Bitcoin inches closer to extinction
IN general, the government of Turkey under two-bit pasha Recep Tayyip Erdoğan does not provide the rest of the world with many opportunities to compliment it for doing something right, but the news over the weekend that Turkey’s central bank has decided to ban the use of cryptocurrency in the country is one of those rare occasions.
To be accurate, Turkey did not ban cryptocurrencies entirely, at least not yet, but only for use as payment for goods and services in the country.The ban implies concerns about the threat they might pose to the confidence in the lira, one of the world’s worstperforming currencies. The move is in line with Turkey’s habit of exercising tight control over online payments; in 2016, the country banned PayPal.
The ban on cryptocurrency’s use as, well, actual currency in Turkey is probably largely symbolic; other than a few novelty applications, it has not established any sort of foothold in real-world commerce. There, as elsewhere, most crypto-fanatics have dropped almost all pretense of cryptocurrency being anything other than chips in a global-scale casino, good for building (or losing) paper fortunes, but little else. Although there is a bit of ambiguity in the central bank’s directive, it appears that Turkish nerds will still be able to own or trade cryptocurrencies, at least for the time being, through exchanges located outside the country.
Even if it does not amount to much in a practical sense, what Turkey’s move does represent is another nail in cryptocurrency’s coffin. Those nails have been hammered in at an accelerating pace; China has had a ban on Bitcoin trading in place since 2017, Nigeria banned cryptocurrencies in February this year, and India is preparing to impose what will be one of the world’s strictest bans on cryptocurrencies, including fines on those trading and holding assets.
What is even more significant than the growing inclination of governments to solve the cryptocurrency problem through drastic means is the accelerating, and potentially promising development of central bank-backed cryptocurrencies. The first such attempt was in Venezuela in 2018, when the government created the “Petro,” a cryptocurrency supposedly backed by the country’s oil reserves. It quickly failed due to flaws in the design of the digital coin, as well as the not insignificant fact that Venezuela has a pariah government run by complete idiots, but many other countries have seen some merit in the basic idea. The Bahamas launched a digital currency called the “Sand Dollar” in 2020, and both China and Sweden are currently conducting pilot runs of their digital yuan and e-krona with a goal of wider distribution next year. Russia is planning to launch a pilot of its digital currency this year, as is Japan, while Brazil is developing an “e-real” for introduction in 2022. Elsewhere, the United States, the United Kingdom, Canada and the Eurozone are all in various stages of research and development, but have not announced detailed plans or timelines yet.
Besides the legal implications the parallel existence of a governmentbacked cryptocurrency would have for the current collection of electric fairy tokens – some experts have suggested it would, at a minimum, reduce Bitcoin and its ilk to “crypto-securities” and end any potential for them as a medium of exchange – governments may be discovering another way to curb the crypto-frenzy, thanks to an increasing global focus on climate mitigation.
Cryptocurrency “mining,” the complicated, inefficient by design process by which transactions are verified and new “coins” created, is incredibly energy-intensive, and becomes even more so as the prices of Bitcoin and other cryptocurrencies skyrocket, as they are currently. According to the Cambridge Bitcoin Electricity Consumption Index, there are only about one million bitcoin miners in the world, but the energy their activity consumes in one year approximately equals the annual energy demand of Malaysia, Sweden or Ukraine.
At the current energy usage, mining of Bitcoin alone (which makes up roughly 80 percent of the entire cryptocurrency market) this year could exceed the energy demand of all the rest of the world’s data centers combined – which use about 200 terawatt-hours annually – and could be as much as two-and-ahalf times as much.
According to some researchers’ estimates, that amounts to a carbon footprint approximately the same as the city of London’s, about 98.9 megatons of emissions annually. The underworld nature of much of the cryptocurrency ecosystem does make the energy and pollution estimates a bit uncertain, but the real-world consequences tend to suggest the numbers are not implausible; a serious electricity supply shortage in Iran back in January was blamed on cryptocurrency miners, leading to a government crackdown. Critics complained that crypto-miners were being made a scapegoat for other problems, an argument that might have had some validity had the government’s campaign to switch off cryptocurrency data centers – about 1,600 of them – not instantly turned the country’s supply deficit into a modest surplus.
What is somewhat worrisome about all of this is that the cryptocurrency universe seems bent on ignoring, and even defying its growing existential threats; Bitcoin prices reached an all-time high above $67,000 last week, and other cryptocurrencies – such as Dogecoin, which started as a joke mocking cryptofanatics and now has a market value over $20 billion – are soaring in price as well. Increasing government crackdowns haven’t pushed crypto markets to the tipping point yet, but they will, and the volatile nature of the market is such that no one will see it coming. The resulting crash will make the Tulip Mania look cute by comparison.