Using Bitcoin as a Better OPEC

One of the consequences of the Coronavirus crisis is that the oil price has gone way down. There was even some talk about the Texas Railroad Commission going into the business of handing out production quotas again and joining the OPEC efforts as a countermeasure.

The reason is obvious. With the economy reeling from the health crisis, there is much less demand for oil. Also, Russia and Saudi Arabia chose this particular time to start a price war for the remaining demand.

That in turn means that some kind of world wide quota system that would actually be effective would be very good news for the oil industry and the owners of the resources (the states mentioned above, and a couple of others).

It would also be the solution to the climate crisis, since if you have an effective quota system for all of global oil production, all oil not pumped will not be burned under such a system.

The obvious problem with this is that there are multiple actors involved. They all have a common interest in keeping the price high. But they don’t necessarily trust each other. Giving for example the Texas Railroad Commission the power to decide for the whole world who gets to pump what oil would not be acceptable to everyone else.

Where did I hear that before again? A system that does not require any trusted party? And is still able to keep guaranteed scarcity, as proven by an over ten years track record?

Bitcoin.

While still in its infancy, this project has proved its resilience for some time. And while there is just now a proposal in the US Congress to mint trillion dollar coins, there will never be more than 21 million bitcoins. And everyone knows exactly when which one will be mined.

So all you need to do is to outsource quota issuing to Bitcoin over some altcoin or other linked to bitcoin issuing. Then let the market distribute the production quota rights. And enforce the quota on the demand side. Make sure that no one buys any oil without the necessary production quota rights on the seller’s side.

That is the missing link to actually get a system based on phaseout profit going. It might just work. The situation right now on the oil market might be a chance to actually pull this off.

The benefits for the oil industry and the state owners of the oil fields are obvious. But at the same time, this would help massively with speeding up the answer to the climate emergency.

Published by kflenz

Professor at Aoyama Gakuin University, Tokyo. Author of Lenz Blog (since 2003, lenzblog.com).

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