While Austrian Economics dominates the Bitcoin discussion, it is not the only unorthodox economic theory that advocates for a type of money very similar to Bitcoin. Aspects of degrowth and ecological economics are pushing for the end of fiat and inflationary currencies. While much of the focus is on the benefits of Bitcoin mining in the energy transition away from fossil fuels, Bitcoin has an even more important role to play in transitioning our society towards a sustainable and more equitable world.
Bitcoin’s energy consumption is both insignificant and not insignificant at the same time. The network consumes less than 0.5% of the world’s electricity consumption. Some say this is merely a “rounding error”. At the same time, it is undeniable that this tiny amount of energy consumption is comparable to that of a small country. Of course, there are many global technologies that consume more energy than Bitcoin, such as data centers, air conditioning, and the banking industry.
There are good reasons to be worried about energy consumption, and even more so about the potential for it to increase. There is a lot of peer-reviewed literature on the Internet showing a clear link between energy consumption and environmental degradation. From an ecological economics and degrowth perspective, this is generally a consequence of the neoclassical drive for never-ending economic growth.
The consequences of environmental degradation due to endless economic growth are clear. Many scientists believe that we are in the midst of the sixth mass extinction, with humans as the main cause. A recent German study found that insect biomass has declined by nearly 80% in the past 20 years. Brazil’s tropical forests, once one of the best carbon emission sinks, are now turning into carbon emitters due to global warming and agro-industrial deforestation. Chemical pollution is everywhere. Recently, microplastics have been found in human blood samples, and Monsanto’s Roundup has been found in urine samples. All of these are evidence that the inappropriate incentive design of the existing economic system is moving the Earth away from being a comfortable habitat for not only humans but all species.
The harsh reality is that Bitcoin’s energy consumption will continue to grow for some time as more people adopt it. If you are concerned about climate change and know the fundamental relationship between energy consumption, economic growth, and environmental degradation, Bitcoin’s energy consumption certainly sounds scary. The most important thing to understand about Bitcoin is that the network’s energy consumption is limited and is essential to providing a monetary system that supports a shrinking global economy.
Degrowth is a social, political and economic movement. It is a broad movement of people who advocate for the wealthiest countries to reduce their overall energy consumption, leaving room for developing countries to increase their energy consumption. There are growing calls in the climate change movement for the world to move from economic growth to degrowth. Ecological economics provides a concrete foundation for how this could work, by converging degrowth and growth with an overall steady-state economy.
A steady-state economy is one in which the economy is in line with what the Earth can sustain. Contrary to what some think, there are no species on Earth that can outgrow their habitat and survive for long periods of time. Ecological economist Brian Czech calls a steady-state economy “an economy for a perfect world” – one in which the economy has grown so large that it is pushing the environment to its limits.
But degrowth is more than stationary economics and energy use. It also promotes the elimination of fiat, inflationary and debt-based currencies. Degrowth encourages localism and frugal living in line with nature. Degrowth is exactly what Bitcoin’s low time preference looks like when applied to all aspects of the economy. Degrowth means the elimination of wasteful consumerism, menial jobs and profit-seeking. It also promotes indigenous methods of nature stewardship and permaculture.
In fact, if we want to degrowth, we need to build a new infrastructure to sustain this low-time preference lifestyle. If we intend to eliminate fiat, inflationary, debt-based currencies, we need to build a robust, decentralized, secure currency network that can be used to curb the degrowth economic system on a global scale.
in Supply Shock: Economic Growth at a CrossroadsCzech explains that inflation occurs when “monetary authorities (such as the Federal Reserve in the United States) increase the money supply faster than the real economy grows.” Czech is not an Austrian economist, but a full-blown degrowth advocate. He goes on to say that “recent periods of rapid real economic growth have tended to lead to inflation because monetary authorities are too detached from the realities of economic life to understand the ecological limits of growth.”
From an ecological economics perspective, the origin of money is essentially the result of agricultural surplus, not debt or the state. These certainly play a secondary role in the development and adoption of money, but without agricultural surplus there would be no division of labor, and without division of labor there would be no need for exchange. Taken to the extreme, if our food system were to completely collapse this year, everything else would collapse with it, and each of us would spend most of our time trying to find enough food to survive. We wouldn’t need money.
The first and second laws of thermodynamics tell us that energy can neither be created nor destroyed, and that when energy is transformed, the process is incomplete and some of it dissipates. These physical laws therefore set ecological limits on the planet and ultimately on agricultural surplus. In terms of ecological economics, this means that there is a limit to money.
Bitcoin is money, and it also has limitations. In 2140, the last of the 21 million Bitcoins will be minted. In the early 2030s, 98% of all Bitcoins will be issued. As long as Bitcoin’s value continues to grow, its energy consumption will increase. At some point, when Bitcoin becomes the global currency standard, all of the world’s value will reside on the financial network. When that happens, the growth of the network’s hash rate and energy consumption will slow down and likely reach a plateau. This will happen because of diminishing returns as the network becomes more difficult and more competitive to mine.
If ecological economic theory is correct, the total value of the Bitcoin network should perfectly reflect the planetary limits of available resources that provide agricultural surplus. It is true that we cannot produce more Bitcoins because we cannot produce more energy. Our socio-economic system is forced to accept this idea of limits, and this is where the broader social prescriptions from degrowth can help. Furthermore, there is a saying in the Bitcoin community that “you don’t change Bitcoin, Bitcoin changes you.” Adopting Bitcoin could also move people away from instant gratification consumerism, what Bitcoiners colloquially call “high time preferences.”
Because extraction is a global phenomenon, energy consumption is expected to increase during periods of economic convergence. If degrowth advocates, ecological economists, environmentalists, and climate activists get involved now, they can shape the future of where and how energy consumption develops, ensuring that energy is adequately distributed to parts of the world that currently suffer from energy poverty. This will ensure that developing countries benefit most from network growth, facilitating part of the steady-state convergence of degrowth and growth.
This phenomenon is already beginning to take place. Bitcoin adoption has generally been greatest in developing countries that suffer from hyperinflation and unstable, repressive monetary systems. In parallel, governments in developing countries such as the Central African Republic are researching how to use Bitcoin mining to develop renewable energy resources. Colombia’s newly elected president, progressive politician Gustavo Petro, has also expressed interest in using Bitcoin mining for the same purpose.
Bitcoin is often criticized for giving benefits to early adopters over later adopters, with critics often arguing that this will create a new cryptocurrency oligarchy that will rule the world. In a recent Bitcoin Policy Institute article, “Is Bitcoin Fairly Distributed?”, the authors point to a recent CoinMetrics study which showed that “despite large institutions entering the space, Bitcoin remains very much a grassroots movement” and has the best currency distribution compared to other cryptocurrencies.
Money alone cannot solve the unequal distribution of resources, but if money like Bitcoin is combined with economic rules that reduce economic inequality (book) Radical Market Given a reasonably rational design of market mechanisms, over time wealth will be distributed fairly among all people. To maintain a sustainable society in a steady-state economy, all forms of inequality must be reduced.
Believing that climate change is real is not necessary to adopt the above perspective. The limits of natural resources mean that oil also has natural limits. The US reached its peak in oil production in the 1970s, and the recent US shale boom will not last forever. As we have seen, energy independence is necessary to strengthen supply chains and promote regionalism in socio-economy. If we want a similar quality of life for future generations, adopting Bitcoin and an ecological economics and degrowth perspective is essential to extend the best aspects of our current society into the distant future. Contrary to what critics say, Bitcoin plays a very important role here. It is an incredible burden, but it is our responsibility to convey this message to the world. Time is ticking.
