Report: White House Says BTC Has Not Planned Proof-of-Stake
The Biden Administration just put out a new economic report that talks about Bitcoin and cryptocurrencies a lot. In fact, the two terms are mentioned 305 times in the report.
The report is getting a lot of attention because it says that “crypto assets to date do not appear to offer investments with any fundamental value.” But that’s just a small part of what it says.
Here are some of the most important parts.
The report follows Ethereum’s move to a proof-of-stake consensus mechanism, but it doesn’t seem to understand how Bitcoin’s consensus is reached. For example, it talks about the decentralized network as if it were a company that could make official statements.
“Despite Ethereum’s switch to proof-of-stake, Bitcoin has not announced plans to make a similar change.”
The report criticizes how much energy Bitcoin uses, but it doesn’t compare Bitcoin’s energy use to that of the banking industry, which Bitcoin was meant to replace. It also doesn’t say that miners are incentivized to use renewable energy to save money or that up to 59.5% of BTC mining is already done with energy from renewable sources.
“Globally, Bitcoin accounts for 0.42% of all electricity usage.
This effectively means that Bitcoin is using the same amount of electricity as a medium-sized advanced economy.”
The report talks about the fluctuating price of Bitcoin at a bad time, when the government has caused a banking crisis that has made many Americans realize that banks don’t keep their money and that deposits over $250,000 are not covered by the FDIC.
“The value of a Bitcoin (relative to the U.S. dollar) increased by over 1,000% from March 2019 to March 2021, and then decreased by over 70% from November 2021 to October 2022.
This volatility means that anyone who is using Bitcoin to store their savings is subject to high-volatility risk in their purchasing power.”
The report also talks about BTC’s “run risk” in the wake of the failure of several US banks. Ironically, it warns that crypto assets could cause a “Minsky moment,” which is the end of a long period of economic growth. But the report also says that the crypto industry is likely here to stay, even though it has been criticized.
“The risks presented by crypto assets stem from excessive speculation, high leverage, run risk, environmental harm from crypto asset mining, and fraudulent activities that harm retail investors and corporations.
Because crypto assets appear to be here to stay, policymakers should consider these risks to avoid a ‘Minsky moment’ caused by crypto assets.”
The report says that Bitcoin is rare and that there can only be 21 million of them, but it says that paper money is better because central banks can print money whenever they want.
“In addition to generally being speculative assets, cryptocurrencies currently are not effective alternatives to sovereign money such as the U.S. dollar. As mentioned above, most cryptocurrencies do not have fundamental value, but that is not a requirement for them to function as money. In fact, sovereign money does not have a fundamental or intrinsic value. Even so, sovereign money can easily satisfy money’s requirements…
The main reason for this is that the value of sovereign money is backed by a trusted institution—the central bank.”
