Shout out to Marty Bent and Alexander Leishman for inspiring me to write this.

The colonists established their first settlement in Maryland in 1634. Lord Baltimore urged them to develop a diversified economy of farming, lumbering, fishing, mining, and more.

But the lure of profits from growing tobacco was too hard to resist.

Tobacco shaped colonial life and tobacco became so important it became money.

Items were bought and debts were settled in pounds of tobacco, and Maryland designated it as the official medium of exchange in 1637. This was partly due to a severe shortage of coinage in England, which affected American settlements. [link]

“The most widespread use of commodity money was tobacco, which served as money in Virginia. The pound-of-tobacco was the currency unit in Virginia, with warehouse receipts in tobacco circulating as money backed 100 percent by the tobacco in the warehouse.”

Murray Rothbard, A History of Money and Banking in the United States: The Colonial Era to World War II [link]

But having tobacco as the primary engine of the Maryland economy led to some problems.

The slightest change in tobacco prices in England or Europe had a great impact on their lives. Boom times and depressions happened often during the 17th and 18th centuries.

The export of British currency and the establishment of colonial mints were prohibited by English Law at the time. This led to currency shortages were common in Maryland and merchants often paid British firms with bills of exchange. [link]

Until legislative action in 1747, tobacco-for-bills was frequently used as the internal trading economy. In order to replace the then-current use of tobacco as money, each taxpayer was to be given 30s in notes in return for burning 150 pounds of tobacco.

The first Maryland issue

The notes were to be redeemed by the loan office starting in 1748 with profits realized through investments made in Bank of England stock. [link]

Shortly after, they transitioned to paper money.

In this system, there was a continuing problem of farmers increasing their quantity of money by growing more tobacco. [link]

Vigilante squads got created. They roamed the countryside burning tobacco fields. All to keep the amount of tobacco under control:

The money supply was controlled by burning tobacco grown by farmers.

Over to Bitcoin.

Bitcoin burns through a lot of electricity to maintain its network.

It currently consumes approximately 7–8 gigawatts of power. This is around~$9 million per day of energy at a marginal cost of 5 cents per kWh.

The bitcoin network consumes as much power as approximately 6 million homes. This is based on national averages in the U.S. [link]

blockchain.info

In the “Gradually, then suddenly” series, Parker Lewis explains something interesting:

“economic stability depends on the function of money and bitcoin provides a more sound monetary framework which is why there is no more important long-term use of energy than securing the bitcoin network.”

The main difference with the tobacco economy is that the bitcoin network does not arbitrarily burn through energy.

It’s done mathematically.

Proving that energy production is vital to the functioning of our society.

Some energy input is required for everything that we consume in our daily lives. The coordination of those energy inputs is dependent on the reliability and stability of the money we use. — Parker Lewis

A fraction of all the computing power on the Bitcoin network is on these shelves. (image: EEE Spectrum)

But Bitcoin doesn’t care. It consumes all necessary energy in the free market to secure its monetary network.

The more people that value the long-term stability it provides, the more energy it will consume. This consumption makes sure all other derivatives of energy consumption fulfills. Much like Maryland’s tobacco economy 350 years ago.

That’s why there’s no other long-term use of energy more important than securing the bitcoin network.