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“Przekrój” Magazine brings to the English reader some of the best journalism from across Central and Eastern Europe, in such fields as culture, society, ecology and literature. Stand aside from the haste and fierceness of everyday news and join us now!

Przekrój
The advent of bitcoin has changed the way we think about currency. Might we also learn some lessons ...
2018-07-23 00:00:00
Marcin Napiórkowski

Is Bitcoin Heading for a Reality Check?

Is Bitcoin Heading for a Reality Check?

Escaping the Real and the return to the Real are the yin and yang of contemporary culture: inhale and exhale; high tide and low tide. The immaterial, weightless, digital force wins over the physical, touchable, analogue one. But not for long. After a while, the Real returns bigger and stronger. It rides on a wave of nostalgia, sometimes serving as an ominous reminder. CDs are replaced by MP3 files, which soon give way to streaming services. And that’s when vinyl records regain their popularity: specialized music shops appear one after another; albums are released as collector’s editions.

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Still, the return of the Real is not always so benevolent. Sometimes rejected physicality hits us in ways that are either tragic or disappointing. For example, when reading about work conditions in Asian factories, we’d much rather forget they exist. Or when a gorgeous estate we loved in the photos turns out to be an aesthetic nightmare, wheezing under its enormous weight.

The story of bitcoin fever is yet another case of escape and return. What makes it even more interesting is the backdrop of history, going thousands of years back in time.

The oldest commodity money, such as seashells, had to meet specific criteria. For optimum transactional quality, shells had to be of appropriate size and durability. One could exchange their goods for seashells, take the tokens on a boat, and head towards another island. Limited availability was vital for maintaining a reliable exchange rate. If the shells were too easily obtainable, anyone could simply go for a swim and come back rich.

Similar qualities make gold an attractive means of exchange. It doesn’t react with air or water, it’s very durable, and it’s easy to divide into smaller portions. Most importantly, all the gold ever mined by humanity could be stored in a 20 to 50-metre cube! (Most sources indicate the lower measurement as most likely).

Cryptocurrencies, such as bitcoin, offer an immaterial solution for the same problems. Its digital nature guarantees transactional ease. Unlike regular digital money we store in our bank accounts, cryptocurrencies operate on peer-to-peer networks. A computer democracy, if you will, in which every device with an internet connection is both a client and a server. This set-up creates a decentralized control system and eliminates the need for an issuer. Cryptocurrencies offer both transparency and elusiveness. Transactions are easy to carry out and verify, but very difficult to track down.

Bitcoin can also offer a fascinating solution to the limited availability prerequisite. Of course, we can earn bitcoin when we receive it as payment. But bitcoin can also be obtained by mining. When joining the network, you get the chance to mine a new bitcoin – the better mining hardware you own, the higher your chances are of obtaining the cryptocurrency. However, the total supply of new bitcoins over time is not related to the combined power of the mining servers, but only to the number of transactions occurring at that time. We could compare it to an Easter egg hunt: the smartest and most dedicated child will find more eggs than the rest. But even if all the children do their absolute best, their efforts will not increase the number of eggs hidden in the garden. If anything, the kids who are stronger and faster will steal the eggs right from under the weaker children’s noses. Fun fact: the total number of bitcoins available for mining has been set to 21 million. The digital source is slowly but surely going dry.

How could the Real affect bitcoin? As it turns out, how much a single bitcoin is worth is utterly independent of the whole complex mining system. Just like any other commodity, at the end of the day bitcoin is worth only as much as people are willing to pay for it. When speculative fever is driving its value up, it’s profitable to join mines with higher and higher mining power. Everyone wants to be the strongest child who grabs the most chocolate eggs. The digital arms race comes at a genuine price: sky-high energy consumption. Various sources estimate the yearly cost of bitcoin fever at 20 to 30 TWh, which is similar to the annual energy consumption of a country the size of Ireland or Denmark. Common sense suggests that giant servers should remain where the energy is the cheapest. Thus a lot of the servers are powered by coal plants. This way, digital currency is contributing to CO2 emissions and air pollution.

The second instance of the immaterial meeting the Real is, of course, the bursting of the speculative bubble. We don’t need the worst-case scenario to understand how ephemeral this digital wealth can be. Chris Larsen, the co-founder of ripple (a cryptocurrency similar to bitcoin) was recently listed as one of the wealthiest people in the world. His wealth is based mostly on ripple tokens, which are worth almost $40 billion at the time of writing. However, should he ever decide to sell them, ripple would immediately lose value due to sudden oversupply.

In ancient myths, treasures were often guarded by various magic spells. If a particular rule was broken, the fortune would disappear. It was a universal message passed on through generations across nations and cultures: easy come, easy go. The balance must remain undisturbed. Is bitcoin heading for a reality check? Will it soon become yet another cautionary tale? Probably so. But it’s worth remembering that the Real travels on a spiral rather than on a circle. Even if the bitcoin bubble pops, the currency market after bitcoin will be different than it was before. Cryptocurrencies have popularized new technologies that will change the circulation of money, as well as our thinking about savings, investment, or the amount of control we have over the transactions we make. And it’s possible that soon, our good old Polish zlotys, US dollars or pound sterling will become just another object of nostalgia.

 

Translated by Aga Zano

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Marcin Napiórkowski

Marcin Napiórkowski

is a semiotician of culture. He works in the Institute of Polish Culture at the University of Warsaw, where he teaches cultural anthropology and philosophy. Marcin is the author of several books: “Mitologia współczesna” (2013), “Władza wyobraźni” (2014) and “Powstanie umarłych” (2016).