December 24, 2013
Timothy Lee says that Paul Krugman got it wrong about the resources being wasted in the process of bitcoin mining. Krugman wrote a column based on a NYT piece about a massive bank of computers located in Iceland (low cost electricity) that is devoted to developing complex algorithms that allow the owners to get a large share of newly minted bitcoins.
Lee’s complaint against Krugman is that this mining is actually part of the Bitcoin transactions process. The correct answer to Lee is, so what?
Suppose that some of the people engaged in gold mining are actually armed guards who are there to protect any gold that is recovered. Would these mean that the labor of the armed guards is not being wasted in this totally unproductive exercise? The same applies to the banks of computers calculating algorithms. It doesn’t change anything if they are part of the processing network.
Of course when we have governments that are determined to waste resources by running budgets that leave tens of millions unemployed, even nonsense like Bitcoin mining can be a positive, as Keynes noted. But Krugman is 100 percent right, bitcoin mining is an incredible waste of potentially productive resources, and I said it first.
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