The much romanticized coinage known as “pieces of eight” is considered the world’s first global currency. These Spanish dollars were used across Spain’s vast empire, which spread around the globe from Europe to the Americas to the Philippines. Originally made of silver, the coins were worth eight Spanish reales, giving rise to their nickname.
We probably associate pieces of eight with pirates, the robbers of the sea. That connection became hardwired into popular culture thanks in part to Robert Louis Stevenson’s Treasure Island (1883). The novel’s antihero, Long John Silver, is a peg-legged pirate with a parrot on his shoulder that incessantly exclaims, “Pieces of eight!”
The Spanish dollar, along with coins in smaller denominations, were also widely used in the American colonies. A quarter of a dollar, the equivalent of two reales, was referred to as “two bits,” a term still occasionally heard today.
When thinking about a global currency in today’s world, bit may lead us to think of Bitcoin. A virtual currency, Bitcoin is a vanguard for well over a thousand cryptocurrencies that have emerged in recent times, including Litecoin, Ripple, Dash and Ethereum. But just what is a bitcoin? And what will be its impact on our world?
Navigating Virtual Horizons
The term bitcoin first appeared in 2008, having been created by an anonymous programmer (or group of programmers) using the pseudonym Satoshi Nakamoto. The cryptocurrency went online the following year as open-source technology—software whose source code could not only be seen but also modified by users. Like traditional currencies, bitcoins can be stored in wallets (albeit digital ones) and can be earned, exchanged with others or used to buy things.
The currency is released through a process of “mining”; those doing the work are called miners. But because the generation of new bitcoins is so technically complex, it’s challenging to explain mining in terms that most of us can readily grasp. In essence, miners verify and process pending bitcoin transactions, adding the details of each transaction to a data “block,” which could be thought of as a single page in a permanent digital ledger. That public ledger is known as a blockchain because each new block is linked, through computer code, to the previous one in a way that theoretically makes tampering all but impossible.
“To ‘own’ a bitcoin simply means having the ability to transfer control of it to someone else by creating a record of the transfer in the block chain.”
If you’re having a hard time understanding this, don’t feel bad. The entire process requires a network of computers, which turn each transaction into a complex mathematical equation to be solved. If a miner successfully solves the equation (with the help of specialized computer hardware), the system accepts it as “proof of work” and the miner is awarded not only any fees relating to the transaction but also newly created bitcoins.
In order to control the release of new coins, the difficulty of the mathematical problems increases whenever the proof-of-work rate increases. The fact that miners earn payment in the currency ensures that the system of release is self-sustaining. The network was programmed to create a maximum of 21 million bitcoins, of which nearly 16.8 million had been mined by the end of 2017. Estimates suggest that miners will reach the 21 million mark by 2140.
Though the currency is not universally accepted, the significant rise in bitcoin’s value has attracted increasing attention and interest: a bitcoin transaction involves only minimal payment fees and is not subject to geographical borders or public holidays. A number of large corporations such as Microsoft, Virgin Airlines and Subway now accept payment in bitcoins, lending further legitimacy.
However, Bitcoin still has a rogue reputation because, out on the virtual high seas, it also attracts something closer to the pirate mentality. Like gold, it isn’t subject to banks or a central authority—a point of regulatory freedom that some perceive as a benefit. Instead it’s technologically controlled by all of its users around the world (an unknown number). The currency’s unregulated nature means that it’s ripe for corruption and exploitation by criminals: it’s hard to trace, is vulnerable to hacking despite robust security protocols, and lends itself to use on the dark web and the black market. It’s been used to buy anything from fake IDs to sex and illegal drugs, and it’s been linked to money laundering.
Elements of 21st-century counterculture also extoll Bitcoin’s virtues. Some pop stars encourage its use for purchase of their albums. The attraction is that it appears both to transcend and to mock the establishment that was so discredited in the 2008 global financial crisis and in more recent financial scandals. Bitcoin also gives the appearance of incorporating a principle of equality: in theory, anyone can mine it.
The Rise and Rise of Bitcoin
Bitcoin long hovered on the boundaries of public consciousness, initially perceived as more of a gimmick than a serious currency. However, its rocketing value in 2017 pushed its profile into the stratosphere. Financial institutions started to take the currency seriously, further driving up the value. While it still has plenty of critics in the financial world and its use is banned in a few countries, there appears to be an overall willingness to accept it as a viable part of the economic system.
As a result, the currency began thriving in terms of perceived value. Bitcoin launched in 2009, and for more than a year its value was counted in cents, not dollars. It didn’t begin to rise significantly until 2013. In the second quarter of that year it peaked at US$230, and toward year end it briefly exceeded $1,000 before dropping again. But in January 2017 the price began rising steadily, until in mid-December the value of an individual bitcoin approached $20,000. It quickly fell back somewhat, and then dropped further on news that South Korea would ban anonymous cryptocurrency accounts. Bitcoin ended the year at about $13,500. Even so, early investors had become millionaires.
Material Impact of a Virtual Currency
Where bitcoin’s price will go in 2018 is anyone’s guess at this point, though at time of writing, its volatility is evident. But the significant rise in its value over the course of 2017 has prompted a closer look at the virtual currency’s environmental impact.
In the Spanish Empire, the silver used to forge pieces of eight was mined primarily from the “silver mountain” of Potosí in Bolivia. This source of revenue came at a horrendous cost to human life. Thousands of native Andeans and slaves from Africa perished in the harsh mines to satisfy Spain’s lust for silver to fund its empire and military might—though, as noted, it also provided a target for pirates.
How far has human nature traveled since then? Have greed, the obsessive pursuit of wealth, and a system that is designed to capitalize rather than moralize materially changed? Equally, have the corruption and evil that a love of money gives rise to ceased? Whoever planted the crypto treasure knew enough of human nature to appreciate that unearthing it would attract serious interest and speculation, sufficient to drive value.
“Like everything else of value running on computers, bitcoin, other cryptocurrencies, and blockchains have come under frequent successful attacks. Hundreds of millions of dollars have been stolen, people have been cheated, and blockchains ripped off.”
Like the mining of silver to forge real coins, the mining of bitcoin has a material impact. Our modern equivalent of slaves are highly efficient machines, so bitcoin mining doesn’t come at a direct cost of human lives. But the continuous block-mining cycle, where a new block is resolved at a rate of about every 10 minutes, does involve armies of people across the globe all digging with powerful computers where X marks the spot.
It’s the overworking of those machines that calls into question the sustainability of this 21st-century version of mining. It takes banks of energy-guzzling computers to expose the riches below. The recent spike in bitcoin’s value means that not only the numbers pursuing it but also the energy burn they incur have grown to astonishing proportions.
Digiconomist, a website devoted to cryptocurrency, estimates that as of early January 2018 it takes about 37.5 TWh (terawatt hours, each equating to a million megawatt hours or a billion kilowatt hours) per year to power these computers. Based on Digiconomist’s figures, some have noted that the energy consumed in the pursuit of bitcoin across the globe exceeds that of 159 countries, including Bulgaria, Ireland and most African nations. While admitting that their numbers are necessarily based on certain assumptions, Digiconomist reports that if the Bitcoin network were its own country, it would rank roughly 60th among all nations on earth in terms of power consumption.
But the impact of the relentless pursuit of bitcoin doesn’t end with its extreme energy consumption. The Bitcoin network incentivizes use of the cheapest available energy sources to ensure that mining is as profitable as possible. The energy that feeds the network is primarily supplied by coal-fired power plants in China, which up to now hosts the world’s biggest bitcoin mines. Due to the low cost–high carbon impact of this energy, each individual bitcoin transaction leaves a disproportionately large carbon footprint.
Some look to technology itself to mitigate the real and sudden new threat of Bitcoin to the environment. However, while energy-efficiency improvements are being made to the hardware used for mining, this benefit is not being applied to reducing energy consumption. Rather it is being leveraged to do more mining more efficiently.
Another aspect of the problem takes us back to the concept of piracy. In this case, rather than stealing pieces of eight, some are stealing the electricity they need for mining cryptocurrencies. They’ve found ways to access “free” power by tapping into their employers’ electricity or siphoning it directly from the utility grid. There have even been reports of a Tesla owner exploiting free charging stations; he set up a mining rig in the back of his electric car and boasts that he mined while recharging the vehicle.
“Many bitcoin miners ‘borrow’ resources to mine bitcoins, either at their employer’s locations, or by spreading bitcoin-mining malware. Today, many of the biggest malware botnets are simply to mine bitcoin.”
In short, greed—a hallmark of our flawed human nature—is as perfectly apparent in a virtual environment as it is in a real one. And so increasing numbers of people are drawn to the mining of a virtual currency with a made-up value, created by a made-up person, and mined by solving made-up mathematical puzzles that contribute little benefit to the world beyond the acquisition of bitcoins for a few, even though it puts a significant strain on the earth’s limited energy resources.
It’s All About Perception
The story of humankind exploiting the planet’s natural resources in the greedy pursuit of wealth is an old and familiar one. Having already squandered many of those resources, we’re now poised to exact a further toll on the environment in the pursuit of personal gain.
The ancient Greek world associated gold and precious metals with the gods of the underworld, as both the commodities and those mythical gods came from within the earth. To alchemists through the ages, gold symbolized the prospect of immortality through alchemy—another myth, or fiction. The acquisition of wealth for its own sake is hardly different. While metal at least has some inherent value, the fact is that determinants of financial value, in and of themselves, require the suspension of disbelief. Things are priced according to their perceived value, agreed or otherwise. As bitcoin’s price skyrocketed, its perceived value took center stage with the whole world watching. There, in the footlights, the void at the heart of the system is now becoming increasingly apparent; by consensus, this is just another fiction.
The emergence of Bitcoin in 2009 is significant. With the 2008 collapse of the global financial system thanks to human error and greed, a giant bubble burst. Bitcoin soon offered an alternative: trust had been abused, but now we could transfer that trust to less fallible code. The technology wasn’t smart enough, however, to predict the extreme energy use that human greed would demand be expended in the relentless pursuit of a perceived value.
And so, while demanding an unsustainable burn of energy, Bitcoin has been quietly inflating a bubble of its own. The question remains as to how long the cryptocurrency can avoid collapse. As already noted, toward the end of 2017 the value of an individual bitcoin hit nearly $20,000, but then it plunged to below $11,000, leading to partial suspensions in trading. After it recovered somewhat, reports suggested that approximately 30 percent of its value had been wiped out. Some see the plunges as natural fluctuations, but others see the currency’s mercurial volatility as a warning that this bubble, too, will burst.
Until then, it seems that plenty of people will continue to speculate on Bitcoin in the hope that its price will, overall, keep increasing for the foreseeable future so they can sell their coins for more than they paid. It’s the age-old human tendency to try to get something for essentially nothing—a get-rich-quick scheme, if you will.
What will it take to release human nature from the manacling irons of a greed so hardwired into the system that it is prepared to pursue perceived value, with or without morality and at the peril of the physical environment, while risking a collapse that would impact all? It’s time to reevaluate the basis of our personal value system to make sure it stands on a sound, long-term moral foundation.