Another week in crypto-land has passed us by and, of course, it wouldn’t be complete without a heady proclamation from the converted.
Step in Jack Dorsey, Twitter founder, Square chief executive and famous tech-bro.
Mr Dorsey, perhaps on a confidence trip after Twitter and Square’s recent stock-market performances, told the Times:
The world ultimately will have a single currency, the internet will have a single currency. I personally believe that it will be Bitcoin…[this will play out] probably over ten years, but it could go faster
So what would the monetary system world look like if Mr Dorsey, per chance, turned out to be correct…
The year is 2028: Niall Ferguson is World President, ruling the smog-darkened skies of mother earth with a waifish fist.
Bitcoin is the global currency following the Hodling Uprising of ’21, funded by a shadowy triumvirate: Satoshi, revealed to be Alan Sugar, and the Winkleveii.
With Ferguson as their puppet, the three control 5 per cent of the world’s money.
Using that power, they have directed much of the world’s resources towards one end: Bitcoin mining.
Floating nuclear power-plants bob over sunken lower-Manhattan, gargantuan hydro-electric dams feed off dissolving ice caps and sub-Saharan Africa is decked in solar-paneled splendour.
The incessant hum of graphic processors has become the soundtrack to life on earth, as fresh Bitcoin is mined and recycled in an endless loop.
Okay, that might be a bit over the top, but the underlying assumptions are anything but.
Global M1, which is a measure of the world’s total ‘ narrow money’ – money readily available to spend – is $41 trillion, according to the CIA.
If M1 continues to grow at its thirty year OECD average of 16%, then M1 will be $210trn by 2028. Split across the projected 20,367,000 Bitcoins in circulation, each of the digital tokens would be worth just over $10m.
The purported Bitcoin stash of anonymous Bitcoin inventor Satoshi would be valued at $10trn. Assuming the Winklevoss twins don’t spend their fortune, it would come to just short of $1trn. Together, they will control 5 per cent of the world’s liquid currency.
Now, it has been well chronicled that Bitcoin mining uses a lot of energy. Digiconimist estimates, at current levels, the electrical cost for one Bitcoin transaction would power 28 US households for a day.
Lets pick some numbers out of the air. We won’t pretend these are exact, it’s just an attempt to wave in the direction of the orders of magnitude involved.
In their model, Digiconomist estimate that operational costs are roughly 60 per cent of Bitcoin mining revenues. Because mining is competitive, the incentive is to throw electricity and processing power at it so long as the economics make sense. By 2028, the mining reward of 3.13 Bitcoins will total $32m in our thought experiment, so operational costs will be a mammoth $19m.
Say four-fifths of Bitcoin mining costs are electricity, so the energy cost for mining will be $15m. Each block contains roughly 1,500 transactions, meaning each transaction will cost $10,374.
Throw that sort of money at a transaction, at a US-average cost of $0.11 per kilowatt hour, and the energy use per transaction would be 101,114 kWh.
That compares to the 847 kWh energy usage Digiconimist estimates for transactions today.
Costs have a tendency to come down, right? Lets generously assume Bitcoin mining makes efficiency gains of 99 per cent over the next decade, so the kWh usage per transaction in 2028 will be 1,011.
Our world domination scenario implies a rather larger increase in transaction volumes, however.
According to the 2017 World Payments Report, there were 433bn non-cash transactions in 2015. If electronic payments continue to increase by 10 per cent each year, this number will hit 1.5trn by 2028.
Were Bitcoin to account for all of these transactions, the energy cost would be 1,511,484 terawatt hours.
For context, the world consumed 24,861 terawatt hours in 2016, according to BP.
The largest nuclear power plant in the US, Arizona’s Palo Verde, contributed a measly 34 terawatts to this figure.
In other words, to meet the energy costs of Bitcoin mining, on these numbers a single currency future might need somewhere in the region of 44,000 nuclear power plants.
Feel free to argue for different orders of magnitude in the comments, but bear in mind that the World Nuclear Association counts 450 reactors in operation today.
For a man who has made his millions from centralising both communication – Twitter – and payments – Square – Mr Dorsey seems awfully bullish about a decentralised future. We’re not so sure the world is ready for the Winkleveii to have so much power.
Bitcoin energy demand in 2018 could match Argentina – FT
Crypto currencies are mirroring pre-crash banking systems – FT Alphaville
Meet the company that wants to put a Bitcoin miner in your toaster – FT Alphaville