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BTC Mining Breaks the Environment and Janet Yellen Yells at Bitcoin….. Again!

Another week, another fresh set of FUD for Bitcoin and crypto. The tether debacle has settled down and the pricing spread between Coinbase and Bitfinex has finally halted...

Another Week, another fresh set of FUD for Bitcoin and cryptocurrencies. BTC is down about 2% to $6350 this week based on data from tradingview.com. The tether debacle has settled down and the spread between Coinbase pro and Bitfinex has been almost completely eliminated. Although the drop is likely due to tether regaining parity, it’s also interesting to note some peculiarly timed articles that permeated through social media yesterday as BTC was declining. Not trying to speculate that there is a connection, although the timing and sources of the articles is certainly convenient to say the least.

A well respected journalism outlet for nature and climate change, Nature.com, put out an article yesterday entitled “Bitcoin emissions alone could push global warming above 2 Degrees celsius” This is a pretty serious allegation from any point of view, a hypothesis that should require a strong degree of explanation based in facts. Unfortunately, this was not the case. Without exhausting the minute details, I will give a quick overview of their argument. To estimate Bitcoin’s total CO2 emissions, they took data from 2017 BTC mining companies and backtracked from there to find out the country where the miners were located. Using that data they took the average CO2 emissions for each country where mining was taking place and applied the number of blocks mined to that equation. This is a very linear way of analyzing new technology. Unfortunately for the authors, they put so much effort into understand Bitcoin’s energy consumption but they failed in considering some crucial external factors that makes this data inadmissible. For starters, their blanket assumption that the BTC miners are using the “average” energy consumption/emissions for any particular country is ridiculous. It’s widely known that BTC miners often seek to improve electricity costs by utilizing renewables in countries where its possible. While not all miners are using environmentally friendly electricity, it’s not a safe assumption to simply take the average of the countries CO2 emissions and slap it on a data set then extrapolate from there. The second issue with this hypothesis is their misunderstanding of Bitcoin’s development process. BTC protocol is in a constant state of improvement and change. This article completely overlooks the possibility of off chain transactions facilitated through the lightning network. They also fail to understand the evolving nature of block rewards and halvings, not considering the imminent reduction of block size from 12.5 to 6.25 in 2020. With all of these factors omitted from the data it is safe to say this was not an adequate scientific analysis. That certainly didn’t stop multiple news outlets such as: Forbes, MSM, The Washington Post and Bloomberg from jumping on the FUD opportunity and posting the article without properly understanding its implications. This all comes on a day when Bitcoin was declining in price, almost as if it were a coordinated attack! Needless to say, there are arguments to be made when considering the environmental impact of Bitcoin mining, although this “scientific” analysis fell short of meeting any prerequisites for a well constructed and fact based argument.

In other news, former Fed chair, Janet Yellen has come out yet again on her stance against Bitcoin and other cryptocurrencies. To sum up her CFA Montreal speech Janet Yellen said Bitcoin:
  • Has little transactional volume; and those transactions that do take place are illicit
  • Has the tendencies to fund terrorist activity as well as money laundering
  • “Is anything but useful” and cannot be considered as a stable source of value
  • Is not an efficient means for processing payments
  • Has difficulties because of its decentralized nature
  • Little to no enthusiasm within the central banking system to implement digital currency
Instead of wasting time refuting these blatantly shortsighted and misconstrued arguments, I am going to delve a little bit into the Federal Reserve and discuss why I think Yellen is publicly negative towards BTC. This is only going to be a surface level discussion of our monetary policy. Yellen has repeatedly stated her stance against crypto currencies, so this is nothing out of the blue. However, current Fed chair Jerome Powell commented last November that a drop in cryptocurrency prices would not destabilize an economy. He commented that “in the long, long run, cryptocurrencies and things of that nature could matter” stating that blockchain “may have significant applications in the wholesale payments part of the economy” Needless to say, both Powell and Yellen hold strong stances on cryptocurrency that may act as a deterrent to potential new investors.
In order to really understand why Yellen might hold this position on BTC, hearing her politically motivated rhetoric is simply not enough. One must take a look at what is going on behind the scenes at the fed, and why they might actually perceive BTC as a threat rather than a failing technological experiment. BTC is the the antithesis of the FED. They are the “lender of last resort”. They have the power to literally create money through financial instruments like quantitative easing, and or printing cash. They control interest rates which can push our economy into a recession, or put us into a boom. They create money then loan it to the U.S government at near zero interest which is often promptly used to pay off interest from loans we have with other countries. This is the real “trickle down economics” because the government very discreetly but effectively devalues the dollar through these processes, in essence forcing a second hidden tax on your net worth caused by a gradual but certain decline in purchasing power. This all defies the basic principles of what sound money truly is. We have gone so far as to completely detach the U.S dollar from anything resembling intrinsic value. It’s no surprise we have lost close to 99% of purchasing power in the last century. Inflation is a fickle bastard; although most of us live in ignorance of its eroding existence. The reason I dubbed this “the real trickle down economics” is because inflation trickles down to the most unsuspecting. Those closest to the “money spout”, figuratively speaking, quickly convert their cash into real world assets, effectively avoiding inflation until the slow paced market prices it in. Hence, those furthest from the money spout are left behind to pick up the tab. Did someone say bubble?
Now, if you’ve gotten this far you can easily tell my biases are in full fledge. I’d like to admit that not everything the FED does is intentionally malicious. It’s an unintended consequence of the way our monetary system was designed. If the power to create and distribute money is limited to one central body, then that body will also be required to maintain its value through the aforementioned mechanisms. Our current monetary system is a culmination of hundreds of years of trial and error. A political pendulum that has swung back in forth between those who favor central banking, and those who oppose it. Our current central bank is about 100 years old but its the “third trial” so to speak, as the united states has actually had multiple central banks come and go during its relatively short existence. Ironically enough, the man on the $20 Note, Andrew Jackson, was in stout opposition to central banks, and his presidency was defined by the insolvent corrupt central bank that held monetary control during his presidency. For now, I postulate that the “trial period” for the Federal Reserve may be coming to an end. By any standard of measurement, the federal reserve experiment has been a spectacular failure.
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