesn’t reward those who already are already wealthy, who are already bought in, who already have excess capital or access to outsized computational power. Almost universally they grant power to the already powerful.
This is also a climate issue.
Climate justice is social justice. This is true in that the worst impacts of climate collapse are felt by those with no means to avoid them, while those with resources easily fuck on off to somewhere where they don’t have to see it.
But climate justice must mean giving leadership and power to those who will bear the worst effects of climate catastrophe, including the very young, those living in the global south, those living rurally in coastal areas or farming regions, those living in poverty, those in marginalized communities, and particularly to indigenous communities who have actual experience in managing complex local ecosystems for generations without creating spiraling, resource-extractative devastation.
Building ~sustainable~ models to monetize and market unregulated capital gain just isn’t it. Cryptocurrency is never going to be ecologically just.
Part of the reason this is true is that cryptocurriencies are pyramid schemes. In a cryptocurrency marketplace, you make money on the people who have entered the market after you. This is not me on my socialist shit (which, don’t worry, I’ll get to later) but is rather just the fact of how they are constructed. Unlike a Ponzi scheme, there is no guarantee that it will all collapse someday- but the value continuing to rise absolutely depends on ever more users joining the network, using coins, and competing to mine them.




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