Decentralization of the energy system and the money system can go hand in hand, says CoinDesk’s chief content officer.
Identifying a core reason for the gut-wrenching plunge in cryptocurrency prices this week is complicated because falling prices create their own reality, prompting investors to sell even more. In this case, this was exacerbated by debt. As prices fell, investors who’d borrowed to finance their bets had to liquidate them to cover their positions. This is an ever-present danger in all financial markets but that it played out so violently this time speaks to how deeply lending and borrowing is now integrated into crypto.
This hints at systemic challenges, a rich topic that we’ll save for another newsletter. This week’s column addresses a system of a different kind, in the energy economy. We take on one of the popular narratives that contributed to the sell-off – the idea, invigorated by Tesla’s reversal on bitcoin payments last week, that investors and companies should avoid it due to the high energy consumption involved in mining.
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The mainstream discussion on this issue is frustratingly superficial, but so, too, is the standard “whataboutism” and denialism of the crypto community. I suggest we consider how bitcoin can fit into a system-wide design of the economic incentives that dictates how society generates, distributes and uses power. Doing so leads to a different conclusion, with mining viewed not as a toxic creator of greenhouse gases but as a driver of renewable energy development.
This will be a major topic at next week’s Consensus by CoinDesk, a huge, four-day affair with more than 300 speakers, including Federal Reserve Governor Lael Brainard and Bridgewater Associates founder Ray Dalio. (Register here.) In particular, my “Money Reimagined” podcast co-host Sheila Warren of the World Economic Forum and I will lead two one-hour special sessions on CoinDesk TV on Monday and Friday discussing the opportunity and challenges that crypto and blockchain pose for companies and investors looking to meet environmental, social and governance (ESG) objectives.
For this week’s podcast, we travel to Haiti to address a topic that falls under the “S” in ESG: how the ugly legacy of international debt keeps the poorest, aid-dependent countries forever removed from capital markets, and whether new blockchain systems of money and record-keeping can break that cycle and help these countries gain control of their destiny. We talk to Terry Tardieu, a Haitian author, entrepreneur and politician who represents Petion-ville in the Chamber of Deputies, and Daniele Jean-Pierre, the co-founder and COO of Zimbali networks, which delivers smart ledger solutions for the decentralized economy.
Bitcoin can decentralize the grid
The factors contributing to this week’s crypto market rout were many – from excessive leverage to China’s regulatory bluster – but two stories last week play a trigger role in shifting sentiment to the negative: the Colonial Pipeline ransomware attack and Elon Musk’s newfound concern about bitcoin’s carbon footprint.