The Harry Potter books and movies were wildly popular and extremely well done. It was hard to believe a single imagination could create such a complete world, with human values and foibles being the only connection to real life. It was a fascinating place to sink one’s self into, though the general concept made it easy to keep from getting too carried away – few of us needed to wave a stick around to know that magic can’t be relied on to help us with our own earthly villains no matter how much we would like.
Which brings me neatly to the crypto currency phenomenon. Given that we know magic is fun to imagine but isn’t real, how does one explain the stunning rise of crypto currencies? This latest phenomenon is like Harry Potter in reverse – people are throwing real hard cash into a fantasy world and expecting magic Put in a dollar, wait a week, and take out three. It’s no more real than Hogwarts, but people are betting houses on it. Some profits are real, but so is the mortgage money being pumped into the ether (or, in a vain attempt to appear hip to the vernacular, ethereums).
The paradox and state of crypto currency is best illustrated by financial luminary Jamie Dimon, CEO of the bank JP Morgan Chase. Mr. Dimon recently declared that any employee trading bitcoin would be fired for stupidity. Yet major commodity exchanges including the CME are now trading bitcoin, and competitors including Goldman Sachs plan to as well. It’s rare to see that sort of philosophical discord on Wall Street; remember that these same parties were able to come to agreement that it was a good idea to sell junk securities to the world in the CDO-squared days. That they could all simultaneously see the value of marketing pure garbage to unsuspecting blockheads but now be so disparately misaligned with respect to crypto currencies is telling.
The crypto wars can be fought elsewhere by those who really care; for purposes of energy discussions what is of major significance is the effect these magic beans are having on the energy world. The answer is still unfolding, but the possibility is that it could be massively disruptive, and not just for money launderers but also to our energy systems. This 3-headed dog (you’ll have to read the books) is real, folks. Not pixie dust currencies; there’s still nothing much real about them, but their effects on the real world are definitely real. We will find out soon enough – either crypto currencies will crash into oblivion, or, if they keep rising in value, will add another extremely weird but powerful force to the world’s stretched electrical grids.
The power industry is still trying to wrap its head around how to deal with smart grids, new intermittent electricity sources and the powerful capabilities of modern computers. These rapidly-changing components are a necessary part of our energy future as cheap, accessible fossil fuels are exhausted and we find new ways to meet the needs of 7 billion people. They are therefore problems that are on the critical path to any sort of energy transition. What the electrical world doesn’t need is more gigantic random developments; hundred-year-old systems don’t like that.
But that is exactly what’s coming. Out of nowhere the crypto cults have landed, multiplying like bacteria in petri dishes. We’ve seen these e-phenomenon rise as quickly before in harmless forms; recall a few years ago when a Pokemon craze went around the world – within days squadrons of mesmerized collectors blanketed the globe, wandering head down into traffic in search of digital nothings.
Crypto currencies are different, however. It is a strange new twist in bubbles that this one has the potential to actually disrupt our most critical infrastructure, our power systems. This is because as the value of the e-pesos goes up, the economics of mining or using it do also. So if bitcoins trade for $50,000 apiece, the bitcoin miners will work ever harder to “earn” new ones. This could lead to a hyperbolic spiral for power demand; one forecast calculated that the bitcoin mining process would consume as much power as the United States by 2019.
That seems quite implausible, but if someone had told you six months ago that the value of all traded crypto currencies would now be at $750 billion, you would surely have filed that in the “flying pigs” folder. Yet here we are.
This is therefore something we need to pay attention to. Server farms are popping up all over the world in unlikely places. For example, an hour and a half northeast of Calgary, on the wide open grasslands that are as far from Silicon Valley as can be imagined, two large installations appeared in 2017 because of easy access to large quantities of cheap electricity. This is happening all over the world. China is home to two-thirds of bitcoin mining, but that is changing as even that notoriously lunatic economy gets sick of the miners sucking mightily on the coal fired power plants the country is trying to wean itself off of. Estimates from late 2017 pegged the overall global bitcoin mining power draw as being equivalent to the consumption of Ireland, and there is little doubt that that amount will soar as mining becomes ever more valuable and the number of them continues to grow.
It is going to be fascinating to watch the impact of crypto currencies on the world’s economies unfold, and no one knows where it will end up. Governments will at some point want a piece of these pies – nothing of economic size evades taxation or control forever – and it is possible that cryptos could come to be a major part of the economic landscape. Or they could end up all worthless, with millions of starry-eyed “investors” wondering how they wound up out on the street.
What is certain though is that if the phenomenon continues, the energy world is going to find itself with an uncontrolled beast rewriting the expected demand map. This will add a fascinating chapter to the climate/energy wars that would take Dumbledore and his wand and a whole truckload of chicken heads to resolve.
Read more insightful analysis from Terry Etam here. To reach Terry, click here