It seems that every other day (or every other hour if you are unlucky) someone or the other is trying to get people to use Crypto currency because they claim that it is awesome and not at all dependent on government regulations and thus won’t fluctuate that much. Famous people are pushing it, others like New York City Mayor Eric Adams are trying to raise awareness of the product and have decided to convert his first paycheck to Crypto, El Savador started accepting crypto currency as legal tender etc. However, the promises made by crypto enthusiasts don’t translate into reality as the market remains extremely volatile.
I see people posting on twitter that Crypto currencies are better because they are stable, but in my opinion if a currency can drop 20% because Elon Musk tweeted a Broken heart emoji then it is not something I want to use to store my savings. Earlier this week the entire Bitcoin market dropped over 47% from it’s high back in Nov 2021. Mayor Adams paycheck which was converted to crypto is now worth ~1/2 of what it was when he invested it, and that is a massive drop. Imagine loosing 50% of your savings in one shot. You might suddenly have no way to pay rent or emergency repairs/hospitalization etc. Even El Savador has seen its credit become 4 times worse than it was before it moved to Bitcoin. People there are complaining that the promised reduction in cost for conversion to/from international currencies is a myth as they are paying more than what they were paying earlier as transaction costs.
Another major issue with crypto currency is the ecological hit caused by the mining. According to research done by University of Cambridge, globally Bitcoin uses more power per year than the entire population of Argentina. The recent Kazakhsthan unrest and protests were sparked off due to surging fuel prices that were caused by the migration of Bitcoin miners to the country after China banned them. This caused a lot of strain on the electricity grid and required an increase in the prices which kicked off a massive protest that has caused untold no of deaths. There are multiple folks coming up with new crypto-currencies that claim to be carbon neutral but so far none of them have delivered on the promise.
Bitcoin is thought to consume 707 kwH per transaction. In addition, the computers consume additional energy because they generate heat and need to be kept cool. And while it’s impossible to know exactly how much electricity Bitcoin uses because different computers and cooling systems have varying levels of energy efficiency, a University of Cambridge analysis estimated that bitcoin mining consumes 121.36 terawatt hours a year. This is more than all of Argentina consumes, or more than the consumption of Google, Apple, Facebook and Microsoft combined.
Check out this fantastic (though very long – 2hr+) video on economic critique of NFTs, DAOs, crypto currency and web3. (H/t to Cory Doctorow)
In summary, I would recommend against investing in crypto currencies till the issues highlighted above are resolved (if they are ever resolved).
– Suramya