Virtual currency’s threat to the human environment has been hitting the headlines recently. The race to mine new Bitcoins, exacerbated by rules that make the process use more computer power as time goes on, threatens one day to consume as much power as the whole of Japan, according to Citi. Already, Bitcoin mines stacked high with customized machines whir away in Inner Mongolia, hinting at the crypto-currency’s “Mad Max” problem, as ING’s Teunis Brosens puts it.
But this is a problem only as long as people are desperate for new Bitcoin, and only as long as its rules remain fixed. The dramatic events over the past three days have shown us that neither is guaranteed. The tumble in value of the granddaddy of crypto-currencies, from about $7,300 to just more than $5,600, is testament to its biggest sustainability problem: An inability to evolve as a piece of code without tearing itself apart.
The root cause of the recent price drop is a long-running conflict over Bitcoin’s failure to fix its most obvious flaws.
Although Bitcoin was designed to be a functional payments network, it has failed to live up to those expectations. A boom in transaction activity, worsened by the crypto-currency’s speculative price bubble, has led to intense network congestion.
Each entry in the Bitcoin payments ledger—or, in crypto-parlance, each block in the blockchain—is capped in size, and transactions are slow to process. Transaction fees have blown past $10. Given the obstacles to spending Bitcoin like a currency, the incentive has been to hoard it like a commodity…