Cryptocurrencies can be more than a little confusing. The New York Review of Books (January 18th, 2018, http://www.nybooks.com/articles/2018/01/18/bitcoin-mania/
) reviews three books that attempt to bring them all into some perspective. There were some truly astonishing pieces of information. The most remarkable is the enormous amount of energy used in date "mining." "Mining is the process of using computer power to solve an algorithm -- guessing a number preceded by the correct number of zeros between zero and 4.294,967,296 -- which then gains the user a bitcoin. It used to be individual users could do that at home, but now that individual bitcoins (they don't exist physically, only virtually in the digital world) continue to spiral in value thanks to the speculative bubble, and because speed is so much more important, huge supercomputer farms are now employed to work on the puzzle. It takes trillions of guesses and a substantial amount of energy. One such conglomerate estimates energy costs for each bitcoin generate cost 90-95% of each.
"By one estimate, the power consumption of bitcoin mining now exceeds that of Ireland and is growing so exponentially that it will surpass that of the entire United States by July 2019" Sites are located in areas where energy is cheap, Iceland being a favorite, especially after Iceland's decision to build a series of dams for hydroelectric generation leading to a surplus of energy there. "According to David Gerard—whose new book, Attack of the Fifty Foot Blockchain, is a sober riposte to all the upbeat forecasts about cryptocurrency like the Tapscotts’—“By the end of 2016,” a single mining facility in China was using “over half the estimated power used by all of Google’s data centres worldwide at the time.”
That's simply extraordinary and obviously, it seems to me, unsupportable, if not catastrophic. The way exchanges attempt to recover these costs is through fees, now approaching $20 per transaction. That would make purchasing things rather expensive, I would think. And you thought costs per check were expensive.
The use of blockchains, however, as a way to store and validate information is truly fascinating and shows promise. How they would be financially supported is more problematic as entrepreneurs use crowd-sourcing to fund other forms of cryptocurrencies and devices that essentially don't exist. "According to the website CoinDesk, as of this fall, more than $3.5 billion has been invested in ICOs, almost all of it in 2017, with close to $3 billion pouring in between June and the end of October. “It’s kind of like when you are a little kid and you know you are getting away with something,” an investment analyst named Chris Burniske told Popper. “It’s not going to last forever, but it’s fun in the interim. The space is giddy right now.”
Now that banks and financial institutions have entered the field I suspect the environment will change drastically and blockchains will be used as a secure and inexpensive way to conduct business. The impact on middle managers may be enormous as the need for them disappears. "Whereas most technologies tend to automate workers on the periphery doing menial tasks,” the Tapscotts quote Buterin saying, “blockchain automates away the center. Instead of putting the taxi driver out of a job, blockchain puts Uber out of a job and lets the taxi drivers work with the customer directly.”
One of the most attractive parts of cryptocurrency and blockchain technology is its anonymity, yet that has also proved to be the downfall of some of the more corrupt. "The FBI was able to catch Ross Ulbricht, the mastermind of Silk Road—the multimillion-dollar criminal enterprise he operated on the dark web through which users could exchange drugs and guns and stolen goods for bitcoin—because after seizing his computer, they were able to link him to the bitcoin wallets where he stored his earnings. They then used the ledger to trace his entire transaction history."
Sooner or later, someone will realize the emperor has no clothes.
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