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Author: Admin | 2025-04-28
Affects how we define ‘efficiency’.For example, the efficiency of a machine is typically measuring in terms of the work output per unit of energy input. But what happens when we make the machine do work that is useless? (Think of an excavator digging pointless holes and then filling them in.) In this case, all of the input energy gets wasted.Returning to crypto, I’m expecting critics to argue that my energy-intensity estimates are silly for the same reason. Crypto, they’ll observe, is the monetary equivalent of pointless hole digging. It’s purpose isn’t to facilitate commerce. Instead, it’s a beast of socially-useless speculation.While I’m sympathetic to this argument, I think the problem of crypto speculation tends to get overplayed. In particular, it ignores the fact that speculation plagues all forms of money.When critics look a Bitcoin, they see an asset that is too volatile to be ‘real’ money. But a quick look at international money markets shows that ‘real’ (fiat) money can also be highly volatile. Figure 8 paints the picture.Here, the blue curve shows the spread of exchange-rate volatility among the world’s currencies (when pegged against the US dollar). When we put Ether and Bitcoin on this international scale, we find that they’re on the high end of currency volatility. But they’re certainly not off the chart. In other words, on the scale of actually existing money, there is nothing ‘abnormal’ about crypto volatility. Hence there is nothing ‘abnormal’ about crypto speculation.Figure 8: Cryptocurrency volatility in an international context. This figure measure the exchange-rate volatility of different currencies when pegged against the US dollar. (I’ve measure volatility by plugging the exchange rate annual time series into the coefficient of variation.) The blue curve shows the distribution of volatility among national currencies. The vertical lines show the historical volatility of Ether and Bitcoin. Note that the horizontal axis uses a log scale. [Sources and methods]Still, the critics are right to pass judgment on crypto as a relatively volatile asset. But where I disagree with the critics is that this volatility makes crypto forever unsuitable for commerce. The reality is that the difference between a volatile ‘asset’ and stable form of ‘money’ is simple: it’s a function of hegemony.What makes a currency stable is its dominance. When most prices are denominated in a particular unit, that unit loses its speculative appeal. In other words, if Bitcoin became the world’s dominant asset, it would behave exactly like cash — stable and boring.8 In short, crypto’s ‘usefulness’ as a stable form of money depends on its ability to gain global dominance as a medium of exchange.Hurdles to a crypto-dominated futureThinking about a crypto-dominated future, there are many hurdles to it actually happening. Here’s a short list.Lack of scalabilityDespite being built on stupendous computational power, crypto networks are typically quite slow at processing transactions. For example, the Bitcoin network maxes out at roughly 4 transactions per second.9 And the Ethereum network can handle about 20 transactions per second. In contrast, global credit-card networks process about 10,000
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