Tag: Bitcoin

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Crypto Has “Enormous Potential,” Enormous Environmental Impact

(Credit: Tennessee Valley Authority/Facebook)

Cryptocurrencies have a massive environmental impact and Memphis’ low-cost energy could make it attractive for crypto mining operations – possibly driving up energy costs here.  

Powering only the Bitcoin and Ethereum cryptocurrencies last year produced 78.8 million tons of carbon last year, the equivalent of tailpipe emissions from 15.1 million gas-powered cars, according to the U.S. Environmental Protection Agency (EPA). Environmental impacts like these from cryptocurrencies were the centerpiece of a Thursday hearing by the U.S. House Committee on Energy and Commerce.

Committee chairman Frank Pallone (D-New Jersey) said cryptocurrencies bring “enormous promise” and that the committee was not attempting to stifle innovation. Instead, the hearing was to put the environmental impacts out in the open.

“One estimate found that the energy required to process transactions on the Bitcoin network could power a home for more than 70 days,” Pallone said. “Last year, there were hundreds of thousands of transactions on this network. Just imagine the climate implications.”

Most of crypto’s environmental impact — energy consumption, carbon production, and electronic waste —  is from crypto mining operations, according to Digiconimist, a website dedicated to tracking unintended consequences of digital trends. Miners are constantly working (largely through trial and error) to prepare a new set of transactions for the blockchain, a shared database that stores information digitally. To find new and valuable transactions, crypto miners employ massive amounts of computer power.

How much power? If Bitcoin was a country, it would rank between Thailand and Vietnam for annual energy usage, according to Digiconomist; and Ethereum energy use matches that of the Netherlands, per the website. 

This need for power has some crypto investors looking to set up their mining operations in areas with low-cost energy to maximize profits. QuoteColo, a company that matches companies to an array of services like Bitcoin mining and miner hosting, said Memphis is a good place for a Bitcoin mining operation. For this, it cited the city’s low price of electricity. 

Last week, the Tennessee Valley Authority (TVA) claimed Tennessee energy costs are lower than 80 percent of other utilities across the country. Should crypto miners rush to Memphis for low-cost energy, that could increase demand and increase prices. A University of Berkeley Business School study estimated crypto mining operations in upstate New York increased electric bills for small businesses by $165 million and by $79 million for individuals.

Any other crypto-miners here in Memphis? from memphis

Four years ago in the Memphis subreddit, a user asked if others mined crypto here and the conversation went quickly to the cheap cost of electricity. One commenter noted that “university dorms are the best place for crypto mining. All the free electricity your rigs can guzzle down.” Another commenter said the energy prices in Memphis were so low, “it honestly doesn’t even matter where you run it from in this city.” 

The crypto mining conversation does not seem to have made any public appearances in Memphis as of yet. No major announcements here from TVA or Memphis Light, Gas and Water. Though, QuoteColo listed some crypto data centers in Memphis, but no information could be immediately found to verify any of them. 

However, the topic was top of mind in East Tennessee’s Claiborne County, also a TVA customer, this week. A company called ANKR wants to establish a “controversial” mining center there and the local power utility just signed a $9 million annual contract to supply it electricity. That move came after TVA approval. 

The local utility would supply the facility with nearly 20 megawatts of power per month, according to the newspaper, at a cost of about $750,000 each month. The operation is not expected to raise rates in Claiborne County.       

In Thursday’s House hearing, BitFury Group CEO Brian Brooks said a crypto mining operation should not be judged on how much energy it uses, but where that energy comes from. Digiconomist said most mining operations are in regions (like China) that rely on coal for power. 

Brooks said people must prioritize energy needs based on value. For example, if crypto mining produces more value than gold mining, crypto should be prioritized. Digiconimist data say gold mining takes less energy than Bitcoin mining and produced about $189 billion more value last year. 

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Up and Up? The Stock Market vs. Bitcoin

Is Bitcoin worth the investment? (Photo: Bermix Studio | Unsplash)

For many people, the stock market is a big casino. Stocks go up, stocks go down, and there’s no telling when it will happen or why. That’s true to an extent, but unlike truly random processes, there are many forces at work that reliably pull stock markets upwards over time.

Bitcoin is an example of a market that does not work like stocks. While some have suggested “fundamental” reasons that crypto assets rise and fall, at the end of the day they go up because more people want to buy them, and they go down when more people want to sell them. Given the nature of Bitcoin and other cryptocurrencies, the main reason people want to buy them is because they speculate others will want to buy more in the future and the price will go up. This leads to a speculative cycle of ups and downs that is exhausting.

Bitcoin as an investment is very similar to other “nonproductive” assets like gold, silver, oil, or art. While they might appreciate over time because people either need them or want them, they exist only to be consumed or owned.

Supply and demand influences stocks as well, but there is much more going on behind the scenes when you think about investing in a publicly traded company.

One way to think about a stock is that it is a black box. To get it started, you have to open up the box and put some money (capital) into it. Then, as long as everything goes well, money starts coming out of the black box — like an ATM — over time. You’re not just getting your money back. Over time, you can take out a large amount of money as profit and that initial capital can grow far beyond the amount you put in.

The income that flows out of the black box of a publicly traded company is special. It tends to increase over time as productivity, population, and GDP grows. It tends to rise as inflation increases. It benefits from technological advancements. If you diversify into a lot of these different black boxes, they can be a pretty reliable way to make money in the long run, even if sometimes the money slows down or even stops for short periods of time.

There might be a lot of demand for Bitcoin in 10 or 20 or even 100 years — or there might not. It’s almost impossible to know whether or not interest will continue or the next big thing will come along and make it obsolete.

We can say with much more confidence that there will be interest in 100 years in stocks. Tastes change, but people are likely to always be interested in black boxes that create money! Black boxes of Bitcoin or gold might have more money in them when you open them in the future, but they don’t produce any sort of earnings.

There are no guarantees in investing — it’s easy to lose money in the short term. But in the long term, stock prices are not a random squiggle of lines representing a meaningless random process (like Bitcoin). There is an almost gravitational force that has pulled stock prices upwards over our lifetimes, and it’s likely those same forces will continue to pull stock prices up into our retirement years and beyond. Bitcoin, gold, oil, or art might make a lot of money for you, but in our opinion, a diversified portfolio prominently featuring stocks is the most reliable path to a secure financial future.

Gene Gard is Chief Investment Officer at Telarray, a Memphis-based wealth management firm that helps families navigate investment, tax, estate, and retirement decisions. Ask him your question at
ggard@telarrayadvisors.com or sign up for the next free online seminar on the Events tab at telarrayadvisors.com.

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No Bad Dogs: Is Bitcoin a Worthy Investment?

CREDIT: Barbara Helgason | Dreamstime.com

In the 1980s, Barbara Woodhouse published a book called No Bad Dogs. Clearly, she’d never met my dog, though I know what she was trying to say. Her point was that inexperienced owners are the problem, not the dogs themselves. 

In the same way, short of clear frauds or Ponzi schemes, there are really no bad investments. Assets do what they’re going to do; whether or not we as owners have the experience and foresight to know if we’ll be happy with the eventual outcome is our problem. 

Sometimes obscure asset classes get a lot of press, and none get more these days than cryptocurrency. This column focuses on Bitcoin, as it’s the leader and has features copied by most other crypto.

Barbara Helgason | Dreamstime.com

A few things to know about Bitcoin:

It exists only digitally. All the stock photos of round coins with the Bitcoin logo are in circulation because journalists and others can’t think of anything better to use. 

Bitcoin miners — those who process transactions and create new bitcoin — are incentivized by being rewarded with more bitcoin. Just like mining gold is expensive, creating or earning bitcoin requires a lot of electricity, so it is scarce. 

Bitcoin uses advanced encryption technology so nobody can cheat. Transactions are final once logged; no chargebacks or help desks can reverse a clerical error. 

The number of bitcoin that will ever exist is limited and strictly controlled by the algorithm and cannot be manipulated using any known techniques. 

Bitcoin’s detractors point out that it is not backed or controlled by any government, so it is intrinsically completely worthless. Bitcoin’s supporters think this “statelessness” is a feature rather than a drawback, since modern currencies are easily manipulated or inflated and no currencies are backed by hard assets these days, anyway. 

Does Bitcoin belong in your financial plans? Here are a few things to consider:

Bitcoin is volatile — we would not be surprised if Bitcoin goes up 75 percent or down 75 percent this year from here. Plus 75 percent would be great, but the likely possibility of something going down that much is just not the kind of risk we like to take.

Right now, the wave of positive returns for Bitcoin is due to increasing adoption and custody opportunities. If that were to suddenly change, particularly through the possibility of increased regulation, these impressive gains could quickly turn into devastating losses. 

For the long term, there are few better places for your money than in stocks. The power to own shares in companies that grow earnings over years has always been the simplest path to long-term wealth accumulation, and we think that will continue to be true.

Consider: A dollar invested in the Dow Jones Industrial Average at the depths of the Great Depression is worth over $600 today. Bitcoin, gold, art, or most other alternative investments just don’t have the decade-in, decade-out promise that good old stocks enjoy.

Since 1978, for example, gold has gone up tenfold and silver is up about five times since then. What a deal, right? Well, yes, but the real story is that the Dow has quietly gone up from 794 to over 30,000 during this period, almost a 40-fold return. 

Only time will tell if long-term holders of Bitcoin will look brilliant or absurd 43 years from now, in 2064. I for one believe a diversified equity portfolio will outperform Bitcoin. And I am certain that a diversified equity portfolio has a significantly lower chance of becoming worthless someday.

Of course, I thought my dog would be much more obedient by now, too.

Gene Gard is Co-Chief Investment Officer at Telarray, a Memphis-based wealth management firm.

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PayPal Brings Crypto to the Masses

Photo by Bitcoin BCH

Last month, PayPal announced that its users would be able to buy, sell, and hold four prominent cryptocurrencies – Bitcoin, Ethereum, Bitcoin Cash, and Litecoin – via Paypal.com. Through its website, users will be able to buy and manage their cryptocurrency in one place.

Globally cryptocurrency has quickly been growing in popularity as an alternative form of currency since its inception in 2009. Cryptocurrency, as the name implies, is a digital form of currency that is meant to take the place of, and function as, a real form of currency. Unlike traditional forms of currency, nothing physical exchanges hands, and its value is not backed by a bank in the same way most modern currencies are. Instead, users hold their “currency” in digital wallets and make all their transactions digitally, with the vast majority of cryptocurrency being backed by their communities.

The “currency” in cryptocurrency, usually referred to as tokens, is a unique string of numbers and letters that is tied to the specific cryptocurrency being used. While in a traditional transaction users would exchange money, cryptocurrency users exchange tokens. When users trade tokens, the transaction is sent to a continuously growing list of transactions called a blockchain. The transactions added to the blockchain are then verified by users through a process called mining. Users’ work for mining does not go unrewarded and the “miners” are rewarded in tokens for each successful transaction that they verify.

Buying is as simple as a few button clicks.

Due to the various steps and knowledge needed to jump into the cryptocurrency world crypto had long been pursued by few. As the popularity of cryptocurrency began to grow in early 2018 websites began popping up advertising easy ways to buy and sell crypto but PayPal is one of the largest and most recognizable names to join the cryptocurrency wave.

I tested out PayPal’s new crypto service, throwing in $10 for the opportunity to play around with buying and selling. For someone that has never bought cryptocurrency, the entire process was quick and easy. Within minutes I was the proud owner of $10 worth of Bitcoin and Ethereum.

The Crypto screen gives an accurate representation of the market trends for PayPal crypto partners.

After setting up my account, I was presented with a screen showing my present balance, as well as guides explaining the ins and outs of crypto. For someone less familiar with the technical aspects, the guides were helpful and gave me a better understanding of where my $10 had gone. They also assured me that the prices would rise and fall naturally depending on the current exchange rate of my specific currency.

The move to PayPal has made breaking into the cryptocurrency sphere a reality for the average person. It’s cool and an easy process, and PayPal recommends investing just a dollar to play around with it before making more rash decisions. Though it may not be the most feasible way to diversify your assets, PayPal’s expansion into the crypto market is a great way for the average person to jump into the world of cryptocurrency.