Robert McCauley, a non-resident senior fellow at Boston University’s Global Development Policy Center and an associate member of the Faculty of History at the University of Oxford, argues that “Bitcoin is worse than a Madoff-style Ponzi scheme.”
Notwithstanding the value judgment in the title of the article, McCauley correctly points out that Bitcoin makes no promises — despite Jorge Stolfi’s cries to the contrary that Bitcoin promoters somehow sell the promise of Bitcoin as an investment — and cannot end as a Ponzi scheme ends. He also correctly states, in my opinion, that Bitcoin is unique in the history of economic speculative assets.
Stolfi’s fifth observation — “the operators take away a large portion of the money” is a zero-sum game view of Bitcoin. Here, McCauley states his position that while Ponzi schemes are “redistributive — zero-sum,” Bitcoin is “negative-sum.”
This is because huge amounts of electricity are “wasted” to generate new Bitcoins in the hashing process. Business Insider reported that Bitcoin uses 0.5% of global electricity in the process of mining. Due to Bitcoin’s proof-of-work hashing algorithm, most of the energy is not used to perform useful work or even to mine new Bitcoins.
The wastage of energy is a feature of Bitcoin — it forces miners to expend energy to earn the chance to record new transactions (and “mine” new Bitcoins) — thereby making it expensive for hackers to alter the ledger (the so-called…
