Is bitcoin the solution to all evils? Are we not asking too much of this currency, which is increasingly perceived as an absolute store of value?
Money and the economy
We often hear the expression “fix the money, fix the world”, suggesting that the economy is ultimately nothing more than a monetary sleight of hand.
Some “Austrian economists” are even convinced that a fixed money supply (using bitcoin) is enough for us all to live in abundance.
More seriously, abundance comes from productivity (quantity of things produced per person). And this productivity is obtained with machines and therefore, ultimately, energy.
From a physical point of view, an economy is a dissipative structure powered by a constant flow of energy. Human beings are also dissipative structures. We need energy in the form of food calories to keep from shutting down.
But you can't just eat lettuce. We must consume a whole series of foods adapted to the needs of the body. The same goes for the economy which requires different sources and forms of energy.
Uranium is a source of nuclear energy; gas, oil and coal are sources of chemical energy; dams are a source of potential energy; the sun is a source of radiative energy and the earth's core is a source of thermal energy.
These energy sources can be used as is, or converted into other forms of energy. Fossil fuels are, for example, burned in thermal power plants to heat water. Water vapor makes it possible to turn a rotor (mechanical energy) whose rotation produces a magnetic field allowing energy to be generated in electrical form.
More than 80% of our energy comes from gas, oil and coal. Furthermore, only 20% of the energy is transformed into electricity!
The low prevalence of electricity is because the direct use of fossil fuels is necessary to build paved roads, steel bridges, power lines, cement, herbicides, fertilizers, greases mechanical, plastic, etc. Many of the industrial processes that underpin the economy require the chemical and thermal properties of fossil fuels.
All this to say that electricity, by itself, is not enough. In other words, electrons cannot be eaten.
Energy constraints and inflation
It will be very difficult to reproduce all the services provided by fossil fuels with electricity. Reducing their consumption will result in fewer goods and services, on average, per person.
In fact, this has already been the case in the West since 1973, the date of the first oil crisis. Things have become even more complicated since 2007, the date of the peak of conventional oil, that is to say that which is easy to extract.
It is no coincidence that Western standards of living have been crumbling since the 1970s. To blame the end of the Gold Standard is to confuse the egg and the chicken. The United States actually ended the gold standard because of the explosion in the trade deficit directly caused by its oil peak reached in 1971.
Washington managed to preserve its standard of living with a geopolitical masterstroke orchestrated by Henry Kissinger: the petrodollar. But this is another story.
The price of a barrel today is 26 times higher than in 1971… And the recent discovery of the equivalent of 15 years of global consumption in Antarctic will not change the situation. Exploiting this oil requires a barrel of 300 dollars, compared to almost four times less currently. That would cause a lot of inflation…
Advanced nations have other sources of energy, but it is not enough to generate the exponential growth that our exponential debt, aka the fiat system, requires.
We must realize that our energy consumption is growing at an extraordinary rate of around 2.4% per year. This means that we will consume as much oil, gas and coal over the next 30 years as we have since the dawn of civilization.
Will we succeed, or should we instead prepare for more inflation? Don’t miss our article on this subject: Bitcoin and endless inflation.
As recently stated Michael Saylor to justify Microstrategy's investment in bitcoin:
“The official inflation rate doesn't represent reality, which means the GDP numbers aren't true either. You don't measure real GDP if it's not adjusted for inflation. The CEO of Microsoft made a very discreet remark that no one noticed. He said that in nominal terms, people perceive the economy to be growing, but once you get the inflation rate right, the economy is actually contracting. »
Energy decline and Bitcoin
China and India have based their recent growth on increasing coal consumption. On the other hand, the West is rather preparing for the peak of fossil fuels by banking on electricity for its reindustrialization.
However, the transition to all-electric will be difficult. Most people don't realize that industry and transportation are sectors that consume very little electricity.
Electricity represents only 13% of the total energy consumed by industry. For example, very high melting temperatures are required for blast furnaces. These temperatures are obtained at a lower cost by directly burning coal and gas. It is possible to use electric arc furnaces to produce steel, but this is only profitable where electricity is abundant.
The situation is even worse in transport – the backbone of the economy – which runs 95% on oil. Replacing the entire global fleet with electric cars is a pipe dream due to the vast quantities of copper, lithium, neodymium and other rare earths that would need to be extracted and recycled.
The world will have to produce a lot more nuclear electricity (which represents only 2% of the energy produced on earth) AND reduce the rate. It will also be necessary to “close the cycle” with fourth generation reactors. The countries least well prepared for the inevitable decline of fossil fuels will be hit the hardest.
Can bitcoin get us out of this pitfall? No. There is no oil, lithium, cobalt, copper, nickel or graphite in the blockchain.
On the other hand, it is an absolute store of value which will not fail to attract attention as energy constraints cause inflation. Geopolitical and commercial tensions and the ongoing fragmentation of the global payment system are also blessings.
And as with any global monopoly (Microsoft, Google, Amazon, etc.), the first investors in the bitcoin technological breakthrough will do well. It is a more promising investment than real estate…
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