Critics of Bitcoin like to compare its carbon footprint to a transaction on your Visa card, ignoring the environmental impact of the infrastructure that sustains fiat money and the enormous collateral damage that fiat brings. These secondary effects make fiat money orders of magnitude more energy-destructive than Bitcoin.
You can appreciate fiat’s secondary footprint from any street corner on Earth: 80,000 bank branches and 470,000 ATMs in the U.S. alone, along with forests of skyscrapers that dominate every city on the planet. Then the part we don’t see: Finance and insurance are 8.4% of the gross domestic product in the U.S., only slightly behind manufacturing. That means millions taking the subway or driving to the office – or, the pandemic equivalent, firing up an army of laptops and call centers – to sling paper money under fiat’s harsh fluorescent glow. Visa transactions don’t even come close.
Peter St. Onge, Ph.D. is a former professor and Mises Institute Associated Scholar. He writes about Austrian economics and Bitcoin.
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And that’s on the good days. Because, when it comes to fiat, there are a lot of bad days. Fiat money has caused a recession every 5.6 years, to be precise, in the U.S. since the Federal Reserve’s founding, by manipulating the pace of money creation that drives the boom-bust cycle. Beyond the human toll, each recession has brought trillions in wealth destruction, wealth that took an enormous amount of resources and, yes, an enormous amount of carbon to create.
To translate this recession cost into something that can be compared to Bitcoin, I relied on the most mainstream estimates of the carbon cost of a dollar of GDP – about 5,000 BTU (British thermal units), or 1.5 kWh (kilowatt hour), per dollar. Then, using the Federal Reserve’s own estimate of $11 trillion destroyed peak to trough in the 2008 crisis – the very crisis that inspired Satoshi to create Bitcoin – you simply multiply the two. That comes out to 16,500 TWh (terawatt hour) of carbon equivalence destroyed during that single recession. Accounting for the rest of the world, that might triple. Accounting for the other 16 recessions the Fed has given us – with more to come – makes it astronomical.
Bitcoin, by implication, is among the most green technologies humanity has ever invented.
The modern recession and the boom-bust cycle that drives it is entirely a creation of fiat money. Governments intervene in the allocation of capital, randomly starting and stopping a fire hose of credit that whipsaws the real economy and destroys real lives. Just as the cost of a five-second delay in a footrace can be measured in distance lost, the cost of a recession can be measured by the resources it will take to rebuild lost wealth. Bitcoin, by taking purchasing power out of central banks’ manipulation space, can reduce or even eliminate their ability to cause boom-bust cycles.
