Bryce Hoehn is a senior studying political science and an opinion columnist for The New Political.
Please note that these views and opinions do not reflect those of The New Political.
With the primary election for Ohio’s U.S. Senate seat fast approaching, candidates from both parties have expressed support for Bitcoin and other cryptocurrencies. Democrat Morgan Harper claims it will cut out big banks as a middleman, thus eliminating overdraft fees, while Republican Josh Mandel seems to believe it will prevent inflation. There is some truth to these claims, but cryptocurrencies also present several consequences that outweigh the potential benefits.
Bitcoin allows individuals to send digital currency without going through a centralized bank, similar to how one would spend cash. Through the blockchain, a public ledger, all transactions are recorded and verified. These transactions are verified as legitimate through the process of mining, where computers across the world solve time-consuming mathematical problems to prove a transaction’s legitimacy.
Miners, who run these computers, receive a transaction fee associated with every Bitcoin transaction. Initially, mining was done by ordinary users on their home computers. Today, the process requires expensive hardware built exclusively for Bitcoin mining to be profitable.
Harper is technically correct in saying a mass adaptation of Bitcoin could cut out banks as a middleman. However, this idea would only rebrand them. The most popular Bitcoin miner on the market right now is the Antminer S19 Pro, which was originally priced at $2,860 but is currently selling for upwards of $10,000 on Amazon. These devices are inaccessible to the poor and middle class, leaving wealthy individuals to purchase such devices. While adopting Bitcoin might eliminate banks, it would not fundamentally change the distribution of wealth.
Harper’s claim that eliminating banks would eliminate overdraft fees is also partially correct, but it does not account for the financial burden that Bitcoin transaction fees would create. Just this week, these fees hit the lowest they’ve been in two years, at $1.04 per transaction. Even at this record low, fees could quickly add up and disproportionately hurt poorer individuals. Since they are a flat rate per transaction, a college student purchasing a cup of coffee would pay the same amount in transaction fees as a billionaire purchasing a new yacht. And since wealthy people will likely control Bitcoin miners, that college student’s dollar would trickle up to the rich. These fees can also vary based on the demand of the network. During Bitcoin’s peak last year, transaction fees were over $60 per transaction. Rising transaction fees would quickly outweigh the cost of occasional overdraft fees.
Harper has also overlooked the horrific environmental impact of Bitcoin mining. Every Bitcoin transaction consumes 1,173-kilowatt-hours of electricity, which is more than the average American household consumes in six weeks. Currently, Bitcoin mining collectively consumes 91 terawatt-hours of electricity per year. This is more electricity than the entire nation of Finland and energy usage is expected to increase. In spite of the waste it creates, Harper’s commitment to Bitcoin seems directly contradictory to her environmental stances, which leaves me somewhat skeptical of how she will address the climate crisis.
As for Mandel’s claim about inflation, he alludes to Bitcoin having a fixed supply. New Bitcoins are produced or minted at set programmed intervals, but they cannot be minted on demand by either the government or the miners, and there is only a set number of coins that will ever exist. At the time of writing, 19 million Bitcoins have been minted out of a theoretical maximum of 21 million, which means that almost all Bitcoins that will ever exist are already in circulation.
Since the government cannot print more Bitcoins, they would be unable to go into debt. Josh Mandel may realize this and see it as a positive, but without the ability to take on debts, the government would be limited in its response to economic crises.
An example of how a government might respond to an economic crisis today would be the CARES Act, a $2.2 trillion economic stimulus bill passed in 2020. This legislation provided an initial round of stimulus checks, expanded unemployment benefits to anyone laid off due to the pandemic, gave low-interest loans to businesses, and much more. This was the largest economic stimulus in U.S. history and likely prevented a total economic collapse, but the government had to take on debt.
Under Bitcoin, this sort of aid would not be possible. If the U.S. had not gone into debt to pass this economic aid, the long-term effects would have been far more costly. More importantly, many more of those out of work due to the pandemic would have been without basic needs, and there would likely be far more poverty-related deaths during this period.
Other cryptocurrencies address some of the concerns I’ve mentioned. The currency Nano has a low environmental impact as it does not require mining, and it also has zero transaction fees. But even a cryptocurrency like Nano still suffers from its inability to print more coins during an economic crisis. Even if it could, I would not want to entrust the nation’s monetary policy to private cryptocurrency developers.
The only cryptocurrency that seems potentially viable to me would be a centralized cryptocurrency minted and controlled by the U.S. government, such as the one described in Biden’s recent executive order. Although this solution seems contrary to the core principles of Bitcoin and other established cryptocurrencies, it is the only cryptographic solution to the problems Harper has described with central banking without the negative consequences associated with most cryptocurrencies. Although the crypto buzzwords may make this sound innovative, it’s not that different from Bernie Sanders’s proposal to allow post offices to offer banking services.
The current issues with Ohio’s economy are not due to a lack of technology but instead a lack of policy. The real solutions to Ohio’s economy are progressive policies such as raising the minimum wage, providing universal health care, forgiving student loans and making college free.
Given that Harper has vocally supported all of these issues, I believe she cares about helping the Ohio working-class but is misinformed about cryptocurrency. Going forward, politicians and voters need to stop looking toward Bitcoin as a technical solution to their economic problems and instead focus on policy solutions that would benefit the working class.