Big Crypto Mines are like Scalpers

In Canada, where I live, electricity is cheap and abundant. In fact there are routinely surpluses that governments are happy to sell for cheap to power-hungry “industries” like Bitcoin mining. Governments at all levels, once convinced that these mines are a valid industry and that the taxes, jobs and abandoned industrial buildings renovated are a great windfall, will practically bend over to welcome them in their area.

Of course the only real winners in this system are the big farms who enjoy lower electricity rates and help programs. In the long run, everybody else loses; even the electricity producers that were happy to sell their surpluses could have sold that electricity to home miners at a higher price if they had not killed the goose that lays the golden egg by helping big farms grow into something home miners can’t compete with.

I can’t blame the big farms for acting greedily; that’s their only reason for being. I think the real problem is government officials not being educated properly, being convinced that a surplus of hash power is actually a valid industry, and not understanding the process in general. I thought I would help out by comparing Big Farm mining to something that is eerily similar but easier to understand; ticket scalpers.

Imagine the world’s biggest Bingo! game:

  • There are as many ticket booths as people need where people can buy a game card.
  • They pay for a card and the attendant walks to the printer, prints a card with random letters on it, walks back and hand it to the buyer.
  • People buy as many cards from as many booths as they want until someone buys a winning card and shows it to the booth attendant.
  • Then the game starts over. [The number of cards you can buy in a second is what’s called Hash Power in crypto-speak]
  • The lucky card has bingo! randomly written on it, but it can be another, longer word the more there are ticket booths.
  • A longer word means it becomes more difficult to generate the lucky card. This way the average win time stays around 10 minutes.

Normal players use one or two booths, buying a few tickets to win the prize, maybe a ticket to a Céline Dion concert or a lifetime supply of couture diapers. But Big Miners have splurged on roller skates for themselves and the booth employees so the buying process goes much faster and they can start buying before everybody else. [Ultrafast Internet is a very rewarding expense for Big Miners, being able to act first can compensate for weak hash power] They also buy many more tickets from many more booths than individuals. Generally, as soon as they win the prize they sell it to cover their expenses, to buy more tickets and to access more booths.

Because they can buy first and buy a lot more tickets than normal users, Big Miners behave exactly like ticket scalpers. They increase costs and block access to tickets for normal users and sell the prizes at a higher value than its actual worth. They generate no products, add no value and are basically just extra tickets to the game. This is exactly the same for real mining where Big Miners are simply generating a surplus of unnecessary hash power and denying the average user the chance to mine at home. Electricity can be sold to home miners at a better price than “industrial” rates, and millions of people could make a tiny profit instead of only 2-3 big mine owners.

Big Mining isn’t an industry, it’s a scam that only benefits the few lobbyists that have had the brilliant idea of sticking the “industry” label on it for politicians to salivate over.

Bitcoin is Digital Bronze

When bankers and the media try to describe Bitcoin, they often try to debate or deny that Bitcoin is “digital gold”; that only real gold has intrinsic value.  Most Coiners will reply that Bitcoin is a store of value and that they don’t actually have any real use for gold – any perceived value is over-inflated and the fact that gold is rare doesn’t compensate for the reality that the gold reserves are orders of magnitude larger than what is currently needed in manufacturing & health industries.

The reality is that the comparison to gold is entirely unfair to Bitcoin.  There are many characteristics that make Bitcoin and other blockchains closer to more useful metals and alloys than pure gold.  Yes, gold has some uses in industry, but its scarcity make it impractical for general use; it can’t support industries or economies precisely because its scarcity makes it too valuable.

Bitcoin, on the other hand, while artificially scarce (by being limited to 21M units), doesn’t suffer from functional scarcity;  all functions of Bitcoin are implemented in transactions, outside of the actual value of the bitcoin or fraction of a bitcoin used.  In fact the more Bitcoin is spread around, the more there are functions and uses for it.  In this way Bitcoin, while scarce, has a value tied to its utility and can support entirely new economies, tools and trades across the world, exactly like bronze did during the Bronze Age.

The one major difference between bronze and Bitcoin is that the production of bronze was somewhat centralized because tin is not generally mined in the same areas as copper. Bronze works would required extensive trade networks to produce goods & tools; when those few centers were attacked, looted or had their trade networks disrupted, the economic consequences were so extensive that it caused the Bronze Age to crash and destroyed the Bronze Age civilizations so thoroughly that they seem almost like myths to us.

Bitcoin, on the other hand, CAN be produced anywhere on the planet where there’s electricity and telecommunications and in theory should avoid the danger of over-centralization.  It used to be mined by anyone with a simple computer.  But computer manufacturing technology and energy costs are not spread equally across the globe; which is currently leading to over-centralization again; the very people trying to protect the Bitcoin network are weakening it every time they grow their monolithic mines.

In the end, Bronze, like Bitcoin, was used equally as a tool, a luxury and a currency.  And it was replaced by iron and gold not because those metals were any more useful or desirable but because of the way it was mined and produced.  Are big miners like modern-day Midas rushing to turn everything to gold, blindly unaware of the real riches they are destroying?