In the past I have made some comments on the roll or the potential role of crypto going forward. Full disclosure, I do not hold crypto, I have experimented a bit with the technology here and there. To me, uses in some domain seem quite ridiculous, in other areas I think that the underlying DLT technology may be great as a technological platform that allows for potentially much more decentrally organized and resilient societies. I also see the securitsation of payment networks, in particular on protocols that can shift the compute temporally (think L2, rollups etc.), as a potential important part that may complement the build out of a renewable energy based electricity grid, because demand that can be shifted is storage and is thus vital to stabilizing electricity markets in light of more volatile supply.
Decentralisation of cloud compute can also offer huge benefits, since scale economies are not necessarily needed for inference, but rather for training of foundation models. So: inference can be easily decentralised, aiding further with compute becoming part of the absorbing node in a network. It can also be easier to build out fibre optic cable networks (not satellite, for resilience reasons) compared to building powerlines. Demand is storage and compute demand can be shifted through data connectivity to decentralised nodes.
But of course, I think for payments especially on a protocol like Bitcoin, makes hardly any sense. It is a stupid use for a great technology and I do think that governance and oversight of money — not its weaponisation — is vital. In the end managing societies from the monetary side is really all about managing collective psychology and I do think there is a deeply embedded demand for role models, or, let’s call them “leaders”.
Some further dimensions that matter are innovations in that space that are very exciting as they may allow for much more efficient payment systems with much lower transaction cost, while also redistributing the ownership of the information rents that come with the data markets that often develop around payment networks. I do think that this lies at the heart of perceptions of economic decline despite a relatively low degree of (physical) consumption inequality.
I am planning a longer write up on the tension between the US and Europe, in particular, concerning the value added tax (its basically stablecoins + privacy versus VAT and the possibility of public accountability — plus, a lot of service sector “jobs”). I alluded to this at various times on my social media.
Giving commentary on anything related to crypto can easily attract shitstorms. This is why I have been very conscious when asked by Wired to offer some comments in an interview I gave two weeks ago (June 3) on the role of the recent trade escalation and tariffs and how this may affect the US Bitcoin sector. Again, I consider Bitcoin a stupid use of the DLT technology.
So, what was I asked? I was asked by Wired to comment on the impact of the trade war on the US bitcoin mining sector. As usual only individual lines are going to be printed, and I wont see the full piece. It is risky and despite the conversation with the journalist lasting for almost one hour. This is the problem of information transmission in society and the need to densification of information.
In the conversation I touched on how, for example, some forms of payment systems that are backed by a DLT can aid with creating automatic audit trails that allow for automated process to achieve supply chain transparency, potentially being much less costly compared to existing systems of export controls. But nevertheless,
“Rerouting trade leads to additional costs—it requires importers to establish new trading relationships, there are usually kickbacks involved, and each step attracts margins. Those price increases could erode the ability of miners to purchase and deploy equipment profitably.”
“It would be a heroic assumption to suggest that trade disruptions will lead to the onshoring of bitcoin mining hardware manufacturing in the US. I think that’s very unlikely to happen. The Chips Act under Joe Biden did a lot more in this domain in areas that are likely much more relevant going forward, which is GPUs. For uncertainty to lead to onshoring requires long-term industrial policy changes. The political cycle in the US is relatively short.”
“There is some historical precedent for blockades and tariffs leading to onshoring.” I talked about the Napoelonic Blockade and the Production Network or “Qatar” paper with a blockade being an infinitely large tariff and highlighted challenges around the Ukraine war and the continued flow of goods allowing Russia to wage its war despite the sanctions. This highlights the tension between privacy and rentierism in international trade.
“But I don’t think it will do anything in the very specific case of bitcoin mining. It’s hard to see large US manufacturers producing bitcoin mining chips—that will not happen.”
Concerning the impact that an economic shock has on the mining sector, there are two likely outcomes: “Typically, this type of shock would lead to consolidation. A priori, one would expect a cull of small miners because of the rising cost of equipment and greater supply chain uncertainty.” And most importantly, “Depending on customs enforcement, the tariffs are more likely to lead to the erosion of the bitcoin mining industry in the US. Mining firms will be frozen out unless they can access equipment through third-parties. After killing the shale oil industry (see prediction from 2024, and comment a month ago), Trump is killing bitcoin, even if he does not know it”
I should say that the “killing of shale” may see a temporal reprieve following the Israel-Iran escalation that saw oil prices move up, weakening this prediction, but it really now depends on how the situation in MENA evolves.