What started as a utopic idea in the wake of the global financial crisis, has become a booming means of trade and payment that reaches all over the world. Cryptocurrencies are undoubtedly one of the biggest disruptive technologies of the last decade with massive possible consequences for our global economy, besides being hard not to read something about when scrolling through the news nowadays.
Cryptocurrencies, which are essentially pieces of code that are being traded as an asset, were brought into this world to offer an alternative to traditional centralised financial systems, as the past has shown multiple times that our banks and financial institutions are not unsusceptible to economic downfall or corruption. Besides this advantage of breaking the control of the banks, advocates of crypto also preach that the digital coin will make transaction fees or banking fees redundant and that cryptocurrency will drive innovation (Szalay & Venkataramakrishnan, 2021). There are large online and offline communities that believe that cryptocurrencies will actually solve some of the world biggest challenges.
Of course that all sounds like a noble cause, one might even call investors in cryptocurrencies activistic, but crypto is definitely not all roses. Opponents of the digital coins have raised concerns about the dangers of its volatility, and even some governments have stepped in now that the technology is increasingly being used for criminal transactions. But perhaps the biggest problem that comes forth out of this disruptive technology is its ecological footprint.
The process of ‘mining’ which creates new coins but is also necessary to verify transactions, is very energy intensive. According to a study compiled by the central bank of the Netherlands, the annual footprint of the global card system and global cash system combined is 7.2 million tonnes of CO2e, whereas the footprint of Bitcoin (the first and most traded cryptocurrency) alone is 64 million tonnes of CO2e on a yearly basis (Financial Times, 2021). Ethereum, another cryptocurrency, comes in at 27 million tonnes CO2e, so it seems fair to conclude that crypto is an extremely unsustainable means of payment.
Regardless if people are interested in crypto for the potential financial gains or to change the world, that should be reason enough to think twice before investing.
References
Financial Times. (2021, July 17). Carbon counter: environmental cost of cash pales against crypto. Retrieved 4 October 2021, from https://www.ft.com/content/cd40e708-6126-4685-bb75-9ad2bfe7160a
Szalay, E. (2021, May 28). What are cryptocurrencies and stablecoins and how do they work? Retrieved 4 October 2021, from https://www.ft.com/content/424b29c4-07bf-4612-b7d6-76aecf8e1528
Very interesting article! I think you explained very well what cryptocurrencies are and why they are disruptive. On the one hand you explained what the advantages of cryptocurrencies are, such as combatting corruption, innovation, etc. On the other hand, you explained how cryptocurrencies are often very volatile and how the mining can be very energy intensive. I feel like the concerns you addressed especially are worth considering in the future.
Thank you for your interesting post! I think it is also very interesting to look at the dark environments cryptocurrencies actually work in. Namely, that most illegal transactions are done with cryptocurrencies due to their blockchain technology will give anonymity. This is one reason why the Chinese Government has actually order that ICOs (Initial coin offerings) to defined as illegal in 2017. According to the paper by Foley et al. (2019), around one-quarter of all Bitcoin transactions are estimated to be illegal.
Foley, S., Karlsen, J. R., & Putniņš, T. J. (2019). Sex, drugs, and bitcoin: How much illegal activity is financed through cryptocurrencies?. The Review of Financial Studies, 32(5), 1798-1853.