One of the most important things to remember about a digital currency is that it is just a way of transferring ownership and assets electronically. In fact, for those who are scrambling to understand both cryptocurrency and blockchain, this idea is the first, and unfortunately all too often, the only port of call. That said, it is a decent place to start.
Cryptocurrency uses a decentralized digital communications “protocol” called blockchain to facilitate value transfer extremely efficiently. As a result, the largest banks and governments are now taking it seriously. There are also multiple ideas being developed about how this technology should be used, and what types of assets can be valued and transferred, which has also attracted the interest of the largest energy companies and telcos.
It was inevitable, then, that someone would come up with a way to align the world’s existing fossil fuel reserves with a form of cryptocurrency, enabling a new form of digital currency backed by energy as collateral, rather than gold or any other kind of asset.
In today’s global economy, the US dollar acts as a global currency because that is what barrels of oil are priced in and have been since 1971. It is also why some OPEC states, such as Venezuela, have tried to change the “oil-currency” from dollars to euros. The impact of the current setup is that U.S. monetary policy can have a huge influence on the rest of the world.
This is no doubt one of the reasons, beyond the implications of Brexit and England’s search for a new place in the world, that inspired the London-based entrepreneurs behind Bilur, and helped them attract funding.
Bilur, as described in industry press in early May, is a “new Ethereum-based cryptocurrency that wants to compete with Bitcoin.”
According to founder Ignacio Ozcariz, the CEO of RFinTech, the company behind Bilur, he hopes to create an oil-based cryptocurrency. In his words “[c]rude oil and its derivatives … have been running [the world] during the last wave of the industrial revolution. All of them are primarily energy vectors that, jointly, with the flow of energy in the form of electricity, have driven the unstoppable 20th-century technological revolution. So why not consider energy as the new monetary standard, as it is the base for the technological world.”
This is already a key issue at the heart of existing cryptocurrencies like Bitcoin and Ethereum. Many people support the use and development of these cryptocurrencies because they are theoretically beyond the control of government. In order to control a cryptocurrency, a government would need to invest substantial energy, time, money and programmers in order to fundamentally change the rules of the system. And this illustrates the key issue clearly. Cryptocurrency and blockchain cannot be divorced from a concept of energy as currency. It takes energy to allow the computations to occur. This system cost is then priced into all cyber currency transactions. It is like a minimal processing fee, or ATM charge, for accessing the system.
Energy backed cryptocurrency is entering a new phase because of the debate about global warming. Bilur’s value is tied to oil, but solar is already a considerable player in many parts of the world. That includes in OPEC countries that are struggling to wean their economies off fossil fuel (starting with Saudi Arabia). It also includes India, China and Germany. Connected to blockchain technology, solar energy can be monetized efficiently. This is a field that is taking off, particularly in Europe and China. As a result, a solar-backed cryptocurrency would make a lot of sense. Rather than selling “carbon credits” to allow firms to emit pollution, a “clean currency” might be a better solution for both consumers and investors.
What Does This All Mean?
Regardless of the feasibility of a fossil-fuel backed or gold backed cyber currency (there is a high profile effort afoot in the UK to create a gold-backed UK Royal Mind Gold token), these examples illustrate one thing: cryptocurrency creates a new platform for the next phase of value exchange in a tech-driven globally-connected world.
The ability to generate, transfer, swap and monetize “energy” will be very valuable in the world we are entering. This is also known loosely as the “shared” or “peer-to-peer” economy. There will be multiple attempts to create new currencies. There already have been. Many of those new cryptocurrencies will be backed by an asset in the real world in order to give them a tangible value. However, as with Bilur, the idea that such endeavours are based on ether serves to put a dollar value on “energy/computing time” already. This is because most holders of ether buy them in dollars, and energy or calculated computations of machine time are the basis for Ethereum in the first place.
It is easy to understand why this will be so important. Blockchain connected devices are powered by energy. That energy has to be paid for, and calculating what that energy is worth is going to be the first, most basic discussion. Why? Well, you cannot hook up a block of gold or a barrel of oil to a digital network and get it to work. You can, however, hook up an electric car, washing machine, mobile phone, or solar charging device.
With shifting global currents, unstable national governments, and economic flows of capital between different parts of an increasingly globalised world, it is clear that initiatives to create a new global currency (or several of them) will continue to attract attention, and venture funding.
Here is what investors, market commentators and regulators need to remember. The value of Bilur is tied to oil. Despite Trump’s call to return to a world driven by fossil fuel, however, energy markets and cryptocurrencies based on them are meeting a new age. Questions about valuation and worth of assets – taking into account negative externalities like carbon emissions and the energy cost of accessing the system with them – will dominate market formation, rules and the digital networks upon which all will depend.
Marguerite Arnold is the founder of MedPayRx, a blockchain healthcare startup in Frankfurt. She is also an author, journalist and has just obtained her EMBA from the Frankfurt School of Finance and Management.
Image: Shanghai Daily