Good day everybody,
Welcome to CryptoGod-1's blog on all things crypto. Today I am going to do a quick write up on a post I came across from the European Central Bank. They have come out with a blog post stating their strong views on Crypto, how they think this is the end for Crypto, and why they believe promoting Bitcoin is a reputational risk for banks.
Ulrich Bindseil and Jürgen Schaaf
The blog post was written by Ulrich Bindseil and Jürgen Schaaf and posted on the 30th of November, 2022. Within they discuss how the price broke through to new all time highs last year, before seeing the long tumble through the bear market. The impact of the likes of FTX is mentioned as a blip in an already drowning product. They claim the recent stabilization of the market is nothing more than an artificially induced last gasp before the road to irrelevance.
Bitcoin in Legal Transactions
The opening paragraph in this section of their post nearly made me laugh, and I have included it below:
"Bitcoin was created to overcome the existing monetary and financial system. In 2008, the pseudonymous Satoshi Nakamoto published the concept. Since then, Bitcoin has been marketed as a global decentralised digital currency. However, Bitcoin's conceptual design and technological shortcomings make it questionable as a means of payment: real Bitcoin transactions are cumbersome, slow and expensive. Bitcoin has never been used to any significant extent for legal real-world transactions."
Lets take a step back here. It was not to overthrow the financial system that Bitcoin was created. It was because the financial system let EVERYBODY down in 2008 by not regulating the banks and mortgage lenders correctly, leading to one of the greatest financial crashes in history. Bitcoin was created as a means for people to survive without the risk of banks defaulting on their money, and moreover, if a Bitcoin transaction is considered cumbersome I would hate to think what a Banking transaction should be considered as.
They go on to make some interesting points on how the value of Bitcoin is based purely on speculation:
"Bitcoin is also not suitable as an investment. It does not generate cash flow (like real estate) or dividends (like equities), cannot be used productively (like commodities) or provide social benefits (like gold). The market valuation of Bitcoin is therefore based purely on speculation."
My issues with this part is that you can stake Bitcoin and crypto to generate more, meaning there is cashflow available to be made similar to dividends. It can be very much used productively in that it can be used for the exchange of goods, just look at El Salvador for example. Social benefits of gold? Do they mean for the rich and wealthy who can go around flaunting their gold Rolex watches? Sure gold can be used in electronics, etc, but the actual benefit of Bitcoin sparked the beginning of Web 3 which led to things like smart contracts. While I will certainly admit Web 3 is far from perfect, it is just the latest step on the journey towards a better tomorrow. Also, I would like to point out how EVERYTHING is the world only has a marketable value based on speculation. FIAT money is only worth what it is worth because we deem it so. An apple in a shop is only worth what we pay because we deem it so. All financial value is man made, and to indicate otherwise is either a case of ignorance of shrewd manipulation by the authors to discredit Bitcoin while promoting the banking system.
As an ending note to this paragraph I would like to point out that regardless of the tangible or ineffective uses of Bitcoin, it can NEVER become a disgrace to society like FIAT can and has, just look as the value of banknotes in Venezuela as an example.
Regulations and Approval
In this section they mention how lobbyists are pushing their case for crypto with lawmakers and regulators. Seems very similar to how banks work, but regardless, they state that in the US alone:
"the number of crypto lobbyists has almost tripled from 115 in 2018 to 320 in 2021. Their names sometimes read like a who's who of US regulators."
The regulation of assets such as Bitcoin and Crypto have been slow in forthcoming, and getting said regulations ratified has also been a drawn out process. The MICA (Markets in Crypto-Assets Regulation) regulations of the European Union are brought up in contrast to the inability of the US and federal authorities to complete their own brand of rules and regulations. Interestingly, one could argue the point that were the EU too hasty to create a doctrine of rules without fully understanding the space themselves? They go on to talk about the misconceptions within the space, how the diehard crypto enthusiast's believe:
"The belief that space must be given to innovation at all costs stubbornly persists. Since Bitcoin is based on a new technology - DLT / Blockchain - it would have a high transformation potential. Firstly, these technologies have so far created limited value for society - no matter how great the expectations for the future. Secondly, the use of a promising technology is not a sufficient condition for an added value of a product based on it."
This is where they really lost me I'm afraid. Little value for society? Is that perhaps because the implantation of new technology is often feared by those in charge and stifled by regulators who wish to persist with their own technology? Did the internet take off overnight? Things take time and with a boundless amount of use cases, one could argue it is society and their inability to keep pace with the new technology which has made the use cases minimal so far.
Their final argument in the regulation and approval sections focuses on the environmental impact of Bitcoin. They point to the inefficiency of the system in its consumption of electricity and electronic waste, while also inferring that it is also the cost of having a decentralised system.
"It’s also worth noting that the Bitcoin system is an unprecedented polluter. First, it consumes energy on the scale of entire economies. Bitcoin mining is estimated to consume electricity per year comparable to Austria. Second, it produces mountains of hardware waste. One Bitcoin transaction consumes hardware comparable to the hardware of two smartphones. The entire Bitcoin system generates as much e-waste as the entire Netherlands. This inefficiency of the system is not a flaw but a feature. It is one of the peculiarities to guarantee the integrity of the completely decentralised system."
The key word from that entire paragraph is the word ESTIMATED. It is estimated. Not proven, not factual. Just estimated. Similar to all estimates, especially from financial institutions, they should be taken with a grain of salt. While Bitcoin mining is likely not the most environmentally friendly thing around, the sheer level of waste created by human production is far from acceptable levels to be pointing the finger at one particular industry. It is easy to play the blame game but how much money how these banks facilitated into the oil and gas industry over the decades? What they they do the to minimise the environmental risk? Is it purely because "environmentalism" is the buzz word of they day that the ECB is trying to use is as a reason to discredit Bitcoin? An excellent article I found at nasdaq.com, can shed some light on that statement.
Within it shows the levels of energy consumed by source along with its consumption, and most importantly, clarifies legitimate levels of consumption from Bitcoin, Banking, and Gold. Below I have listed the levels of consumption from each, to give a real eye opening level to what Bitcoin does to the environment compared to Banking.
Bitcoin: 113 TWh of energy per year
Banking: 700 TWh of energy consumed per year
Gold Mining Industry: 265 TWh of energy used per year
Eye opening figures, which were based off data taken over a period of five years or more. Not only is Bitcoin minimal compared to Banking, its is roughly half of what Gold mining is alone! Please feel free to check out that article to verify this information for yourself, but compared to off the cuff statements with no data to back them up like was made in this European Central Bank blog post, I am confident in the data I have shown. TO put perspective on those figures, below is the consumption of energy by source globally on an annual basis. How much has been invested into renewable energy by big banks over the decades?
Reputational Risk
They end the post with the mention of the reputation risk associated with the use of Bitcoin, mainly due to the fact it is:
"neither suitable as a payment system nor as a form of investment, it should be treated as neither in regulatory terms and thus should not be legitimised."
They also claim the long term damage which can befall the promotion of Bitcoin, including things like negative impact on customer relations and the reputational damage to the entire industry could be enormous once Bitcoin investors will have made further losses. What this post seems to lack the clarity of is that the exact same investors could be praising the industry if the value of Bitcoin was to rise once more and profits are made. It is a bit much for the banking system, which destroyed its own reputation nearly 15 years ago, to call foul on something else like this.
My thoughts on the European Central Bank giving their "Opinion"
I found the whole article to be a load of nonsense. Of course the Central Banks are negative towards Bitcoin, it is after all an alternative to their traditional banking system. However, I think the narrative of this blog post, in trying to discredit Bitcoin while acting like banks are perfect, is disgusting, They speak of reputation, purely because it is 2022 and the financial disaster of 2008 is so long ago that they believe people forget the cruelty and dishonestly of the banks from back then. I am certain most people in the Bitcoin and Crypto space are not in it because they are anti banking and hold a grudge from 2008, but similarly people should not forget.
While the system is not perfect and there will always be highs and lows, it seems like a very poignant time for the European Central Bank to come out and make claims of Crypto being dead. It is a lull and downturn in the market, but as simple look at a chart would tell you that the value of Crypto today, at its "low and dead point" of around 17,000 is still above the price of Bitcoin up until early November 2020. Sure we could push lower, but it could also rise higher again. To claim an asset such as Bitcoin is dead because it is at a low point is ignorance at its finest. More investors will return, the hype will build up again, and the crypto space will live on. That is just a fact of life.
Nothing can sum up my feelings more than seeing a Central Bank, who are raising inflation through the roof globally through their "printing money" actions, than the image below.
Long live Bitcoin, and long may it cause fear in the regulations and objectives of the Central Banks.
Have a great day.
Peace. CryptoGod-1.
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