Even if we separate ethical considerations from a potential investment decision and just look at the single factor of ‘will it go up in value’ we are still complicit in whatever it is we are funding. Invest in arms companies, and one becomes complicit in the business of war.
Invest in tobacco, and one becomes complicit in the business of selling addiction and lung disease. Awareness of what we invest in is a basic responsibility. Investing in something funds the continuance and proliferation of it.
There’s been a lot of talk about investment in bitcoin, and not so much, or indeed any, on the ethics of bitcoin currency speculation, so for today I’m going to try to address that elephant in the room.
So what does investing in bitcoin actually fund? Well that’s a problematic question, because bitcoin doesn’t actually ‘do’ anything. Or does it?
Bitcoins are created or ‘mined’ by a highly complicated process which I’m not qualified to describe.
What I do understand is that the process of ‘mining’ them involves huge and ever increasing amounts of computer processing power. A vast amount. Here’s a shocking headline stat from Powercompare.co.uk.
Bitcoin Mining Now Consuming More Electricity Than 159 Countries Including Ireland & Most Countries In Africa.
To make that clear. The actual process of generating new Bitcoins, a totally digital coin with no inherent value, a virtual thing, uses more electricity than most countries. The resources required are mind boggling. And the protocol of Bitcoin, the operating system, requires that it be increasingly more difficult to ‘mine’ each new coin. The processing power, and therefore the electrical power required, must increase every time a new coin is created. It’s pro-grammed to get more and more difficult. In practice this means a huge amount of real world resources, fossil fuels, human endeavour, computer chips, rare earth elements, plastics, metals, are poured into the process of creating a virtual, digital, coin.
Wasteful doesn’t even begin to describe it. It makes killing elephants for tusk ornaments seem almost clever in comparison. Seen in these terms, it’s a mad mad folly.
According to https://digiconomist.net/bitcoin-energy-consumption two thirds of the revenues of mining go into the energy cost of powering the mining process. Two thirds. That’s before any other costs are taken into account. Wages. Huge secure fortresses of computer processors. Vast refrigeration units. Inefficient much. And it’s programmed to get harder and harder to achieve.
The cost of mining new coins could soon make mining them unprofitable, if it isn’t already, unless the price per coin moves upwards. Which takes us onto ethical problem number two. And three.
Price manipulation and criminality. According to a well respected report from the University of Texas at Austin, the price surge of Bitcoin last year was possibly manipulated using another cryptocurrency called Tether. It’s all very complex, opaque, shady, and not transparent in the slightest.
Some of the people behind Tether are also involved in crypto currency exchanges, and the American Department of Justice is launching an investigation into the whole thing, although it’s doubtful anyone there has the domain knowledge to avoid having the episode ‘techsplained’ into the long grass.
The bottom line, if there is one, is this.
Bitcoin price manipulation is almost certainly happening all the time, on some level, be it digitally engineered in complex arrangements, or just paid for PR spin bombarding the media until it gets repeat-ed and becomes true. It’s inevitable people will want to drive the price up if they own it.
And again, there’s nothing there except digital coins held in digital wallets created at the ever increasing expense of real world resources.
And it’s hardly surprising if some of the manipulation is illegal because the biggest group of early adopters of bitcoin were criminals selling drugs and other contraband on the now FBI closed Silk Road, and across the whole of the Dark Web. Which is unfortunate, because another ethical consideration in investments is who else owns this stock? Bitcoin is the primary currency of cyber criminals, and thousands of them have made millions from it.
The actual stats on this are totally unknowable because of the anonymous nature of the coin and criminal activity, but on the day the FBI shut the first Silk Road in 2013 bitcoin dropped nearly 40 per cent in value.
And that was five years ago. To conclude, ethically speaking, investing in bitcoin could be construed as a gamble in an ecologically degenerate and inherently opaque scheme from which some of the main beneficiaries of potential value increase are organised crime syndicates.
Even taking a slightly more generous approach, generally speaking, one should only invest in that which one understands.
A report from the BIS, Bank for International Settlements, ‘Crypto currencies, looking beyond the hype’ has informed part of this article. https://www.bis.org/publ/arpdf/ar2018e5.pdf