Gold and crypto mining creates a sustainability crisis
President Trump’s election sparked a surge in crypto stocks as he signaled his intention to experiment with alternative monetary policies, including the gold standard. Cryptocurrencies are often confused with exchange currencies and fiat currencies such as the dollar, but they actually have more in common with reserve currencies such as gold. Just as gold is limited by the physical ability to mine and refine the material, cryptocurrencies are limited by the energy and processing power of computational systems. So while there are some important similarities between using gold as a reserve standard and using a currency like Bitcoin, there are also fundamental differences. Currently, El Salvador is the only country that produces Bitcoin as a fiat medium of exchange. However, the International Monetary Fund recently made some erosion of the country’s Bitcoin-friendly laws a precondition for a $1.4 billion loan.
Amid the crypto ambitions and anxieties of the Trump era, it may be worth reconsidering the key features of the gold standard from a sustainability perspective. “Mining Bitcoin” requires huge amounts of energy, while mining gold is highly polluting, so some may wonder how there can be any positive outcomes for these currencies. No. However, there are some important characteristics to consider about how these currencies limit the potential for resource consumption.
The rise of the gold standard can be traced to the work of scientists no less famous than Sir Isaac Newton, who was fascinated by the aspirations of the alchemist, in part due to his role as ‘master’ of the Royal Mint. Convert lead to gold. The elemental quality of gold as a rare and durable primary resource may have played a role in Newton’s defense of the gold standard, especially compared to silver, a more reactive competing metal. . Silver’s popularity as a currency was largely due to the rich stocks of the metal discovered by the Spanish in the mines of South America, particularly in Potosi (present-day Bolivia), an area that still produces ecologically questionable minerals. It was. extraction.
In a back-of-the-envelope cost-benefit analysis, Jack London, the renowned chronicler of the Klondike Gold Rush, notes that the miners probably spent about $22 million building the infrastructure and making a living to mine the gold. He admitted to investing more than $220 million to maintain it. . But for him, this calculation at the beginning of the 20th century still focused on the value of the yellow metal. He added that this monumental effort would still be possible in the Yukon because “natural obstacles are removed or overcome, primitive methods are abandoned, and hardship and travel difficulties are minimized.” “It will be of immeasurable benefit to the
Gold was almost universally valued, but there were rare exceptions. In very resource-poor communities, such as tribes in the Sahara, the mineral commodity of choice is not inert metals like gold, but rather forms formed by sodium, one of the most reactive metals on the periodic table. It was a compound that was Peter Bernstein describes the comparison between gold and salt in the eyes of Sahrawi tribes: “What did those poor miners think of those crazy people from the north who traded untold amounts of salt for something whose sole purpose was to give people pride and joy? Let’s see the brilliance.”
Newton’s earlier interest in gold was followed by a period of uncertainty around the world until the discovery of vast gold reserves in southern Africa at the end of the 19th century. The United States instituted the gold standard during the same period of its obsession with gold. After 1834, gold was considered alongside silver as a standard reserve metal in monetary policy, and the fixed price for gold was set at $20.67 per ounce, which remained in effect until 1933. During this period, gold’s dominance was restored globally. There was a gold rush all over the world, especially towards the end of the 19th century. These rushes spurred tremendous growth in various industrial sectors and paved the way for the development of many other sectors of the economy.
Arguments against the gold standard are premised on how the gold standard limits the range of policy tools that address extenuating circumstances, such as the needs of the wartime economy. After World War II, the Bretton Woods Agreement, which established the World Bank and related financial institutions, recognized the importance of gold by maintaining a reserve currency system, although the price of gold fluctuated. After the Vietnam War, President Nixon completely withdrew from international gold exchange standards. The US dollar itself has become sufficiently reliable in the eyes of the international community that it has been freed from the bondage of gold. But these constraints are what many current gold standard proponents find so attractive.
A gold standard could instill discipline in monetary policy, preventing governments from printing money recklessly and causing inflation. This standard also prevents governments from overspending and running large deficits, which is why it is currently popular among many in the Tea Party and MAGA movements in the United States. From an ecological perspective, the gold standard has the appeal of combining economic growth with natural resource constraints. However, the environmental impact of gold mining is so significant that any support for reinstating the gold standard is summarily dismissed by many activists. For example, each ounce of gold generates 30 tons of waste, and the U.S. EPA estimates the cost of cleaning up existing metal mines to be approximately $54 billion. The main debates surrounding gold mining revolve around the livelihoods of an estimated 15 to 20 million gold miners and the large amounts of tax revenue it generates for the many poor countries where it is mined. I’m doing it.
Given gold’s durability and ease of recycling, a gold standard could in principle be maintained without the need to mine more gold. Furthermore, if gold is used as a reserve in its own right, the main resulting issue is ownership over the gold. If there is international agreement that the world’s gold reserves are still underground, the trading and ownership of such reserves would regulate the ownership of gold reserves rather than the physical extraction of the metal. It could also be processed through the international treaty system. For example, the ability to centrally authenticate the world’s total gold reserves and issue stocks to purchase these reserves could serve the same purpose as stockpiling gold in a vault. In other words, the country’s gold reserves could remain “stored” in natural underground conditions, rather than being mined, refined, and stored in vaults like Fort Knox.
It is also possible to add some kind of discount element, taking into account the ease of access of a particular deposit with other deposits, and countries with gold on land can give company founders and employees preferential stock options. In the same way as owning a company, you may be able to obtain preferential purchase rights for shares. Although this would be environmentally preferable to the current extraction and storage system, it is a fair question for environmental economists to ask. Why not peg the currency to other indicators of the planet’s carrying capacity that can be considered in the same way? Perhaps a “keep it underground” approach to gold is more environmentally friendly and a better way to store “wealth”. This may be the first step in considering measurement methods.
Although the gold standard has a checkered history in terms of its overall effectiveness in economic development, there is little doubt that some discipline needs to be instilled within financial institutions. Historically, gold mining and the gold standard have contributed significantly to environmental destruction. But they also contributed to modern big business and economic growth. The gold standard unconsciously acknowledged the relationship between financial power and natural resource reserves that constitutes the core of many contemporary environmental ideologies. Although the standard’s early proponents did not envisage this connection, the “discipline” they sought was a result of the natural limits of gold mining and its underlying finite gold reserves. .
Current discussions about restoring the gold standard, and indeed tying even cryptocurrencies to gold, should focus on this fundamental standard premise. Indeed, such an approach may also help bridge the perceived tension between environmental activists and conservative politicians and economists. The take-home message is that the prominence of the gold standard in financial discipline is a product not only of the properties of gold itself, but also of the fact that gold is a relatively scarce natural resource with the enduring appeal of durability. still remains. Reconsidering a hybrid version of the gold standard paradigm may offer a potential solution to address the challenge of public and private sector overconsumption within a capitalist framework.
