Bitcoin Markets Blog

I read a study recently which compares the social, economic, and environmental costs of bitcoin with the gold and fiat money systems (http://bit.ly/1tPsKYe).  It looks at the costs of gold mining/recycling (including worker deaths), printing/minting paper/coin money, bitcoin mining, banking industry maintenance (ATMs, electricity, etc.), and more. The author finds that relative to the gold and fiat money systems, the bitcoin protocol's costs in the three categories of social, economic, and environmental are negligible, .11%, and .275%, respectively.  This supports my intuition that the benefits, rather than the costs, of bitcoin are likely to be the drivers of its viability since the costs are orders of magnitude too small by comparison to bind as a constraint worth considering (as an aside, the costs of automated, digital systems are naturally lower than physical systems; just avoiding the need for physical transport and human labor/administration saves big).  If you buy that argument and the argument that systems which are massively more efficient than incumbent systems ultimately win out (that major improvements in efficiency can attack and beat established network effects), we can take it farther and claim that, benchmarked to absolute fiat terms, it might still be profitable in the long run to mine bitcoin now at a loss.  But of course, at that point, you might as well just buy bitcoin instead.  To put it more clearly, if the net world benefits of bitcoin are greater or of the same magnitude as established forms of currency AND the net world costs of bitcoin are orders of magnitude less than established forms of currency AND in the human journey toward technological advancement, massively more efficient systems do succeed in replacing incumbent systems (even those with very strong network effects), THEN bitcoin could be severely undervalued.  Even though the argument is bit nebulous (it doesn't address how the adoption/transition actually happens), I think there's something there.