While private digital currencies such as the bitcoin are in the news daily, countries including China and Sweden are studying the creation a new form of money – a central-bank digital currency (CBDC). The objective is to complement (or eliminate altogether) banknotes and coins. But CBDCs risk revolutionising both the way money is created and distributed and the present two-tier financial system of central and commercial banks.
Why are central banks considering the introduction of CBDCs?
Cost considerations play a role: banknotes and coins are costly to produce, distribute, handle, and replace. Currently handling costs related to cash are cross-subsidised by commercial banks’ revenues.
Banknotes allow anonymous transactions: a reduced use or elimination of banknotes would help fight illegal activities. For example, in an attempt to combat fraud and corruption back in November 2016, the Indian government launched a demonetization policy, withdrawing 86% of its currency overnight.
In Sweden, cash payments in the retail sector fell from close to 40% in 2010 to about 15% in 2016. Two-thirds of the country’s consumers now say that they can manage without cash, and more than half of all the country’s bank branches no longer conduct over-the-counter cash transactions.
Stefan Ingves, governor of Sweden’s central Riksbank, supports the creation of the “e-krona”, but stated that it’s “reasonable” for banks to continue handling money. “A ban on cash goes against the public perception of what money is and what banks do.” He also noted that for preparedness reasons, “we need notes and coins that work without electricity.”
The growing popularity of private digital currencies and the distributed-ledger payment technologies they use also have central banks on alert. They can ill afford to be left behind on the currency or the technology. The problem, Ingves recently said, was that all payments could end up being controlled by private-sector banks.
Can cash be eliminated?
The elimination of cash is currently not feasible. Not everyone has (or can have) a bank account, a credit/debit card, or access to electronic payment systems via a smart phone or computers. People cannot be forced to have or use these tools. Access to a debit/credit card might be denied to persons not deemed creditworthy. In addition, an economy entirely based on electronic payments is subject to disruption, including cyberattacks.
But there are also important conceptual issues. Banknotes issued by central banks form our base money; they are our unit of measure of value. The United States abandoned the gold standard in 1971 and today countries no longer back their currency with a more primitive form of money such as gold (an exception is Venezuela, which recently launched the “petro”, a cryptocurrency backed by the country’s oil reserves); today’s base money is fiat money whose value is maintained by trust.
Nevertheless, the largest share of the monetary mass is not in banknotes but in bank deposits. Banknotes contribute from 5% to 10% of the monetary mass depending on the country; the remaining 90-95% is formed by bank deposits. Though a bank deposit is simply a number in a computer, it is a debt redeemable on demand in banknotes, with the central banks standing ready to supply the requisite banknotes should a commercial bank not have sufficient cash on hand.
Were there no banknotes as base money, deposits would not be the debt of commercial banks with their clients but simply numbers that represent purchasing power. These numbers would appear conventionally as liabilities on the balance sheets of banks whose only obligation would be to transfer, upon request, a given sum to another entity. “Money,” that is purchasing power, might thus be in the hands of private-sector banks. Public trust in the generation and distribution of money might be shaken.
CBDCs could change the creation and distribution of money
Central banks are studying ways to eliminate banknotes while retaining their role as providers of base money. Our current banking system is two-tiered with central banks and commercial banks performing distinctly different roles. Central banks guarantee the safety and integrity of money, ensure that the monetary mass allows for economic growth, and produce the cash required by economic activity. But central banks do not deal directly with non-bank entities; commercial banks store the public’s money in accounts and transfer that money on the demand of the account’s holder.
In the current two-tier banking system, money is generated in two ways. First, money is created by commercial banks when they simultaneously extend a loan and credit an account of the same sum. Second, following the 2007-08 financial crisis, central banks have been creating money with quantitative easing (QE); since QE began, the US Federal Reserve Bank has bought over $4.2 trillion in assets. Banknotes do not enter directly in this money creation process, but they do provide the accounting underpinnings. Central banks no longer target the total quantity of money directly but target instead interest rates.
Presently, individuals and non-bank entities cannot obtain banknotes directly from the central bank but must go through commercial banks. Should central banks create CBDCs as base money there is the possibility that they allow non-bank entities or individuals to hold CBDC accounts directly with the central banks. The possibility of doing so comes from technological advances that permit distributed ledgers, a technology that allows safe peer-to-peer transfer of money without going through today’s clearing systems. Distributed ledger is used, for example, to confirm transactions in private cryptocurrencies such as bitcoin and Ethereum.
The process could go further. Should the central banks allow private non-bank entities or individuals to hold CBDC accounts directly, central banks might extend credit in their digital currency. This could have important consequences for the two-tier banking system.
Approval of the RTS,S/AS01 vaccine, which goes by the name Mosquirix, provides a “glimmer of hope” for Africa, according to Dr. Matshidiso Moeti, WHO regional director for Africa. It will now be rolled out to protect children against one of the world’s oldest and most deadly diseases.
The WHO has recommended the use of the RTS,S malaria vaccine, which is produced by GlaxoSmithKline. It is the first malaria vaccine to be recommended by the global health body.
It follows a review of two years of piloting studies of the vaccine in three sub-Saharan African countries with a high burden of malaria: Malawi, Kenya and Ghana.
After careful evaluation and extensive discussion, the WHO came to the consensus that the vaccine should be recommended for use in children living in areas of moderate to high malaria burden.
Why is this seen as a major development?
Malaria kills hundred of thousands of children, mostly in sub-Saharan Africa, every year. This is the first time that researchers, vaccine manufacturers, policymakers and advocates have successfully delivered a vaccine that has made it through clinical trials and received not only regulatory approval but also a recommendation from the WHO.
This vaccine prevents about 30% of severe malaria cases that are more likely to lead to death.
Although researchers knew that RTS,S was effective in well-controlled clinical trials, a few questions remained about whether it was feasible for sub-Saharan African countries to safely roll out the four-dose vaccine in a real-world setting. But since 2019, the malaria vaccine implementation program in Malawi, Kenya and Ghana has shown excellent vaccine uptake and a good safety profile. To date, the vaccine has been administered to around 800,000 children in those three countries.
How big a killer is malaria?
Malaria, a parasitic disease transmitted by bites from infected mosquitoes, causes nearly half a million deaths per year, mostly in children in sub-Saharan Africa.
It is a disease that preys on the poorest of the poor. It causes the most disease and death in places where people lack access to basic health care, where housing conditions allow mosquitoes to enter and where inadequate water management provides breeding ground for mosquitoes. Despite international efforts to control it, the burden of malaria has continued and even increased over the past several years.
How effective will the vaccine be compared to other treatments?
We learned through the report of the trials to the WHO that the vaccine will be able to reach all children in areas of moderate to high risk of malaria. This will save lives from the deadly infection, especially among children with limited access to health services.
Prevention is almost always more cost-effective than treating disease, especially with an infection as common as malaria. Drugs are sometimes used to prevent malaria, but they have to be given frequently, which is both expensive and inconvenient.
In addition, the more often a drug is used, the more likely the malaria parasites will develop resistance to the drug.
Why did it take so long to develop a vaccine?
Lack of political will to develop a malaria vaccine certainly played a role in why it took so long. With no real market for a malaria vaccine in resource-rich countries like the U.S., pharmaceutical companies did not have a strong financial incentive to accelerate vaccine development.
But the malaria parasite is also very complex, and the targets of the immune system are diverse, so developing an effective vaccine wasn’t easy.
A vaccine developed against one malaria strain grown in the laboratory generally does not work against many of the malaria parasites that children encounter when bitten by infected mosquitoes, which is why even though RTS,S is a good vaccine, it protects against only 30% of infections.
If you think about this in terms of the COVID-19 vaccine, researchers developed a vaccine against the strain of the disease that was circulating in early 2020. But now we see that the vaccine does not protect people quite as well against the new delta variant. Someday a variant may emerge that completely escapes the vaccine immune response.
For malaria, there are many variants of many different proteins, so finding a vaccine that covers all of these was a huge challenge.
If you haven’t already heard of Bitcoin, you either haven’t been paying attention or you’re a time traveller who just touched down in 2018. Because by now, most of us will have heard of Bitcoin and some of us have even jumped on the bandwagon, investing in cryptocurrencies.
But despite its popularity, many people still don’t understand the technology that underlines it: blockchain. In very simple terms, blockchain technology is an open access shared ledger that keeps a record of all the transactions between parties and allows all users to agree on its contents. New information is added in blocks linked to the previous blocks, resulting in a chain of blocks being built.
This ledger is verified by “miners” to make sure it’s true – and so creating an audit trail. Past records can be viewed but not altered without the consent of the majority. And it is this technology that is behind cryptocurrencies such as Bitcoin – the value of which rose almost 1400% in the past year, but has at times, also fallen massively too.
Crypto is here to stay
It can certainly be anticipated that this evolutionary technology is set to spark a huge revolution in the business world. It’s already being trialled at governmental level, from the Sweden Land Registry, to the Big Four accountancy firm such as E&Y – who accept Bitcoin as payment for its consultancy services.
The Australian Securities Exchange is also considering the use of blockchain technology to replace the current clearing and settlement system of share trading. And even the Bank of England is planning its own Bitcoin-style virtual currency.
Major governments around the world have acknowledged and further legitimised the use of Bitcoins as payment vehicles. In fact, more and more major companies are accepting Bitcoins – Microsoft, Virgin Galactic and Subway to name a few. It seems certain then that blockchain technology has a wide appeal. And although it may be a rocky road ahead, with countries such as India and China banning or restricting the use of cryptocurrencies, crypto is here to stay.
Wider implications
A recent report from the Institute of Chartered Accountants in England and Wales on blockchain, claims it is fundamentally an accounting technology. In its simplest of definitions, accounting is a process of keeping records, and this is precisely what blockchain offers in a more “modern” and “foolproof” way. As once the records are agreed upon and validated, the records are bundled into blocks that are virtually impossible to change, making the technology tamper-proof.
Blockchain technology is commonly associated with Bitcoin and other cryptocurrencies. Shutterstock
Essentially, as the business world adopts the use of accounting systems that use blockchain technology, accountants will spend less time doing the mundane tasks of bookkeeping and reconciliations, and will instead focus their energy and time on the interpretation of information and decision making.
Blockchain technology will also make it easier for accountants to measure the accuracy of data. Meaning that the technology should effectively cut down on fraud and make accounting errors disappear.
The new accountants
A report by the World Economic Forum suggests that 10% of global GDP will be stored on blockchain-related technology by 2025. This implies that the way transactions are recorded and communicated will completely transform between now and then.
It it easy to see then, why accountants of the future will need to educate themselves about Bitcoin and other cryptocurrencies if they are to account for transactions denominated in it. The profession will evolve and adapt massively over the coming years. And in fact, auditors have already started auditing transactions in the blockchain.
The Bank of England is planning a bitcoin-style virtual currency – but could it really replace cash? Shutterstock
Universities around the world have already begun offering blockchain-related courses. Even the professional accountancy bodies now feature blockchain technology in their qualification syllabus.
But of course while all this might sound a bit futuristic to some readers, the evolution of money is something that has been going on for centuries. From a barter system to gold bars, metal coins to paper money, to plastic cards. All we are looking at now, is simply the next cycle in evolution – from electronic money to cryptocurrencies.
Venezuela is suffering one of the worst economic crises of modern times. President Nicolás Maduro’s beleaguered government is overseeing scarcities of food and medicine, soaring crime rates and the collapse of public services and the health system.
But when it launched a new cryptocurrency, the Petro, in an Initial Coin Offering (or ICO) the virtually bankrupt country says it raised US$735m on the first day of the pre-sale.
Any rational investor would probably steer well clear of the 100m Petro made available. The ICO is obviously a way to raise money by getting around thesanctions against Venezuela, which prevent it from issuing bonds or securities in the regular financial system. It is in desperate need of US dollars, with inflation running into quadruple digits – which has made the Venezuelan bolívar worthless. Meanwhile, the production of oil, on which the country’s economy relies, has plummeted in the past year.
An interesting experiment
That said, the Petro certainly represents a very interesting experiment. It is the biggest ICO ever proposed and, if it hits its cap of around US$5 billion – which is highly debatable – that will represent about 5% of the total number of Ethereum cryptocurrency currently circulating and will equal more than a half of the entire revenues generated by ICOs up to 2017.
For Venezuela this is a smart option. Rather than restructuring the whole economy and linking a new currency to the US dollar, launching a cryptocurrency is much easier in an effort to fund the government and keep it functioning. If anything, because the Petro does not lead to any interference in the domestic political economy by third-party bailing-out institutions such as the IMF.
Venezuela’s oil production is down. shutterstock.com
It is fair to assume that the millions of US dollars being spent on the Petro are not coming from the US and Europe, as Venezuela is under strict financial sanctions and so trading in the Petro could land you in trouble. So it is probably coming from Asia and Middle East – and could be anybody from drug dealers to individual retail investors fancying a punt.
Having read the ICO documents it is unclear what the Venezuelan government plans to do with the money. More than half has been earmarked for a sovereign fund – which is yet to be created – and its exact purpose again looks quite blurry.
It is also very unclear as to the pricing of the Petro, which the document says will be linked to the price of a barrel of oil (currently about US$60) and given a “discount factor”, without defining how that is effectively calculated. In that respect, although anchored to the price of oil, the price of the Petro will be virtually controlled by the government. This could certainly be used to its advantage.
Not really a cryptocurrency
Ironically, Petro’s connection to the government goes against the whole idea of cryptocurrencies. They were originally designed to be decentralised and free from any government or central bank control.
In this sense the Petro is not really a cryptocurrency – it is a digital security or token, backed by oil reserves. You are not buying anything that can be freely mined and traded on open cryptocurrency exchanges. The mining is controlled by the government and, as explicitly mentioned in the ICO documents, it will decide what exchanges can trade the Petro. It is therefore simply a digital form of debt from a country with no financial credibility and that is badly mismanaging its economy.
This is the last resort of a country with practically nowhere else to go. Any credible democracy can raise money in the usual ways through bonds and securities, so I can only see other countries in similar problems doing this. I wouldn’t be surprised if countries like Russia are next in line to take advantage of the hype surrounding cryptocurrencies as they are suffering under sanctions as well and have lots of oil.
The Petro may be easy to buy in the pre-sale, where typically most, if not all, of the coins are sold in an ICO. Then the ICO carries on for an indefinite period until the Venezuelan government has sold the 100m Petros it is aiming for. That could take many weeks, if not months – and only then will investors be able to trade the Petro.
Once trading starts, it’s hard to see the price volatility that we have seen in other cryptocurrencies, because the price is essentially controlled by the government. It is not linked to supply and demand. So anyone thinking of buying Petro should think: it might be easy to buy now, but will you be able to trade it after the ICO?
So despite representing a milestone in the growth of the cryptocurrency market, the Petro should be seen as a last-ditch attempt of a defaulting and desperate government to make a quick buck. It’s something that should probably raise concerns among anyone thinking of investing in it.
The enormous use of energy needed to mine bitcoin and other cryptocurrencies is proving to be very contentious, but alternative methods pose far too much of a security risk.
The recent warning that electricity use at bitcoin mining facilities in Iceland may exceed that consumed annually by the country’s homes, which could in turn lead to a potential energy shortage, was slightly alarmist in tone. But it showcases the huge amount of computational power needed to mine cryptocurrencies.
Is the current cryptocurrency mining process really as wasteful and “useless” as critics say, and is it in need of a more efficient and cleaner system?
The current mining process is indeed resource-intensive and wasteful, but there is no magic fix in sight. Many would argue that it’s precisely the “useless” nature of cryptocurrency mining that keeps the system secure.
Bam! PoW! Zap!
Cryptocurrencies are based on a globally distributed ledger shared among all participants in a decentralised network. This ledger is generally organised in the form of a cumbersome data structure – the blockchain – which consists of blocks of transactions that are cryptographically linked to each other. Most cryptocurrencies use a particular mechanism, dubbed proof-of-work (PoW), to determine which participant gets the right to add a new block of transactions to the blockchain.
To prevent dishonest participants from creating multiple identities to manipulate the public vote, PoW requires participants – called miners – to use special software to solve an extremely difficult cryptographic puzzle. In simple terms, solving the puzzle involves guessing a random number between zero and an infinitely large number.
It demands a lot of computational power because, as more machines are used, a miner can quickly try different combinations and increase the odds of solving the puzzle. But cryptocurrency mining comes at a cost in the form of custom hardware and electricity consumption.
Bitcoin miners alone produce tens of quintillion guesses – known under cryptographic terminology as “hashes” – per second. This gargantuan number has risen in tandem with the amount of energy that has been consumed. The main point of contention is that performing these computations doesn’t serve any useful or productive purpose outside of cryptocurrency mining itself.
But attempts to address the seemingly wasted computing power generated by bitcoin mining have largely fallen flat.
Projects over the past few years include Primecoin, a cryptocurrency launched in 2013 that incentivises miners to find a particular sequence of prime numbers. The same year, Gridcoin was launched to reward people for contributing to scientific research projects by requiring miners to perform scientific computations on BOINC, the Berkeley open infrastructure for network computing.
A rig using graphic cards to mine for cryptocurrency. Shutterstock
SolarCoin was established in early 2014 to incentivise the generation of solar electricity, and the following year students created MangoCoinz as part of a computer science project that aims to reward miners for performing actual physical work.
But, after initial excitement, all these projects had limited success and are only marginally used today.
More recently, the concept of “virtual mining” has also emerged to address the high energy consumption of cryptocurrency mining by removing the need for performing computations altogether. This works by tying a miner’s vote proportionally to their cryptocurrency holdings – an approach that became known as proof-of-stake (PoS).
But it’s unclear, according to previous research, whether pure PoS systems can achieve the same high security standards as PoW and there have been incidents to accentuate such doubts. In 2014, it was reported that stolen cryptocoins could be used to attack PoS-based networks. A hack at an exchange controlling 30% of the monetary supply of the cryptocurrency VeriCoin, prompted the project’s developers to implement an emergency measure – rewriting parts of the transaction history – to prevent the hacker from using the stolen coins to attack the blockchain network.
So – for now – PoW remains the best available mechanism to maintain and secure decentralised cryptocurrency systems. Many believe that mining, while energy-sapping, should remain resource-intensive to make it prohibitively expensive for any single entity to gain sustained control over the decentralised system.
Given how quickly computing technology develops, perhaps an alternative method will be found. Until then, we appear stuck – for better or worse – with a drain on computational systems and energy resources to power bitcoin and other cryptocurrency networks securely.
Governments are extremely worried about cryptocurrencies such as bitcoin. These virtual currencies mean you can make payments without involving the banks that most economies and government financial models are built on. People can transfer large amounts of money without the authorities knowing, potentially making it easier to evade tax or launder money.
So several countries’ central banks, including the Bank of England and the Bank of Israel, are reportedly planning to launch their own digital currencies. This could help lure people back into using an official system that combines some of the benefits of both traditional and crypto- currencies. But the risks involved may be too great for many typical cash users to bear.
One of the major drawbacks of existing cryptocurrencies is that their value tends to swing widely and it is often difficult to pinpoint how much they are really worth. National cryptocurrencies would be tied to the value of the country’s official currency, making them less volatile and easier to actually use as a way of spending.
National cryptocurrencies would also make payments much faster because transactions would be recorded instantly and wouldn’t have to be cleared by a bank (although some implementations require around eight minutes to be verified). The existing systems for electronic payments and transfers can often involve several banks and companies sending each other data and running security checks that add time and expense to transactions. Cryptocurrencies are able to bypass this clearing process altogether because they don’t actually involve transfers from one entity to another.
Instead they use a technology known as a blockchain, which keeps a public but encrypted record of all transactions. Basically, as illustrated in the figure below, the payer (in this case, Bob) signs a transaction to agree to pay someone (Alice) a given amount. The transaction is then validated using Bob’s personal encryption code known as his “private key”. If the transaction is valid, it is added onto the blockchain, recording how much money Alice and Bob now have.
Outline of traditional transactions and blockchain based ones. Author supplied
Because all transactions would be recorded in this way, the government would have much greater oversight of who is paying whom and how much, helping to crack down on financial crime. Unfortunately, because transactions on blockchain ledger are typically kept as a public record, it might also be possible for other people to access this information and see how much you or anyone else is spending and what you’re buying.
Your money might also be at greater risk if it’s stored as a cryptocurrency. Currently banks guard your wealth and will always release it if you can prove your identity, while credit card companies insure you against fraud. If your bank account is hacked, there is a good chance you will get your money back. But cryptocurrencies store money in independent digital wallets that can be lost or broken into. If that happens there is no one who can help you.
Currency needs trust
For a typical shopper, there would be little difference between using a national cryptocurrency and something like Apple Pay, which makes payments at the click of a trusted application on a mobile device. I love using Apple Pay on my iPhone to purchase my coffee in the morning, as well as my bus tickets and even my parking. I now have little use of cash and only carry around my credit cards in a wallet as a backup in case my battery fails.
Having found out over Christmas that most supermarkets now do not have a limit on Apple Pay, I see it as one of the most trusted methods of payment, especially as I trust the fingerprint scanner on my phone. I also know that my bank is involved in the transaction. So I believe the days of paper money – and even carrying around cards – are rapidly fading. Our mobile phone and our trust in our apps provide us with more trusted ways of making transactions.
But Apple Pay is still backed up by trusted financial institutions. The step to cryptocurrency may be one step too far for most people. Few people would actually understand the risks of storing the cryptocurrency in a digital wallet and could leave themselves open to losing all their money.
I believe that most countries will deal with cryptocurrencies by regulating them and monitoring their use rather than co-opting them. But it will be interesting to see whether regulation or competition will win in the battle of crytocurrencies. While the encryption of crytocurrencies can create strong digital trust in the technology, human trust in the transactions themselves will likely be the key factor that determines whether citizens adopt government-backed cryptocurrencies.
To most of the Internet, Mr. Money Mustache is known as the quirky early retirement financial guy, and this is a blog about Money.
But really, I’m not a finance guy – someone who devotes most of his time to optimizing money. I’m more of a general Life Engineer – someone who tries to optimize everything that is fun and interesting in life, and money is just one of those things.
Optimizing means getting the most good out of something – whether it is money, time, health or happiness, while minimizing waste. This is what allows us to make win/win decisions (for example things that make you richer and healthier and happier), rather than win/lose compromises (giving up something you actually like, just to save or earn more money)
One of these win/win things for me has always been optimizing my own houses and buildings to be more comfortable and stylish, while costing less to own and maintain and heat and cool. After all, out of all possible decisions, your choice of home may have the biggest effect on both your financial and emotional wellbeing. Get a reasonable house that is close to your friends and your work, and you’re off to a great start.
So anyway, this past summer all my favorite factors of optimizing, learning, effort, saving shit-tons of money and reducing loads of waste and pollution came together in the form of a DIY Heat Pump Installation on our commercial building downtown, the home of MMM HQ Coworking.
Why Are Heat Pumps Super Exciting?
Heat pumps are a technology that has recently jumped into prime time and are about to change everything about houses, just as the iPhone did to the tech industry about twelve years ago and just like electric cars are doing to transportation right now. The reason is that they have these fundamental advantages:
Heat pumps do the double-duty of heating and cooling any building way better than our existing systems do, but with only one machine.
They are super easy to install, and way cheaper to run. They also allow houses and buildings to be constructed more cheaply (less materials and labor).
They eliminate a big part of the world’s pollution that is caused by burning oil or gas for heat (as long as you get your electricity from clean sources).
And yes, nowadays they work in virtually all climates (down to -20F / -29C): tech improvements have shattered the old limitation where they only worked in places without a real winter.
How Does a Heat Pump Magically Suck Heat Out of Cold Air?
Heat pumps save money and energy because they aren’t generating heat directly like an old electric baseboard heater. They are mostly just moving heat around – from inside to outside in the summer, and from outside to inside in winter.
To many people, that second situation sounds like magic, but that’s just because of our skewed perception as human beings – a creature that evolved in the warm tropics of the planet Earth. Really, there is plenty of heat even in winter air – if you view it from the Eyes of Physics:
Every spot on our life-nourishing Earth has loads of heat energy (Kelvins), which means it’s easy to harvest some of it.
So, a modern heat pump can easily suck loads of heat even out of air that feels cold to your skin. It does it like this:
Summer vs. Winter modes of a heat pump. The key to everything – fridges, A/Cs and heat pumps – is that the refrigerant gas gives off heat (gets hot) when you compress it, and absorbs heat (gets cold) when you expand it.
You know what else does this exact same trick? Your own FREEZER! Those things typically maintain an inside temperature of about -10F, which means that somehow it is sucking heat out of the air even at sub-zero temperatures, pumping it out to the coils underneath with a fan blowing past them. And if you put your hand there to feel that airflow, what do you feel? Warmth!
Show Me The Money
Here’s our gas bill history – Yuck! Most significant is the fact that the monthly fee-for-nothing ALONE had risen to $40. $480 per year before you even get any heat out of it!
Before we get into the real details, check out the quick numbers for the heat pump I just installed. Note that I live in Colorado, which has lots of heat and a moderate amount of cold – right about what you’d expect from our position halfway between Maine and California.
Cost of the system including all install materials: About $4500
My building’s previous annual gas bill: $951
Our new annual electric bill for heating and cooling (estimated): $275
Annual savings: $676
Annual return on investment (ROI) rate: 15%
Even better: That $275 annual figure for our electricity consumption is what we would have paid, if we had to buy all our electricity off the grid at 10 cents per kWh. But since we generate a surplus of power from our DIY solar array, our net cost is much less than that.
You could even say that all of our heating and cooling is “free” on an ongoing basis, although we did spend $5000 to build the 5.5 kW solar setup in the first place.
So Is A Heat Pump Really a Do-It-Yourself Project?
Our installation team celebrates at the end of a successful project. To be fair, Mr. 1500 and I are both pretty experienced tradesmen, but this felt like a relatively easy project to us.
In a word: Yes, if you are a fairly competent do-it-yourselfer, and you choose a DIY-friendly heat pump kit. It is considerably easier than installing a gas furnace or a metal roof, but not as easy as putting together IKEA furniture.
Our first install took about 16 person-hours of work for the main job (two people working a full day). Plus I spent about another sixteen dusty hours upgrading the duct work and building custom metal shapes to route the air because our coworking building was so old that the original asbestos-and-mouse-shit ducts were just not worth keeping.
Hmm.. Okay yeah I think I’ll go ahead and replace these ducts.
The value of doing it yourself is that furnace work is one of the biggest returns on your time as a homeowner. Where I live, even a gas furnace + air conditioner replacement can cost $10,000. And although a heat pump hardware only costs about the same amount as conventional furnace+AC ($4000), the companies like to charge more for the newer stuff (or even worse, try to convince you that you’re stupid for even asking about it!).
In other words, even conservatively speaking, for a basic installation you are saving about $6000 in exchange for doing that 16 hours of work, which amounts to a solid $375 per hour.
But Wait! Don’t forget about Rebates!
Even if you’re not a tinkerer, there are some good programs out there that will help subsidize the cost of an upgrade like this. The US EPA offers federal tax credits for lots of things including heat pumps, and local agencies have their own programs – for example neighboring Fort Collins will chip in $2200 towards a unit like ours, which could cover most of the cost of a professional installation!
So if you are ready to upgrade to a heat pump, you either need an honest HVAC company who will install a reasonably-priced machine for you and charge you a reasonable hourly rate. Or, you need to flex your Money Mustache Muscles on the project and do it yourself.
Of course, I chose the latter approach as always, so let’s get into the details of or install!
Step One: Pick a Heat Pump
There are two things you’re looking for here: physical size and heat output.
The size and shape of indoor portion (the air handler) of the new system have to be similar to your old furnace, or you need to have a plan for how to adapt the new one to blow into your old pipes. As you’ll see below, I chose to do the adapting.
As for the heat output, old furnace was a “100,000 BTU” unit, which is a measure of the amount of natural gas it can suck in and burn each hour. Since it was only about 75% efficient, the heat output was about 75,000 BTU (the real units here are the archaic “British Thermal Units Per Hour”, but all you really need to know is that this is still more than enough to keep our leaky, sprawling 2400 square foot brick building warm easily through even the coldest winters.)
In the most extreme situation (for us this would be a 24-hour period where the temperature is barely above 0F, and it typically does happen at least once every few years), I measured that our old furnace was running for about 8 hours per day, which means our average heat loss was about 25,000 BTU on a continuous basis (75k multiplied by ⅓ of the total hours in a day)
On the cooling side, we had virtually no air conditioning. Just a few crappy portable units scattered throughout the building, with a total combined cooling power of about 20,000 BTU. This wasn’t quite enough to beat the heat in the event of a fully occupied building on a 100F day.
The solution for me was thus pretty simple: the biggest Mr. Cool “Universal” combined heat/cool system, which I started conveniently seeing Google ads for everywhere once I started my research. This beauty is good for about 60,000 BTU of both heating and cooling, which could also be expressed in the even more archaic form of “5 tons” So I bought the circled option above. In my case, I placed the order through Home Depot website, with the free “ship to store” option, but you could also try your local Lowe’s, Alpine Home Air is good, and Ingrams now sells this unit (including the required 25 ft lineset) through Amazon.
Step Two: Remove your old furnace
This part was pretty easy – except carrying this old block of iron out of the basement.
Safety tip: Make sure you turn off both the gas and electric supply to your furnace before messing with it, as well as opening some windows and running a fan to clear out any remnants of gas as you disconnect pipes.
But once you have it safely disabled, it is as simple as carefully un-wrenching, unscrewing, and cutting away parts of the old furnace (while carefully preserving your existing ductwork) until you have the old one fully removed. You can sell or give it away on Craigslist, or drop off for free at a metal recycling facility.
Farewell old furnace, may your steel find a fun new life somewhere else.
Step Two: adapt the ductwork as needed
Top Left: an output air adapter box I made to channel the air out to the right places. Right: A prefab filter/input box I bought off of my neighbor (who is also a builder). Bottom: You can see where the two things fit into place along with the horizontally installed heat pump air handler.
If you’re lucky (the old furnace and new heat pump are almost the same size), this step will be easy. You just connect the return ductwork to the bottom of the machine, and the supply ducts to the top. However, I was not lucky.
Because our basement ceiling is so low, I had to install the heat pump horizontally (it is designed to allow this), and then build some adapters to allow the air to flow the way I needed. On top of that, most of our ducts were falling apart and poorly shaped and useless – so I repaired or replaced a bunch of them while I was in the process. This took a lot of work, but my biggest allies were a huge roll of wide, reinforced silver tape, and simple sheet metal tools like shears, angle grinder, self-piercing screws, a good breathing mask, headlamp and work gloves.
Here’s yet another adapter I made to channel some of the air supply. The curvy box below was salvaged from the old ductwork, but I added the end cap and two 7″ air outputs to break this stream of air off to serve two different parts of the building.
Step Three: Fit in the new heat pump
Duct fitting in progress. Okay, I admit this is looking a bit patchy, but it works great! Work like this is a tradeoff between time, cost, and beauty. Since this is in an old building that is probably going to be demolished and replaced with a luxury mixed-use apartment complex when we sell it, I try to keep things functional but simple. In a high-end, permanent house, you’d take more time to make the ducts pretty.
Aside from the fact that the thing is heavy (ours was around 250 pounds), this connection is surprisingly easy once you have the ducts ready. You just screw and seal the sheet metal boxes to the bottom and the top of the heat pump. And at this point, you should be getting excited because the end is in sight.
Step Four: Place the Outdoor Unit Where You Want It
Since the outdoor unit is another 300 pounds, you’ll want a high quality dolly and some ratcheting straps, as well as a strong friend nearby to help you wrangle it into place. Your goal is to put this thing somewhere beside your house that is out of the way, but also close to wherever you just put the air handler in the basement. Then you need a lineset that is long enough to connect them together – and shorter is generally better for both cost and performance reasons (we used a 35 footer).
We put our condenser on a couple of sturdy, level concrete pads.
Step Five: Run the Lineset
You need about a 4″ hole in your house in order to feed through the insulated lineset. Since our building is made of brick, I needed this crazy masonry core bit – hopefully yours is easier! NOTE: this is an in-progress pic, later I covered these lines with a protective steel box.
The lineset is a pair of flexible copper tubes that are wrapped in insulation. They are bulky, so even our 35-foot set came in a BIG roll the size of a big-screen television box. You need to carefully unroll and straighten it, and feed it in through a roughly 4” hole you drill in the side of your house so you can connect the condenser outside to the air handler unit inside.
We had the added challenge of having to punch through an eight-inch-thick BRICK WALL, so I had to spend some good workout time wrestling with this massive concrete core driller, mounted to a high-torque low speed drill.
Wrenching on the lineset before releasing the gas (and then testing for leaks). There are just two nuts at each side of the line.
Once the lineset is in position, the connection is refreshingly easy: you carefully follow the instructions to tighten on the right nuts with a wrench, open some valves with an alan key, and you will hear the refreshing PSSSSssssssshhhhh as the refrigerant is released into the system. (This is the part that an HVAC technician would normally have to do, Mr. Cool gets around the issue by using special valves and having pre-charged linesets. More expensive, but very much worth it for the time and labor savings!)
Final Step: Run the Electrical Wires
Drilling a hole for the electrical wire (which we ran in a conduit, the new 40-amp breaker, inside unit wiring including thermostat, Carl celebrates completion of the outdoor unit wiring.
This will vary depending on the system, but ours called for the following wiring, which I subcontracted out to my partner Mr. 1500:
A 40 amp / 240 volt circuit to the outdoor unit (which simply means running a length of 8 gauge wire and adding a 40 amp breaker to the box).
A 20 amp / 240 volt circuit to the main unit
Standard six conductor thermostat wire between indoor and outdoor units
And finally, a run of the same thermostat wire between the indoor unit and your thermostat. We took the opportunity to upgrade to the super-lovely Ecobee Lite smart wifi thermostat, which I now use (and love) in all my projects.
The Victory Lap: Fire It Up!
We cranked through all of these steps carefully and then flipped on the breakers with great fanfare: SUCCESS! – The Ecobee lit up and started guiding us through its setup screens. Once complete, we slid the desired temperature way down in hopes of experiencing some much-needed Air Conditioning on this hot July day.
And nothing happened. We ran out to the outdoor unit and found it was just sitting there, with LEDs illuminated but nothing else happening.
We both started sweating bullets. Had we made a foolish mistake and bought a faulty unit? Did we screw something up in the install?
Nope – it turns out there is simply a three-minute delay between that first activation and the time Mr. Cool starts his cooling. Very slowly and with great grace, the big fan blades began to rotate, graaaaadually speeding up, with the hum of the compressor so quiet in the background that I had to press my ear up to the thing just to verify that it was really working.
But boy was it ever working – we ran inside and found that that icy cold air was just blasting out of each of the seven large vents spread throughout our building, and baking hot air was now shooting out of the outdoor unit. We had instantly beat the summer heat and everybody inside raised a cheer to this new luxury.
Epilogue, Three Months Later: How Well Does It Work?
A scene from The Extraordinary Event, a weekend-long set of talks and classes featuring Rebel Business School founders Alan and Katie Donogan. Videos coming soon on my Youtube Channel!
Throughout the rest of the summer, we have had a lot of fun putting this system through its paces, and it has proven itself to be an incredible cooling machine. We had several events with over fifty hot bodies packed in for some of our entrepreneurship and social gatherings while outdoor temperatures were in the 90s – and we were able to maintain comfort effortlessly.
The next test will of course be the winter. Here in early October, we have just turned the corner where the building has required just a bit of heat to start some mornings. With a few taps on the Ecobee phone app, I was able to flip the system over to heating mode and give it a whirl. It worked great – heating the building quickly and quietly.
But I’ll update this article over time as we move through cooler seasons. I expect it to continue to perform just great – but it will be fun to verify and reassuring to skeptics out there once we see it with our own eyes.
Extra Cool Detail: How Much Electricity Does It Use?
Of course, being MMM I was not content to just sit back and soak in the cool breeze of accomplishment just yet. I needed one final bit of data – a record of just how much energy this heat pump was sucking down in both heating and cooling modes, so we can get a better estimate of how much money it is saving us over the years.
So I installed a system called the Emporia Energy Monitor into the circuit panel, which is currently the best value on the market for such a well-designed gadget. This allows me to track and record the full details of the energy flow – through every circuit in the house if I choose to do so. For now, I just have it watching over the heat pump.
What I found is that in cooling mode, the Mr. Cool uses about 2600 watts on an ongoing basis (about the same as two large window air conditioners), which translates to 26 cents per hour of electricity. On the hottest days with the most people, I found the system ran about six hours, meaning our peak electricity use was only about $1.50 per day!
To me, this was pretty remarkable – this was a 95 degree day with 50 people in the building, roughly equivalent to trying to cool a mid-sized restaurant in Texas. Yet even if we repeated this extreme situation every day, we’d rack up an air conditioning bill of only about $45.00 per month!
I found that the heating mode was a bit more thirsty, with consumption at 4000 watts, or 40 cents per hour. Based on my earlier estimates of heat loss on the coldest possible days, we could be in for about 18 hours of runtime per day, which would be $7.20 of electricity. So, if the Headquarters were moved to an extremely cold climate and plunged into neverending 0F / -18C conditions for an entire month (which would make it colder than Duluth Minnesota or Ottawa Canada), we’d still face a heating bill no higher than $210 for the month. But in more realistic conditions for Colorado, we would expect about half of that level of energy consumption. And of course this is only for the month or two of our short cold season. For the rest of the year, heating is even easier.
Conclusion: Heat Pumps Are The Bomb
So there you have it: we dreamed about it for years, finally did it, and I could not be happier. It is such a joy to not even have an account with the gas company, and to know that this part of our expenses will be zero, forever.
And of course it’s even better to know that even the electricity cost numbers in this article are just for your own comparison – in reality, we make more than enough solar electricity run this whole thing for free just from the pretty squares of black glass on the roof. Free heating and cooling for life, with no pollution (with free operation of our laptop computers and beer fridges, and free charging of our electric cars to boot) – This truly is the way of the future!
In The Comments: Do you have any questions about heat pumps or other home efficiency products? And if you have a heat pump of your own, what do you think of it?
When the bitcoin was first introduced eight years ago, it promised to change payments. People would be able to transact directly with each other, without needing to place their trust in banks – but that promise still hasn’t materialised and adoption of bitcoins is low.
We were first told in 2009 that many transactions would be verifiable and validated by the bitcoin protocol. However, as we argued in a recent study, a significant adoption barrier to bitcoin is the lack of usability.
Since the inception of cryptocurrency, developers and researchers have been using metaphors to explain bitcoin in a clear effort to help people feel more comfortable with the technology.
A secure application for holding bitcoins is dubbed a “cryptowallet”, the trading platforms where people can buy and sell bitcoins are called “exchanges”, and in several locations around the world, ATMs have emerged for bitcoin-based transactions. The production of bitcoins is described as “mining”, but the only similarity between this and mining for gold or valuable gems, is that both processes are very, very difficult to achieve. Finally, bitcoins are called “coins”, even though they are entirely digital.
Using metaphors to refer to these technologies helps people feel more familiar with the technology. But there is also a downside: people expect that the technology can be used as regular money.
One could easily believe that, in fact, such “coins” are stored in a “wallet”, which leads to further misinterpretations: if these are coins, what do they look like? if it’s real money, how do I get refunds for paying for stuff? and do I get change if I don’t have the exact amount? But the coins don’t exist. They are merely entries in a highly secure, very restricted database.
There are no wallets, crypto or otherwise. These are either software applications that may or may not connect to the internet, or hardware-based solutions (similar to USB sticks). ATMs can be used to buy and sell coins, but teller machines do not hold “coins”. And, in the bitcoin world, there are many transactions that can’t mimic how regular money works.
It’s time to end the confusion over bitcoin. Shutterstock
If I pay for something with pound notes and then regret my purchase, I can return the item to the shop and the shop may or may not issue a refund. But the bitcoin protocol doesn’t allow this. If a transfer of bitcoins has been broadcast to the network, by design that transaction is final. It means that, had I paid for that item with bitcoins, the shop can’t issue a refund but instead has to process a new payment, or a charge back – which incurs additional processing fees. This isn’t a refund – as some money would be deducted from the full amount I originally paid.
X marks the spot
To support the adoption of bitcoin as an alternative payment, we need to have a system that is cheaper, better and more desirable compared with other forms of payments, such as debit cards.
The bitcoin is cheaper, because – even when paying by debit or credit cards – there is always a fee involved for processing such transactions. Some merchants will pay the fee themselves, or roll this cost over to the consumer, as an extra charge for paying by card. Paying in bitcoins has zero cost or very low cost, subject to how much of a hurry the consumer is in.
Everyday transactions in bitcoins are fairly straightforward and security is robust: if I need to pay somebody in bitcoins, I can send the exact amount to that other person’s bitcoin address (a randomly generated sequence of characters, that changes every time there is a transaction) by confirming it with my unique PIN-like number. The rest is done by the miners (more about which later) who need to verify that the transaction is unique and genuine.
Despite these clear advantages, bitcoin’s desirability factor remains low. And there is little we can do (at least for now) to increase its uptake. Notably, adoption is also affected by trust perceptions. People are more likely to trust the technology if they have a better understanding of how the bitcoin protocol works. This can be achieved without forcing everybody to become an expert in cryptography.
Four essential facts about bitcoin
What is bitcoin? It’s one of many cryptocurrencies – but the only one that has grabbed the headlines. It is a type of digital currency, created and regulated by a network of thousands of computers (known as peers) using encryption techniques. Because of this, its production is independent from any authority, such as banks and sovereign states – and trust in the bitcoin is produced by the technology itself. How does this happen?
Meet the blockchain: Simply put, the blockchain is a very restricted database, whose entries are the bitcoin transactions. The blockchain operates as a digital ledger of transactions. Just like regular businesses that keep a record of money coming in and going out, users of the cryptocurrency need to record all bitcoin-based transactions. The difference is that the blockchain is a decentralised and distributed, open-access ledger whose records are permanent and verifiable by the network of peers. So everybody can view past transactions, but nobody can alter them without having the consent of the majority. This means that the blockchain doesn’t exhibit weaknesses associated with traditional ledgers. The blockchain technology is secure by design.
How are bitcoins produced? Through mining, which is undertaken by the peers of the network. The miners are people and organisations that connect their computers in the network to offer processing power, using special software to solve very difficult algorithms, while leveraging the power of advanced computers and graphic cards. In return for their services (creating new bitcoins, authenticating transactions, maintaining the blockchain), they get rewarded with new bitcoins.
Where are bitcoins stored? A cryptowallet – which is a software application that stores private keys (code that looks like a very long PIN) – is where all bitcoins are stored. These private keys are connected to public keys (code again, but the equivalent would be a bank account). The best way to understand how a cryptowallet works is to think of it, in similar terms, as a secure connection between a person’s PIN to their bank account, which then allows them to check balances and make payments.
Money makes the world go round
The bitcoin hasn’t become the alternative payment system for consumers that was promised eight years ago. Widespread adoption of the cryptocurrency is hobbled by a number of factors: its reputation is associated far too often with alleged bad boys, and talk of a bubble that’s about to pop persists even as bitcoin continues to surge. But, above all else, few people can cut through the jargon to understand how it actually works.
These perceptions can shift if bitcoin-based transactions become easier to comprehend in a way that will help people build trust in the technology. Instead of replicating old paradigms, bitcoin should be embraced as a fresh new way to pay for stuff.
FIRECracker is a world-travelling early retiree. She used to live in one of the most expensive cities in Canada, but instead of drowning in debt, she rejected home ownership. What resulted was a 7-figure portfolio, which has allowed her and her husband to retire at 31 and travel the world. Their story has been featured on CBC, the Huffington Post, CNBC, BNN, Business Insider, and Yahoo Finance. To date, it is the most shared story in CBC history and their viral video on CBC’s On the Money has garnered 4.5 Million views.
“Work has become Intolerable. Rest is resistance.” – New York Times on the “Lying Flat” movement
I first heard about the “Tang Ping” (躺平) or “Lying Flat” movement from my Dad during a visit with my parents.
For those of who’ve never heard of “Tang Ping” ( 躺平), it started with a 31-year-old factory worker in China named Luo Huazhong (social media nickname: “Kind-Hearted Traveler”), who posted a picture of himself this April, lying in bed, curtains drawn, to the popular Chinese site “Baidu”.
In the caption, he put:
“Lying Flat is Justice.”
When asked why, he said he was protesting China’s hypercompetitive middle-class culture of working “996”—working 9am to 9pm, 6 days a week—a lifestyle praised by Ali BaBa founder and workaholic Jack Ma.
Huazhong is giving up on the Chinese Dream of killing yourself at work to afford a car, a house, nice clothes, and fancy things—all the trappings of a middle-class lifestyle. He is fighting back by not fighting at all. By choosing a “slow lifestyle of reading, exercising, and doing odd jobs to get by,” he is simply letting go and refusing to play.
To paraphrase the sage words of noted award-winning economist, Ali Wong:
“He doesn’t want to lean in. He wants to LIE DOWN.”
Immediately, his post went viral. Chinese Millennials now see him as a spiritual leader and want to follow in his footsteps (bike steps?) of cycling from 1300 miles from his home province of Sichuan (where I’m also from) to Tibet, eating only 2 meals a day, and getting by on just $60 a month.
Given that the “Tang Ping” movement is all about resisting hard work, I was shocked that my own Dad was talking about it.
If you’ve read my book, you know that the concept of “chi ku” or “eat bitterness” is something that Dad instilled in me since childhood. It’s the concept that you must persevere no matter how bad the situation is by pushing through obstacles without complaint. Turning a negative into a positive is seen as a strength and overcoming hardship is seen as character building rather than something to avoid.
That’s why I was so surprised to hear him talk about the exact opposite: refusing to work hard, throwing up your hands and just saying “fuck it!”.
Especially given that work is basically my dad’s religion. This is a man who chose an office meeting over his only daughter’s wedding, and at one point, ran back into said office to finish his work during a freaking earthquake (while everyone else was evacuated)!
And he yet he still thinks this movement makes sense? Interesting.
During a discussion over similarities in the beliefs of the “Lying Flat” movement and the FIRE movement, I realized that “Tang Ping” is Asia’s first step towards Financial Independence.
Here’s Why
Disillusionment from Working Ourselves to Death for the American/Canadian /Chinese Dream
When I saw my co-worker collapse and nearly die at his desk from overwork, it was my wakeup call to change my life. That’s how we got onto this FIRE path and as a result, I’ve been living the best years of my life travelling the world for the past 6 years. Even though we had to come back to Toronto due to the pandemic and family health emergencies, this past year has still been extremely rewarding, as FIRE has bought back our time so we could reconnect with family and friends and help them heal.
And this phenomenon of overwork can be seen throughout the world, especially in China, where working 12 hours a day, 6 days a week is common.
It wasn’t until recently that Chinese citizens (Millennials especially) started asking themselves “what is all this for?”
A house? A car? Status at work?
They started to realize that all this is an illusion. Houses in China are unaffordable, a car can only be used to drive to work since you have no time to go anywhere else, and status at work doesn’t matter when companies start to lay off anyone over the age of 35 to replace them with younger workers for a fraction of the pay.
The Chinese Dream is broken, just like the American and Canadian dreams. There’s no sense in work so hard for so little reward.
Rebelling Against the Status Quo
FIRE is a way to rebel against the status quo–killing yourself working crazy hours, hoping to retire at 65, if you make it.
The Tang Ping/Lay Flat movement is also a rebellion. Workers realized they can’t get ahead no matter how hard they work, so they simply give up and choose not to work. Since they don’t have the privilege of voting, protesting, or striking, their version of rebellion is to lay down and refuse to work. Why work hard for something you will never get? Put in the bare minimum effort to survive.
Choosing Minimalism over Consumerism
FIRE enthusiasts know that to be truly free, you need to optimize your spending. Because no matter how much money you have, if you spend into oblivion, you will always have to work harder to pay for it.
This is why the FIRE community tends to choose minimalism over consumerism. The more stuff you have, the more money and time you need to maintain them.
Minimalism frees you from having to work longer hours to pay for things you don’t need and gives you the mental clarity and bandwidth to spend your time doing things you enjoy with the people you love.
The Lay Flat movement also advocates for minimalism over consumerism. Instead of dressing up in fancy clothes, going out for expensive dinners to impress colleagues, and filling up your house with designer furniture, spend your time doing simple things like reading books, going for walks, having picnics with your friends. All of which can be done for free, or next to nothing.
By choosing a minimalist lifestyle, the founder of the Tang Ping, is able to travel and live on a measly $60 USD a month.
The Stoicism and Buddhism Philosophies
Stoicism and Buddhism life philosophies both advocate for letting go of things you have no control over and living in the moment.
This is attractive for FIRE enthusiasts and the Lay Flat movement because instead of swimming against the tide and putting in futile effort, we are choosing to live in the moment, and not continuously striving to climb the corporate ladder and compete in the rat race.
Location Independence
The founder of the Lay Flat movement chose his social media name as “Kind Hearted Traveller”. This is on brand since after he decided to give up his job, he biked around China, living a simple, monastic life. This location independence has helped him get his time back because he no longer needs to pay exorbitant rent and be tied to an expensive city due to his job.
When we became financially independent, we also decided to decouple ourselves from Toronto since we no longer needed to work. As a result, we discovered that travelling the world was far less expensive than living in a major metropolitan city.
The Lay Flat movement and FIRE movement both know that when you no longer are tied to a job in an expensive city, this significantly decrease your expenses and lets you buy your time back to do things that you enjoy.
One of the best things about the Lay Flat movement is that it’s popular enough to worry the communist government. After all, they have experience quashing unrest and protests in the streets, but what do you do when the form of rebellion is passive resistance? Just like their failure to compel people to procreative once the one child policy became a problem, it’s kind of hard to fight people who refuse to fight.
Chinese citizens are waking up to the fact that working themselves to death for the Chinese dream no longer makes sense. Will they pick up the FIRE movement as their solution to the insane 996 work conditions? Only time will tell.
What I do know is that given how well our book is doing in Japan and South Korea, the FIRE movement is definitely spreading in Asia.
What do you think? Have you heard of the Tang Ping movement? Do you think it’s the first step towards the FIRE in China?
The soaring value of bitcoin is encouraging more and more companies and individuals to engage in “mining”. Mining is actually a process which secures the distributed bitcoin network, and processes all of its transactions. Historically anyone could do this using a standard PC, but these days hardware that is purpose-built for more energy-efficient mining is a necessity to mine profitably. Every ten minutes miners across the globe compete to the be the first to solve a mathematical puzzle. The winner gets the “block reward”, which is currently 12.5 bitcoins (at the time of writing worth more than US$200,000).
As the amount of mining activity increases, earlier concerns about bitcoin’s global energy consumption have become all the more prescient. However, it’s difficult to accurately estimate just how much energy is used, what the unit cost of that energy is, or whether its source was renewable. Nonetheless, one ongoing estimate says the total energy consumption of bitcoin adds up to almost 4GW (Gigawatts). That means the digital currency uses roughly as much energy as bulgaria.
Yet even this is likely to be too small a figure, given such estimates focus on the electricity used for mining and ignore the energy (and associated carbon emissions) that go into building and transporting new mining hardware, and then replacing it with the latest models every six months to a year.
Assuming bitcoin consumes about 4GW, then this would equate to about 1% of the electricity demand that goes into digital services and devices globally, or about 0.1% of total global electricity demand.
Comparing coins with kettles
Headlines about bitcoin’s energy footprint tell us how many kettles we can boil or how many miles we can drive per transaction. Whichever way we look at it, the answer is “a lot”. But while these figures help us relate the network and its transactions to everyday experiences, they don’t unpack why bitcoin is so energy intensive, whether using all this energy is “worth it”, nor do they point to future possibilities or alternatives.
To illustrate the problem with comparisons, consider iPads. To manufacture and transport an iPad to a customer has roughly the same carbon footprint as 225 sausages. Intuitively this seems like an excessively large pile of sausage, but it says nothing about the iPads’ share in overall consumer electronics sales, the typical useful lifetime of an iPad, how many sausages might be consumed in that time, nor the meaning and utility that people derive from iPads, relative to sausages.
We have to put bitcoin’s energy consumption into context: how much it consumes compared to other uses of computing power, what value or benefit mining creates (and for whom), and consequently what the appropriate alternatives might be.
Don’t compare bitcoin ‘per transaction’
Bitcoin is often compared to rivals like Visa, which manages far more transactions each of which uses much less energy. However, such “per transaction” comparisons are more complex than they might appear. Yes, it’s true that the computers required to “mine” digital coins actually use more energy, and ultimately create more carbon emissions, per unit of value created than the machines and resources used to print and mint traditional currency. When viewed like this bitcoin still seems wasteful.
However, bitcoin advocates would argue that’s an inevitable result of what makes cryptocurrency different. Unlike other forms of currency (say, the British pound) there is no central issuing authority. And unlike payment processors (say, Visa) there is no corporate core. The bitcoin network is designed to be distributed but secure, and is agnostic to energy consumption. In a world where bitcoin is considered a valuable asset, as it currently is, a significant – and growing – burden on global energy consumption is inevitable.
One alternative to the computationally (and electrically) expensive puzzles that underpin the mining process is a technology called proof-of-stake. Although technically viable, such a change would be controversial given that expensive bitcoin mining hardware would almost certainly be made redundant.
Bitcoin’s pseudonymous creator Satoshi Nakamoto is estimated to hold 1m coins (more than US$19 billion at today’s prices), while the overall network has “created” more than US$310 billion for miners. In wealth creation terms the digital currency experiment therefore appears to have been a success. Such success is a double edged sword though, as it has led three quarters of global mining being controlled by as few as five organisations (arguably undermining bitcion’s aim of decentralisation) and the environmental impact of the network’s unavoidable energy consumption is clearly problematic.
Unless bitcoin changes to proof-of-stake the bubble is likely to end either in a financial or environmental catastrophe.
