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So it turns out that of the two largest crypto exchanges, one was a fraud and the other was a money launderer. Whoever could have guessed?

Skeptics of bitcoin and other cryptocurrencies have had their prejudices reinforced. The two main use cases—fraud and crime—have been exposed to the public in dramatic fashion, so now all we have to do is sit back and wait for the inevitable collapse in value.

There must be something underpinning this value, so what is it? Here are the options:

the idea behind Bitcoin is to create a decentralized currency that central banks can't inflate and governments can't tax. Basically, digital gold. And like actual gold, the only way to get new bitcoins is to "mine" for them. That involves running a computationally-taxing program on your computer that mostly generates gibberish, but maybe, just maybe, some bitcoins too

The key, though, is that mining for more of the virtual currency doesn't create more of it. That's because there's a predetermined number of bitcoins. Specifically, there are around 12 million today, and there will be 21 million in 2040—and no more after that.

this limited supply means Bitcoin should tend to increase in value against the dollar. But only tend to. See, its deflationary bias means Bitcoin prices will go up and down quite violently. Think about it this way. The supply of bitcoins can't increase much to meet increased demand, so increased demand will make prices soar. And soaring prices will make early adopters try to cash out their winnings—which will send prices crashing back down.

the technological accomplishment of Bitcoin is that it invented a decentralized way to create scarcity on computers. Bitcoin demonstrated a way for me to send you a computer message so that you’d have it and I wouldn’t, to move items of computer information between us in a way that limited their supply and transferred possession.

The wild thing about Bitcoin is not that Satoshi invented a particular way for people to send numbers to one another and call them payments. It’s that people accepted the numbers as payments.

That social fact, that Bitcoin was accepted by many millions of people as having a lot of value, might be the most impressive thing about Bitcoin, much more than the stuff about hashing.

Even after last year’s bust, Bitcoin users are generally sending somewhere between $400 million and $800 million worth of Bitcoin across the network every day, according to data from the blockchain, the public ledger on which all Bitcoin transactions are recorded

Speculative transactions accounted for roughly 60 to 80 percent of all transactions on the blockchain

There is still quite a bit of mystery about what accounts for the other 20 to 40 percent of the transactions

the Bitcoin bubble should finally destroy our faith in the efficiency of markets.

Since the 1970s, economic policy has been based on the idea that financial market prices reflect all the information relevant to the value of any asset. If this is true, market prices are the best estimates of the value of any investment and financial markets should be relied on to allocate capital investment.

the efficient market hypothesis remains a background assumption of much central-bank and economic policy.

The cryptocurrency’s value has dipped recently after passing a high of $50,000 but the energy used to create it has continued to soar during its epic rise, climbing to the equivalent to the annual carbon footprint of Argentina, according to Cambridge Bitcoin Electricity Consumption Index, a tool from researchers at Cambridge University that measures the currency’s energy use.

Now that over 18.5m bitcoin have been mined, the average computer can no longer mine bitcoins. Instead, mining now requires special computer equipment that can handle the intense processing power needed to get bitcoin today. And, of course, these special computers need a lot of electricity to run.

Proponents of bitcoin say that mining is increasingly being done with electricity from renewable sources as that type of energy becomes cheaper, and the energy used is far lower than that of other, more wasteful, uses of power. The energy wasted by plugged-in but inactive home devices in the US alone could power bitcoin mining for 1.8 years, according to the Cambridge Bitcoin Electricity Consumption Index.

Police have raided the home of an Australian tech entrepreneur identified by two US publications as one of the early developers of the digital currency bitcoin.

On Wednesday afternoon, police gained entry to a home belonging to Craig Wright, who had hours earlier been identified in investigations by Gizmodo and Wired, based on leaked transcripts of legal interviews and files. Both publications have indicated that they believe Wright to have been involved in the creation of the cryptocurrency.

Other people who say they knew Wright have expressed strong doubts about his alleged role, with some saying privately they believe the publications have been the victims of an elaborate hoax.

El Salvador President Nayib Bukele announced in a recorded message played at a Bitcoin conference in Miami Saturday that next week he will send proposed legislation to the country's congress that would make the cryptocurrency legal tender in the Central American nation.

"Next week I will send to Congress a bill that will make Bitcoin a legal tender in El Salvador," Bukele said. "In the short term this will generate jobs and help provide financial inclusion to thousands outside the formal economy and in the medium and long term we hope that this small decision can help us push humanity at least a tiny bit into the right direction."

The U.S. dollar is El Salvador's official currency.

A new report released today by the Stanford Institute for Human-Centered Artificial Intelligence estimates the amount of energy needed to train AI models like OpenAI’s GPT-3, which powers the world-famous ChatGPT, could power an average American’s home for hundreds of years. Of the three AI models reviewed in the research, OpenAI’s system was by far the most energy-hungry.

OpenAI’s model reportedly released 502 metric tons of carbon during its training. To put that in perspective, that’s 1.4 times more carbon than Gopher and a whopping 20.1 times more than BLOOM. GPT-3 also required the most power consumption of the lot at 1,287 MWh.

“If we’re just scaling without any regard to the environmental impacts, we can get ourselves into a situation where we are doing more harm than good with machine learning models,” Stanford researcher ​​Peter Henderson said last year. “We really want to mitigate that as much as possible and bring net social good.”

What do these examples have in common? As Thomas Hobbes could have told you, human beings can only flourish, can only avoid a state of nature in which lives are “nasty, brutish and short,” if they participate in a “commonwealth” — a society in which government takes on much of the responsibility for making life secure.

Thus, we have law enforcement precisely so individuals don’t have to go around armed to protect themselves against other people’s violence.

Public health policy, if you think about it, reflects the same principle. Individuals can and should take responsibility for their own health, when they can; but the nature of infectious disease means that there is an essential role for collective action

For every venture capitalist or technical expert, there’s a half-dozen hype men and fly-by-night startups making the entire space look like a 21st-century version of the Amsterdam tulip mania.

Knocking the stool out is extraordinarily hard, and the current high value of bitcoin and ether makes it even harder. To attack a blockchain and shut it down requires gaining 51% control of the computational power or value of tokens staked to verify transactions. The more valuable the tokens, the more energy it takes to attack a proof-of-work chain, like Bitcoin, and the more money to attack a proof-of-stake chain, like Ethereum. The security of these chains—as measured by the amount someone would have to spend to attack them—is now in the region of $10bn to $15bn.

It would require either a government or an extraordinarily rich individual to mount such an attack

Unravelling is therefore the more conceivable path. The events of this year have revealed just how prone to this sort of thing crypto is.

One great theme of the post-2008 financial world is that money is a social construct, a way to keep track of what society thinks you deserve in terms of goods and services.

15 years ago it was easier to think that money was an objective fact. Money is a kind of stuff, you might have thought, stuff with some predictable value that you can exchange for goods and services, and you can acquire a quantity of it and then you own that money and can use it however you like to buy things. 

Russia’s foreign reserves consist, in the first instance, of a set of accounting entries. But in a crisis the accounting entries don’t matter at all. All that matters are relationships, and if your relationships get bad enough then the money is as good as gone.

t what will they conclude? The most likely path is to improve regulation of the centralised exchanges – the firms that help individuals store and trade cryptocurrencies “off chain”

The fact that a multibillion-dollar financial intermediary was not subject to normal record-keeping requirements is stupefying, no matter what one thinks about the future of crypto.

effective regulation could restore confidence, benefiting firms aiming to operate honestly, which are surely the majority, at least if one weights these exchanges by size. Greater confidence in the remaining exchanges could even lead to higher crypto prices, though much would depend on the extent to which regulatory demands, particularly on individual identities, ultimately undermined demand