Energy Subsidies, Bitcoin and the Socialist Takeover that Isn’t, by Tom Luongo

Freedom and free markets work, command and control doesn’t, not over the long term. From Tom Luongo at tomluongo.me:

“When you subsidize something, you get more of it.

Ron Paul

I have a friend who once described Bitcoin to me as an organism which feeds on electricity subsidies. Bitcoin searches out the lowest cost of electricity available and consumes as much of it as it can to produce profit for the miners, since electricity costs are their biggest costs.

This is partly why China, for years, attracted the lion’s share of Bitcoin mining. Miners could co-locate next to hydroelectric power plants in China and suck up every extra available cheap and subsidized kilowatt-hour.

This is the essence of the free market. It finds inefficiencies and exploits them as capital flows to where it is treated best. It may be ‘predatory’ from the central planners’ point of view, but they opened themselves up to this effect the moment they intervened by subsidizing the market in the first place.

Bitcoin exposed a structural weakness in China’s electricity grid this summer which was under massive stress thanks to drought conditions there dimming the output of its hydroelectric generators. This is partly why Chairman Xi Jinping took the aggressive steps to kick the Bitcoin miners out of China this summer.

He could see the real costs of electricity rising as coal, oil and natural gas prices skyrocketed but, because of rate subsidies to end-users, revenue to power generating companies was flat. It served him in other strategic ways, like kicking out the flow of Bitcoin within the Chinese economy, cutting down would-be mining company financial oligarchs and ultimately lessening competition for the Digital Yuan.

The response from the Socialist is always the same, however. Today Russia is getting blamed for gas prices in Europe.

Price gouging in a crisis a moral failure, not the original wealth transfer (itself a theft) from one group of people to another, which is what an electrical subsidy is.

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