Bitcoin price has risen significantly. In mid-December 2017, Bitcoin, which had surpassed 20 million won and then plunged to 4 million won, surged again and surpassed the 60 million won range.
Former U.S. Federal Reserve Chairman Janet Yellen pointed out that cryptocurrency is mainly used for crime and foreshadowed the regulation, but the market was only affected for a while. Why does a virtual currency, which has no real value like gold, and that the state does not trust, make such a high price? What is happening to humanity’s monetary and economic system?
The reason for the sharp rise in the price of cryptocurrency was that an asset investment company put bitcoin into the investment portfolio, Paypal made it possible to pay with cryptocurrency for transactions in the United States, and Elon Musk made it possible to use bitcoin for Tesla Motors. Some say that payments are allowed. However, this is more of an effect than a cause.
Since cryptocurrency becomes money, it should be considered that these companies have moved. The direct cause should be seen due to the increase in currency issuance of each country in response to the economic downturn caused by Corona 19, and the departure of the underground economy due to the trend of central bank digital currency (CBDC, Central Bank Digital Currency, hereinafter referred to as digital currency). This can be defined as a backlash against the US dollar, the key currency, as well as the departure of individuals and corporations against the public property of the state community and the legal currency of creditors.
Let’s call this phenomenon collectively’Money War 2.0′. While Money War 1.0 is a war between the state and financial institutions over key currencies, Money War 2.0 is a war over the money system between the state and globalized individuals and companies. Money War 2.0 could also be a form of digital transformation. Some scholars emphasize the positive aspects of decentralization and decentralization.
I also affirm that there is such an aspect, but I pay attention to the aspect of conflict and war between the national community and globalized individuals and companies that the price of cryptocurrency rises. Monetary War 2.0 should be viewed as’tax avoidance’ in the monetary system.
Is cryptocurrency sustainable?
According to the Bitcoin Electricity Use Index (CBECI) of the University of Cambridge in the UK, the global annual electricity consumption used to mine Bitcoin is expected to exceed 130 TWh in 2021 (1). This exceeds the annual electricity consumption in Argentina and Norway (2). The higher the bitcoin price, the higher the mining competition will increase the amount of electricity consumed. 130TWh is based on Korea, where electricity is relatively cheap, and the electricity consumption alone is over 13 trillion won.
Bitcoin mining yield is very high at 47% as of February 2021 (3). However, this is not sustainable. If the carbon tax is fully imposed in response to global warming, electricity costs will rise, which will reduce bitcoin mining profits. If the electricity cost is doubled to triple it, the mining profitability of Bitcoin will disappear.
The decline in the yield will weaken the competition for bitcoin mining, which will reduce the amount of electricity consumed by reducing the burden of arithmetic calculations required for bitcoin mining. Improving the performance of computers used to mine bitcoins will also reduce electricity consumption, and there is a possibility that the price increase of bitcoin will exceed the electricity cost. However, even in the future when the global average temperature rises more than 1.5 degrees Celsius and most cities on the seashore are locked, it is difficult for the mining of public blockchains, including Bitcoin, to continue.
It is difficult to affirm that bitcoin’s credit or value will disappear like a tulip bubble. The Bitcoin phenomenon should not be viewed only from the perspective of science and technology. It should be noted that Bitcoin has given credit to this alternative cryptocurrency by global individuals and businesses. Even if Bitcoin mining ceases, there is no possibility that the credit will be transferred to another alternative currency.
It is difficult for governments to accept cryptocurrencies that weaken fiscal and monetary policy. Quantitative easing during the global financial crisis is a case of privatization of profits and socialization of risks. Even in the financial crisis, Wall Street in the United States held a performance pay party. However, it is not expected that cryptocurrency will prevent privatization of profits and socialization of risks.
The digital platform business model tends to be monopolistic due to the multi-wing network effect (4). Moreover, due to digital technology, this monopoly goes beyond borders. In other words, economic polarization at the global level will proceed. Cryptocurrency could be the highway for this global economic polarization. Privatization of profits and socialization of risks cannot be solved with cryptocurrency, and there is a risk of exacerbation. In other words, there is not much justification for the continuation of cryptocurrency.
However, it is difficult to affirm that the credit or value of Bitcoin will disappear like a tulip bubble. The Bitcoin phenomenon should not be viewed only from the perspective of science and technology. It should be noted that Bitcoin has given credit to this alternative cryptocurrency by global individuals and businesses. Even if Bitcoin mining ceases, there is no possibility that the credit will be transferred to another alternative currency.
Competition between digital currency and cryptocurrency
Since China issued a central bank digital currency (hereinafter referred to as digital currency) with a value of 1:1 with the renminbi in late 2020, discussions on digital currency have been taking place in various places. Until now, digital currency in China was not based on blockchain technology. Digital currency does not have to be a cryptocurrency.
The background of China’s digital currency issuance is aimed at reducing the cost of issuing money and controlling China’s underground economy. I guess there will be an increase in the use of the renminbi in less developed countries such as Africa. While China’s control of the underground economy is desirable, it is also possible that it is part of China’s internal power struggle. When the use of digital currency is established, internal control within China will be further strengthened in the short and medium term.
Background of the expansion of the use of digital currency in underdeveloped countries is the risk of inflation and poor financial systems in underdeveloped countries. Digital currency in the US or China can be an appropriate financial technology for underdeveloped countries. Appropriate technology refers to technology that can be used in regions with insufficient technical infrastructure. Since the spread of wireless phones has progressed considerably in Africa, digital money can be used as a payment system.
The movement to improve the existing paradigm through digital currency and the movement to overthrow the existing paradigm through cryptocurrency will collide. The Currency War 2.0 is a sign of the emergence of a new paradigm. It is a form of digital transformation, and it can be seen as a’seed of change’ for a global political, economic, and social transformation.
In particular, the use of digital money will expand with the maturity of low-orbit satellite wireless Internet technology. Accordingly, it is expected that the US and China will intensify competition to increase their own digital currency influence. As the global order progresses, this competition will proceed in earnest, and the European Union’s digital euro and India’s digital rupee are likely to join the competition. As Korea’s monetary credit rating is rising, it is possible that Korea’s digital won will also take a step in its competition.
The movement to improve the existing paradigm through digital currency and the movement to overthrow the existing paradigm through cryptocurrency will collide. The Currency War 2.0 is a sign of the emergence of a new paradigm. The transition from an agricultural society to an industrial society is not just a change in the way of production or an expansion of the power that can be used by humans. It has brought fundamental changes to the social structure and values, including the education system, occupation and working methods, government system, economic system, and urban structure. Money War 2.0 is a form of digital transformation, and can be seen as the seed of change for Glocal political, economic, and social transformation.
A signal of the emergence of a glocal political, economic, and social system?
The unfolding pattern of the Monetary War 2.0 has not been determined. It seems that the final shape of the digital economy has not yet been determined (5). Recognizing that the cryptocurrency economy is one of the alternative futures of the digital economy, it is clear what the Currency War 2.0 will look like. The uncertainty of the future of Money War 2.0 means that there is room for our free will to influence these futures. For that possibility, it is necessary to approach the future scenario.
The future scenario of Money War 2.0 presupposes that the next-generation blockchain technology will be successful. Current blockchain technology is not sustainable due to the trend of global warming. Although the next-generation blockchain technology in terms of energy efficiency has not yet appeared, alternative technologies will emerge. And even if such technology is not developed, it is judged that it will only temporarily stop the progress of the Currency War 2.0. This is because alternative trust systems other than blockchain will emerge.
The Currency War 2.0 scenario followed the method of deriving the 2 by 2 scenario, and only 3 scenarios were presented. In the case of a new political, economic, and social system, it was predicted that global, national, corporate, and social groups should cooperate (6). These three future scenarios are not mutually exclusive, and may develop or coexist around the perspective.
For reference, future scenarios do not, and cannot, lead to all possible alternative futures. Because the future is open to possibilities. However, by presenting a representative alternative future in the scenario, it avoids future risks, establishes a future strategy, increases resilience, and induces social consensus.
In this scenario, the horizontal axis is the competition between the state, individuals and companies, and the vertical axis is whether the political, economic, and social systems will maintain the existing system or will be transformed into a new system. In the monetary war between the state, individuals and companies, a particular state may be a medium for the interests of minorities rather than the public interest.
As another example, a small number of individuals and companies may use blockchain to transfer wealth at a global level. Therefore, competition between the state and individuals and companies cannot be simplified into competition between good and evil or between the public and private interests. However, it should be noted that the combination of digital platform business model and blockchain can become a highway for the movement of wealth at a global level, and the future achieved through it can be terrifying.
The future scenario of Money War 2.0 presupposes that the next-generation blockchain technology will be successful. Current blockchain technology is not sustainable due to the global warming trend. Although the next-generation blockchain technology in terms of energy efficiency has not yet appeared, alternative technologies will emerge. Even if such technology is not developed, it will only temporarily halt the progress of the Currency War 2.0. This is because alternative trust systems other than blockchain will emerge.
The scenario where fiat currency and cryptocurrency coexist is achieved if the current trend continues. It is expected that legal currency and cryptocurrency will coexist in a situation where economic power is concentrated in global companies. In the case of underdeveloped countries, there is a possibility that they prefer cryptocurrencies and digital currencies such as the United States over their own legal currency.
Given the global fiscal deficit trend and the trend of economic polarization, the fiscal deficit will continue to increase. Global companies that do not have trust in their own fiat currency are likely to transfer their nationality to tax heaven and transfer assets to cryptocurrency. As a result, the nation will weaken and global companies will gain a greater voice.
The glocal cooperative sharing economy scenario is a scenario in which political, economic, and social systems are transformed. It is a system that responds to the climate crisis and coordinates global governance, state, business and civil society organizations. It is necessary to respond to the climate crisis and the global level of idle productivity. The desire for consumption will be respected, but moderation and self-control will be recognized as important values. The global cooperative sharing economy scenario is a society in which global governance, sovereignty and decentralization of each country, and other pan-national digital communities coexist. The future outlook seen by Professor Bae-geun Choi (7) of Konkuk University through the surge in bitcoin prices is expected to be similar to this scenario.
The Glocal Cooperative Sharing Economy scenario does not deny that it looks like a fantasy. However, it cannot be overemphasized that discussions on post capitalism are being conducted from various angles around the world. This scenario will someday be achieved, but it won’t be that fast. There is a possibility that it will be discussed in earnest in the second half of the 21st century (8).
The digital state capitalism scenario is a future achieved when cryptocurrency is strictly prohibited in the US and China, and digital currency is presented as an alternative. China is highly likely to aim for this future, and the US is also likely to accept some of the Chinese system.
Korean society, not a key currency country, should consider the future political, economic, and social system that fits the aroma and color of Korean society through a desire for the Currency War 2.0.
What is Blockchain
The dictionary definition of blockchain 9 is a distributed crypto ledger. The name of the blockchain was decided according to the shape of the ledger, that is, data blocks are connected like a chain. When it is connected by a chain, it means that one block is connected with a summary of the entire ledger information of the block immediately preceding it.
Decentralization means that the entire blockchain is not concentrated in one place, but distributed throughout the world. In the computer field, distribution often refers to splitting and distributing or processing the entire data.In the case of a blockchain, the same entire data coexists and distributes in several places.
Blockchains are distributed in several places, and certain blockchains do not have priority over other blockchains, which is why it can be called decentralization. However, since the organizations that hold the entire blockchain information are mainly blockchain mining companies, if these companies are concentrated in a specific country, there is a risk that decentralization is merely a declaration. Due to the nature of this variance, in principle, this data can be read from anywhere, and records can be requested from the ledger.
Encryption is because the summary of the entire block information that connects the block to the chain is implemented as a hash algorithm, one of the encryption algorithms. The characteristic of the hash algorithm is that a summary can be made from the original, but the original cannot be made from a summary.
If you want to change a specific block due to the cryptographic blockchain, you need to change all the block information after that. It also has to change the distributed blockchains virtually at the same time, which is not impossible, but requires huge costs. For this reason, forgery or alteration is virtually impossible. This enabled the blockchain to function as a global trust system.
Ledger is a database that records transactions. As a reward for discovering the blockchain, information on paying coins to electronic payments or transferring coins from electronic payments to other electronic wallets is recorded in this blockchain. Not only information such as payment and transfer of coins can be stored in the blockchain. Information to protect the copyright of photos can be stored, and medical data can also be stored.
However, this block is not large, so it is not reasonable to store all the data. For example, in the case of Bitcoin, one blockchain size is 2MB, which can store approximately 2 million characters in English, and theoretically, if 100 bytes are used to record one transaction, approximately 20,000 transactions can be recorded. . However, with 2MB, you can’t properly store a single picture taken on a recent smartphone. There are limitations according to this, and to overcome this, hybrid blockchain technology has emerged as an alternative.
The meaning of mining the blockchain means that you have to solve a simple arithmetic problem according to a certain computer algorithm to make one block. Simple arithmetic means that there is no circumvention or a simple solution, so pure calculations have to be made. In order to increase the time efficiency by performing this calculation in parallel, a video card having a structure of a parallel computer is used.
For simple calculations, the computer consumes a lot of electricity. Its electricity consumption is 130 TWh per year as of mid-March 2021 only for bitcoin mining. Blockchain is mined with expensive electricity fees, and coins are issued as a reward. When mining one blockchain based on bitcoin with a half-life, 12.5 coins will be paid by 2023. Bitcoin half-life is 4 years, and according to the half-life, the number of coins paid is reduced by half. For reference, another blockchain, Etherium, does not have a half-life.
The coin’s initial issuance and transaction are recorded on this blockchain. In other words, if the block is not mined, the blockchain will no longer exist. In the case of Bitcoin, even if the half-life ends completely, the real benefits of blockchain mining do not disappear. There can be a certain cost to record transactions on the blockchain, which can be an economic reward. However, since the economic reward is not large, competition for mining the blockchain will be lowered, which will reduce the amount of electricity consumed for mining.
What has been mentioned above is limited to the description of public blockchains. Blockchain has to use precious energy for its mining, and the proportion of fossil fuels in electricity production is absolutely high, so it becomes a spring that uses fossil fuels for blockchain mining. If the current trend continues, even by 2050, humanity cannot escape from fossil fuels. It is not practical to operate a public blockchain-based cryptocurrency using expensive fossil fuels.
Therefore, there is a demand for the development of an energy-efficient next-generation blockchain, but it has not been developed yet. Making blockchain mining use considerable electricity is also a factor that makes blockchain hacking and forgery impossible. Therefore, energy-efficient blockchains can be contradictory. If energy-efficient blockchain technology is developed, it means that the risk of forgery and alteration can increase that much. In other words, there is currently no next-generation blockchain as an energy-efficient trust system, and it is estimated that it will take a considerable amount of time to develop the next-generation blockchain in the future.
Ki-Young Yoon/Adjunct Professor of Futuristics, Faculty of Business Administration, Hankuk University of Foreign Studies
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1. Cambridge Bitcoin Electricity Consumption Index
2. Criddle, Cristina (2021.02.10). Bitcoin consumes’more electricity than Argentina’. BBC.
3. Hughes, Thomas (2021.02.01). This Is Why Bitcoin Will Hit $59,000 In 2021.Entrepreneur.
4. Lee Myung-ho (2021.02). Does it threaten platform monopoly, liberal democracy? Monthly SW Centered Society February 2021
5. Ki-Young Yoon (2021.02) Digital economy, where are you going? Monthly SW Centered Society February 2021
6. Hyeopchi is a translation of English Governance into Korean.
7. Choi Bae-geun (2021.03.03). What is Bitcoin, what is it? Is the modern monetary system sustainable? Youtube, Choi Bae-geun TV, Choi Bae-geun TV live episode 32.
8. Ye Hezkel Drawer Translated by Kiheon Kwon, Kiyoung Yoon, Kanghee Lee, Jinhyung Cho, and Daewoong Lee (2020) Memoir for Human Leaders: What will I do for human society? Youngsa Park
9. Kiyoung Yoon, Sukkyung Kim, Garam Park (2021) 『Digital Transformation and Business Modeling』 Youngsa Park, scheduled to be published in 2021
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