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Bill Gates & Bitcoin - The Billionaire Bear

bitcoin depot

Bitcoin has been the best-performing stock over the last decade and it has continued its impressive growth in 2021. Though there have been some bumps on the road, the coin has found ways to recover.

But despite the great returns it has brought to investors, the leaders of the financial market are still asking several questions about bitcoin and other cryptocurrencies.

Some experts have pointed fingers at its high volatility while others are bothered about other factors. So, it will be interesting to know why Bill Gates has seemed bearish towards the coin in recent reports even though he is not a key player in the cryptocurrency space.

While the Microsoft co-founder has had several views on Bitcoin in the past, the comments he made in March were much more interesting.

Bill Gates and Bitcoin

During a session on Clubhouse, Gates talked about how he was bothered by the amount of energy consumed by Bitcoin. According to him, the quantity of electricity consumed by Bitcoin on each transaction is greater than that of other methods, which isn't good for the environment.

This claim isn't far-fetched at all. But to make it easier for you to understand, let's touch on one or two things about Bitcoin.

How Bitcoin Works

Bitcoin is a digital currency that can be used for transactions. These transactions are stored in a ledger called the blockchain. There are two types of computers used: producers that do the mining work, and verifiers who take care of transactions.

The producers are referred to as “miners” and they get a slice of the transaction fees as payments which incentivize the producers to continue carrying out this process. If the transaction is confirmed by enough of these producers, then it will be added to the "block" of recent transactions in the blockchain.

Mathematics is used in verifying crypto transactions to prevent the generation of fake currency. However, this process consumes so much computing power that it can't be executed by a single user or group.

During the mining of bitcoin, computers are made to process difficult mathematics. Since the process requires hardware that can break down several calculations swiftly and simultaneously, the miners make use of advanced graphics processing units (GPUs).

This improves the efficiency of the system and eliminates congestion. However, it also increases the temperature of the computers and thereby making the use of high-end fans a necessity, which in turn means a large energy consumption requirement.

The Effects of Bitcoin on the Climate

Researchers from Cambridge built a tool for the calculation of Bitcoin's energy consumption recently. At the end of their research, it was discovered that Bitcoin consumes more electricity annually than the whole of Argentina.

The BBC also stated that the tool ranked the coin's energy usage to be greater than that of the Netherlands and the UAE.

In defense of Bitcoin, researchers from the industry have claimed that it contributes only 2.3% of the emissions from the digital industry. While this seems like a fair argument, the main question is where should the line be drawn? What percentage will be too high?

What Is Gates Proposing?

During the session, Gates went on to mention that he hasn't invested in Bitcoin. Instead, he buys vaccines and puts his money into organizations that make products.

However, Gates also has his hands in digital currency through the Gates Foundation which he owns with his now ex-wife, Melinda. This was what he had to say:

“There are other ways of doing digital currency that our foundation is involved with which are done in local currency. The transactions are not secret, they’re reversible. You can’t use it for ransom or things like that, and yet the transaction fees are so low that it’s empowering the poorest.”

How is this different from Bitcoin and other cryptocurrencies?

Gates was describing an idealistic closed market in which businesses can trade a specific type of digital currency. This is quite similar to loyalty program rewards that give members certain benefits.

The billionaire wants the poor people around the world to benefit from this digital currency as it can eliminate structural barriers and as a result, lower transaction costs and other overhead expenses. Imagine a new system in which students can apply to colleges without paying application fees.

You may be wondering about the difference between digital currency and cryptocurrency since they are both digital. The difference is that, unlike cryptocurrency, digital currency doesn't require the hashing of large amounts of mathematics. To put it simply, digital currency is like the currencies used in games like Fortnite.

The type of digital currency that the Microsoft founder is interested in is very different from cryptocurrency. He also feels that Bitcoin is bad because it has been used to aid criminal activities. However, this view is fairly narrow as paper money has been used for criminal activities since its invention thousands of years ago.

It isn't a bad thing that Gates is wary of bitcoin, especially when you consider that most people know very little about it. His investment in another form of digital currency also means that he isn't just criticizing cryptocurrency from the outside and his efforts may help push accessibility into new currencies a reality for more people around the world as we are already seeing with crypto ATMs.

Bill Gates is only educating investors and advising smaller investors to be cautious.

June 16, 2021