When are we going to call out cryptocurrencies? A bit like Brexit – or a Trump presidency – no-one really knew or cared about such things until it was in their faces. And now that we have this particular thing, a cryptocurrency’s supposed advantages don’t stack up in reality, while its downsides are huge, says Steve Mullins.
Take the question of fraud. Because of blockchain technology, cryptocurrencies supposedly can’t be counterfeited so they are a safer medium of exchange. But, of course, the likes of Bitcoin has engendered whole new ways of committing fraud as consumers are conned into investment scams. And it seems that while old-fashioned investment swindles targeted the over-55s, crypto cons typically lure a younger demographic. Those under 25 are six times more likely to trust an investment offer they received via social media, according to the UK Financial Conduct Authority, and digital natives can also be digital naïves.
OK, so regulators are on the case, right? Not really. The US Commodity Futures Trading Commission made it clear that it’s not too interested in intervention. When it comes down to cryptocurrencies, the watchdog is leaning on caveat emptor and is urging crypto-oriented outfits to self-regulate (a tool that doesn’t too often works out well for investors in the financial services sector).
But what about the fact cryptocurrency transactions can be completed in a fraction of the time required by their established currency counterparts (because they don’t require pesky third party intermediaries)?
Well, actually, there are often significant completion delays. Bitcoin network traffic can be pretty high because a lot of people currently want to invest/speculate in the currency. That generates demand for transactions history in the blocks (this is where blockchain comes in) and trades get stuck waiting for confirmation by miners, who are third parties by any definition.
One great thing about cryptocurrencies is that they are democratic, aren’t they? Everyone can invest in them. Democracy is a fine word which gets too readily hijacked. Just last week a report emerged that suggested the less-than-democratically-minded governments of Egypt, Turkey and Syria were hijacking citizens’ online accounts to go cryptocurrency mining.
Finally, it’s hard to ignore cryptocurrencies’ lack of sustainability credentials. Crypto mining demands a huge amount of energy and computing power – hence certain states’ hijacking activities – and Bitcoin alone is set to consume an annual 42TWh of electricity in a year – ahead of the New Zealand economy – according to Digiconomist estimates. That guzzling requirement can only increase given the current cryptomania.
Why does cryptocurrency mining consume so much energy? Because the activity is based on doing long computer-based calculations to solve difficult, meaningless calculations (money for nothing, in fact). Mining is supposed to be arduous – just like digging for diamonds – because that’s what makes the prize, a Bitcoin, so valuable.
However, it shouldn’t be prohibitively expensive because then it won’t be worth mining at all. Which is why miners are chasing around the world looking for cheap electricity. A lot are knocking on Canada’s door for that reason.
But some don’t see the point of cryptocurrency mining. Canadian politicians for one. Last week, Québec Premier Philippe Couillard turned his back on energy-hungry miners. “There needs to be added value for our society – just having servers to do transaction mining and acquire new Bitcoins, I don’t see the added value,” he said.
Neither do we.