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A Response to the Bangko Sentral
In a recent interview, the new governor of the Bangko Sentral ng Pilipinas Felipe Medalla clarified his position on cryptocurrencies. To his credit, he’s not interested in banning them, which is good news for the cryptocurrency industry. But his comments revealed some fundamental misunderstandings about what cryptocurrencies in general (or Bitcoin, specifically) were actually meant for, and as I was reading them, it occurred to me that these same misunderstandings are probably common amongst anyone who joined the wave just in the last few years. You can read the interview in its entirety here, but I wanted to excerpt a few statements and respond to them directly.
Felipe Medalla: “I don’t want it banned, but I don’t want to call it cryptocurrency. Because it has really very little use for actual payments, especially when the price is so volatile.” He’s not incorrect that the prices of cryptos are volatile, but in order to respond to this properly, we need to go back to the primary reasons for Bitcoin’s creation. Most people probably don’t know that Bitcoin was created in the wake of the 2008 financial crisis, wherein the US Federal Reserve (their version of the BSP) printed nearly a trillion dollars in fresh money to bailout the banks, adding about 15% to the global circulating supply. In 2022, that amount almost sounds quaint, because the Fed did it again during the recent pandemic and this time added a whopping 300% to the circulating supply. We are all living under a collective delusion that our wealth is safe, when in reality our hard work and our savings are being quietly, sometimes violently, devalued by the interests of governments and corporations. Bitcoin is a grand socio-economic experiment to find a better way. It’s also not an accident that it takes its core design principles from the last great currency that humanity had: plain old gold.
For thousands of years, gold was a globally accepted currency. You couldn’t easily affect its “issuance schedule” because of the difficulty in extracting it from the earth. So it was scarce, universally accepted, and at the same time, completely decoupled from the economy of any single sovereign nation. Throughout human history, an ounce of gold has bought similar things, no matter what civilization or time period we’re talking about. Whether you were living in ancient Egypt, the Renaissance, or the 20th century, an ounce of gold could approximately buy a full outfit for a well-to-do citizen. (Imagine a suit for your wedding day in the 1960s, or ceremonial robes during Cleopatra’s time.) Gold was an exceptional “store of value,” because you could be assured that if you handed it down to your kids when you died, it would still hold its value against the goods and services of that generation. Meanwhile, our modern era is cursed with the notion that constant inflation is “just the way things work,” and the result is that people’s savings become less and less meaningful with each passing year.
Now, of course, gold has its problems too. It’s heavy, and difficult to split up if you need change at your local Jollibee. Its physicality makes it hard to store safely. Sending gold to pay your freelance Youtube thumbnail designer in Bangladesh is pretty tough. These are all problems that Bitcoin solves easily, just by being purely digital and Internet-native. So, yes, Bitcoin’s price is volatile. But it’s volatile because we are proposing a new monetary system that brings back the qualities of gold that were useful, while at the same time adding Internet-age upgrades. What is an invention like that worth, assuming that it works long-term? The answer is “we don’t know.” Human society is still in the process of determining that. For now, Bitcoin’s volatility is a consequence of real-time price discovery, and it will continue to be the case for some time to come. But given how terrible our traditional currencies are, it’s definitely an experiment worth making.
Now, the biggest problem with gold is that gold mining is unequivocally bad for the planet, both in terms of the environmental damage and the human displacement it causes. This brings me to one of Medalla’s next statements. “In the case of Bitcoin, it’s also bad for the environment because the amount of electricity that the miners use is bigger than the electric consumption of some countries.” Bitcoin’s environmental impact has been the subject of much debate over the last 5 years. It’s a narrative that has become so oft-repeated that there have even been debates about how NFTs, a tiny corner of the crypto industry, are bad for the environment.
Here are the facts though: As Bitcoin mining has moved away from China, miners are increasingly plugged in to clean hydroelectric power, particularly in North America. Bitcoin mining also has the advantage of being relatively easy to relocate, since they’re really just a bunch of computers and an Internet connection. As cleaner or cheaper electricity becomes available elsewhere, miners could just pack up all their gear and shift their operations there, as they did throughout mid-2021. That’s not something you could say for a gold mine, or for that matter, the Federal Reserve’s money printers.
Humanity has become very good at producing electricity, but it’s still quite bad at both storing it and transporting it. If you took every single battery that humanity has and connected them all together, you could only store 15 minutes’ worth of the electricity we are currently generating. In other words, our storage technology is light years behind our production capacity. We also can’t transport electricity beyond a few hundred kilometers without losing a massive percentage. Even with 62,500 power plants around the world, we lose about 15% of the power we generate just transferring it to your home. In other words, whenever we produce excess power, we can not efficiently store it or easily sell it to someone else. Bitcoin mining is potentially beneficial in these situations. Whenever a given city or region has surplus energy, they could just flip on a bunch of Bitcoin miners and instantly convert that energy into cash.
FM: “And in fact, it’s already happened that the bubble has collapsed. Right? Some of the crypto assets have fallen by almost two-thirds in a very, very short period.” This was the statement that revealed Medalla’s level of familiarity with the crypto market, as either of his predecessors — Espenilla or Diokno — would have probably told him that they both saw similar “collapses” during their regimes. Crypto markets go through these 3-4 year cycles on a regular cadence, and if we’re choosing to call 2022 a “collapse,” we also need to zoom out and see how far crypto has come in the last 12 years to get a better picture. When I started working in the crypto industry in 2014, 1 BTC was trading for 25,000 pesos. Today, it’s at 1.1M. Meanwhile, the Philippine peso was trading at 42 pesos to 1 USD in 2014. Today, it’s at 56. I will humbly suggest that perhaps the real collapse is not happening in cryptocurrencies.
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