Having seen steady growth throughout 2017, Bitcoin has recently been adopted as a form of payments in several US states. And, now, it is becoming just as valuable as precious metals like gold or platinum.
The production of the Bitcoins that are in circulation today is accomplished by a process known as mining and the work itself is done by people known as miners. The miners mine Bitcoin by using computer servers, however, the process also requires an energy source, much in the same way that the traditional mining of metal ore is done.
The energy needed for mining operations is continuously growing and therefore raises questions about its ecological footprint on our planet.
Bitcoin has often been called an ecological disaster, however, some believe that it could have a positive impact on the preservation of our fragile ecosystem.
To HODL or Not to HODL
Buy low and sell high. This is something that anyone who wants to make a profit on a product will tell you. This does, however, require a certain level of speculation.
When their value is up, there is not as much activity in terms of purchasing Bitcoin. But, on the other hand, when their value begins to drop, investors are faced with the decision whether to sell or to “HODL” (Which stands for “Hold on for Dear Life”). Used to encourage investors to save their cryptocurrency, HODL-ing also helps maintain the public’s trust in the market.
Now, today, where there is a greater demand than there is a supply, HODL-ing is becoming a type of speculation.
Whether Bitcoin is rising in decline or increasing in value, its volatility seems to influence this type of hoarding. Which, in turn, causes investors to save their cryptocurrency, as opposed to spending or selling them off frivolously.
And, there are no signs that this new trend of HODL-ing is slowing down anytime soon. This is because industry experts are now predicting that Bitcoin’s value will reach a minimum of $29,000 before the end of 2018.
John McAfee, who created the anti-virus software that bears his name, is one of many who believes in a positive future for Bitcoin. After initially predicting that Bitcoin would reach the $5,000 mark in 2017, he is now raising the bar and swearing that Bitcoin will reach the million-dollar threshold before the end of 2020.
This type of prediction has no other effect than encouraging the hoarding of Bitcoin until its value begins to rise once again.
HODL-ing Could Affect the Global Economy
Although it functions in terms of virtual reality, the hoarding of Bitcoin does not go without influencing the real world’s economy. In fact, the influx of investors dumping massive amounts of capital into cryptocurrency has created an environment that favors savings over mass production.
John Maynard Keynes once said, “Any attempts to save, while reducing consumption will affect revenue.” Keynes is often considered as the father of macroeconomics and according to his idea, consumption is what drives growth, while savings is nothing more than an obstacle to development. Any type of hoarding removes the investment part of the cycle, which typically functions as a means of production.
This said, the lure for people to wait and save their fortune until it grows is slowly diverting the liquidity of the real-world economy into the virtual world.
Another consequence of hoarding one’s investment is that is causes sky-rocketing exchange rates.
Bitcoins are limited in number and are difficult to mine. Therefore, when investors start hoarding them, this causes them to become rare and pushes new investors to pay more to be able to purchase them.
“If people hoard their money and hide it under their mattresses or keep it in their safes, this causes the rest of the money out in the world to gain value.”, said Walter Block back in 2014.
Therefore, we can consider Bitcoin’s market cap as the money that’s been saved. These savings end up slowing down consumption, but also, negatively impact the growth of the market.
History’s Biggest Ecological Disaster
Often criticized for the massive amounts of energy needed to mine its tokens, Bitcoin compensates for this by curbing its consumption. Moreover, regular fiat currency does not go without having an impact on the environment.
In fact, regular fiat currency also requires massive amounts of energy. To produce coins, it is necessary to extract metals from the earth and then melt them down. For paper money, it is even necessary to clear-cut entire forests. Then, there is also the transportation, the storage and the distribution of the currency, which also has an impact on the environment.
When compared to virtual money, it’s easy to see how fiat currency has a much worse ecological impact on our planet.
Think about it. This year alone, how many times have you used your car to go to the bank to withdraw money? Economically, Bitcoin could be a breath of fresh air for out planets in terms of monetary production. Currently, developers around the world are working to optimize the mining process to require less electricity.
By encouraging savings at the expense of investing, Bitcoin and other cryptocurrencies could seriously change our bad habits on a global scale.