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Introduction
- A cryptocurrency with bitcoin supply parameters overlaid with a perpetual 2% annual emission rate earmarked for environmental causes could have a significantly positive effect on climate change/deforestation/mass extinction if it became a global reserve currency.
- Coordinating solutions to global environmental problems is extremely difficult. Nation states end up in a prisoner’s dilemma where individual defection is advantageous but mass defection results in potential catastrophe.
- Global reserve currencies have intrinsic power due to their stability despite debasement. Currently the US uses this to run deficits, support markets via QE, fight wars offshore.
- Decreasing relative power of the USA in a global economy of variously antagonistic powers results in large powers like China seeking alternative to USD hegemony. Decentralized, trustless bitcoin is the obvious future winner, however there is a window of opportunity where a currency with more attractive properties could win this race.
- A large proportion of the world with environmental concerns combined with various incentives for governments, companies and the wealthy to support an environmentally focused currency make it possible to beat a more pure supply currency like Bitcoin.
- Effective use of generated funds is a difficult problem which relies on organizational structures to minimize corruption and maximize effectiveness of funds.
Why environmental coordination problems are difficult to solve:
- In a world of nation states, need each country to treat environmentalism as a primary goal and then have coordination with a majority of other nations to be effective
- For rainforest depletion, country containing rainforest has much to gain by felling this, whereas loss of biodiversity and carbon sink is globally felt
- Creates a prisoner’s dilemma where global cooperation is required however any single country breaking ranks is advantaged, and therefore global cooperation is likely to constantly fail
Why global currency has potential to help this:
- Global reserve currencies become extremely robust, and can sustain significant supply increases without collapsing
- Currently US dollar has this property, which allows US to do the following without obvious currency devaluation:
- Undergo large rounds of QE
- Run large deficits based on foreign purchasing of bonds therefore funding wars etc.
Why global currency is inevitable:
- Increasingly globalized and interconnected world means currency exchange is occurring constantly, and becomes a huge profit centre for financial service providers/banks - exploiting the complexity and lack of transparency to make outsize profits on these transactions
- Increasing significance of non-US global powers (China, Russia) who are adversaries of and inherently suspicious of the US and therefore the USD
- Blockchain makes a trustless, decentralized currency possible outside of the control of a single country, which for most participants (other than the US) is preferable to USD reserve status
Why this currency will be chosen above others:
- Bitcoin is likely to become global reserve currency due to fixed supply parameters
- Hypothesis is that a currency undergoes flywheel effect based on characteristics, leading to feedback loop of increasing value
- Central core environmentalist values of global population leads to virtuous cycles:
- Governments with environmentalist credentials are more likely to accept/encourage use of this currency
- Merchants/banks encouraged to accept this currency to signal environmentalist priorities
- Consumers use this currency to signal priorities
- Wealthy people with decreasing marginal utility to wealth often support charitable causes eg. the “Giving Pledge”. Large concentrations of wealth transferring into an environmentally focused currency could occur
Features of the currency - POS
- Energy/sustainability issues associated with POW - POS is ideal
- Needs SIMILAR supply parameters to BTC in order to be competitive (“number go up technology”), but with a limited modification with highly positive externalities coupled with other advantages could beat BTC despite having slightly worse supply schedule
- 21 million coins on decreasing scale overlayed with constant 2% inflation forever going to environmental fund
Challenges of fund dispersion:
- Effective use of funds presents huge challenge
- Many of the key economies are highly corrupt
- Reward “preservation” also creates material rewards for increasing perceived risk of not-preserving (Solomon dolphin scenario).
- No clear solution to this problem due to the lack of clarity in useful endpoints, key is to create structures that decrease risk of corruption and uses scientific parameters to maximize effective use of funds
