Bitcoin is much more than the decentralized free market safe haven it advertises itself to be. It is a concoction made up of unreliable volatility, a dose of environmental catastrophes, billions of dollars locked away forever, and so much more. In this two part article, read about the dirt behind the glory of Bitcoin.
Is the cost worth it?
If someone asked you, what do you think takes more resources to make? An actual currency note which is comprised of actual raw material found in the real world, or a completely digital currency that doesn’t exist outside the computer screen? You’d be hard pressed to find out that it is indeed the latter.
Producing a single bitcoin takes up power equivalent to the power consumption of an average U.S. household over 54 days.
Why is making a bitcoin THAT power-intensive?
Bitcoins are made by a process called mining. Here is how it goes:-
Mining is essentially solving a puzzle within a given time, for which the user is rewarded with a Bitcoin.
The puzzle is actually the task of recording other bitcoin transactions into a ledger.
These puzzles are mathematical in nature, and power-intensive graphic systems (ASIC) are used to solve them.
Solving the puzzle doesn’t guarantee a bitcoin, solving the puzzle first is what earns one a bitcoin.
This race against time leads to millions of users around the world setting up large computer systems which consume energy like hotcakes, with only a given few which actually manage to get their hands on a Bitcoin.
Rat Race against the planet
In a single year, the carbon footprint produced by bitcoin mining is equivalent to that of the entire country of New Zealand.
This rat race of mining a Bitcoin the earliest leads to the cost-effectiveness of mining rarely being profitable, and the carbon footprint left behind can spell catastrophe for the environment.
Lost passwords, locked fortunes.
Billions of dollars in bitcoin left inaccessible due to brain fog.
You open Instagram, the app asks you to put your password in, you let out a sigh as you try to scramble whatever comes to mind in a bid to guess your own password, you enter incorrectly as the app presents you with options to undo your error and change your password.
But imagine a scenario where that didn’t happen, a scenario with the bone-chilling realization that if you don’t input the correct password, you will forever be locked out of your account. Now, up the ante a bit, instead of your social life on the line, imagine it’s your entire livelihood instead. Millions of dollars are in the balance and “forgot my password” is no longer an option.
That is the exact predicament thousands of crypto-currency holders around the globe find themselves in.
Password Incorrect, 2 attempts left
What happens to the cryptocurrency that is locked up, lost or forgotten? Exponential amounts of energy went into its creation, but in a single haze of the memory, all that energy goes to ruin, and the bitcoins become unusable.
Programmer Stefan Thomas was given 7,002 bitcoins (today worth $240m), more than a decade ago, which he stored in an IronKey digital wallet and wrote the password on a piece of paper. A piece of paper he since lost.
Drawbacks of the human memory
The banality of creating an account often lies in the prompt ‘your password is not strong enough’. And when that password is the only barricade protecting your millions in cryptocurrency, chances are you are not risking using ‘123456’ as your preferred protection.
If the number of times we use the ‘forgot my password’ feature is anything to go by, our brain easily forgets a random set of characters we rarely use. Mr. Thomas would not be the first potential Bitcoin millionaire to be locked out of their fortune, as many fell victim to the same fate,
An entrepreneur lost about 800 bitcoins when a colleague reformatted a laptop containing the private keys to his wallet.
In 2013, a Welsh man desperately searched a landfill site after throwing away a computer hard drive containing 7,500 bitcoins, weighing in today at more than £250m.
A fundamental issue or the fault of a few?
The major problem behind the locked account dilemma lies in the inherent nature of this currency- You are your own bank. As a society we are accustomed to placing our money in the care of a trusted banking service and let them deal with the money. But cryptocurrency forces every individual to take care of their accounting and fend for themselves, something we haven’t done since the inception of the banking system.
"The whole idea of being your own bank - let me put it this way, do you make your own shoes? The reason we have banks is that we don't want to deal with all those things that banks do." -Stefan Thomas to the NY Times.
Currently, about $140bn worth of cryptocurrency is lost or left in wallets that cannot be accessed. An amount larger than the entire GDP of 130 out of the 195 UN recognized nations of the world. This money exists but no one can lay claim to it.
Conclusion
At this point, one starts to think whether some nations might actually be doing the right thing by banning bitcoin mining or bitcoin altogether. As Iran already banned mining, India might be looking to impose similar restrictions or ban cryptocurrency altogether. At the same time, doing so might as well lead these countries down a path of exclusion from the world and missing out on potentially one of the biggest industries of the future, akin to economic suicide. The risk is high, let’s see if the reward is worth it.
Sources: BBC, Data.worldbank.org, New York Times, Forbes Written by Prabhpreet Singh and Devangi Sharma
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