Skeptics have been warning us against crypto for years.
Crypto winter is officially here, with prices plummeting and likely to stay low for a while. Story after story in the news attest to lives destroyed by a blind faith in the promise of crypto. Suicide helpline lists are pinned to Reddit forums. The utopian promise behind the initial excitement around crypto (that it would democratize money and decentralize power) is now tempered with wariness and caution. An open letter to the US Congress, signed by 1,500 technology experts, cautions legislators to “take a critical, skeptical approach towards industry claims that crypto-assets are an innovative technology that is unreservedly good.”
Should we have seen this coming? Skeptics have vocally expounded the problems and limitations of cryptocurrency ever since bitcoin first made its appearance in 2009.
Social media buzz and high-profile celebrity endorsements played a major role in reinforcing FOMO among investors of all stripes, making crypto investments gain steady momentum within a decade. But the biggest reason driving crypto buy-in was perhaps captured in Jemima Kelly’s interview with Jonathan Haidt (social psychologist and author of the famous Coddling of the American Mind). To Kelly’s surprised reaction when Haidt tells her he had invested more than 1% of his money into cryptocurrency, he responds, “I recognise it could go to zero, [but] it could go up multiple times … And if I don’t buy in at all, I would feel bad if it goes way up and I’d missed it.” This sums up many people’s attitudes towards crypto; they aren’t certain that it’s a sure bet, but they’d hate to miss out in case it hit the jackpot.
So what is the skeptics’ case against crypto?
It Is Unworkable in the Real World
Perhaps the most visible and vocal opponent of crypto (he even wrote a book about it), Stephen Diehl has written about cryptocurrency’s failure to fulfill its promise of decentralizing money. His argument is that, in effect, crypto cannot replace money because money’s use lies in its having a reliable and stable value. Secondly, money supply has to be dynamic in any viable economy to control inflation and deflation, so cryptocurrency’s reliance on a limited supply for value is counterproductive. Simply put, it is unworkable in the real world with the constraints we are currently operating under.
It Has No Real Value
Fiat currency has the value that the government is willing to guarantee it, a guarantee derived from their power to tax, sell assets, and other methods. This is why the US dollar is the most powerful and traded-on currency in the world, because it has the political and military might of the US government behind it.
Beauty is in the eye of the beholder, and one might argue that the value of anything is in the price people are willing to pay for it. But crypto’s value is not universally recognized. In fact, it is not even widely recognized outside the crypto bubble. Governments (apart from the exception of El Salvador, an experiment that is already proving disastrous) will always be wary of crypto, because it directly undermines their own power. And if there is one thing we know about governments, it is that they don’t cede power easily.
It Has Already Caused Significant Harm
Cryptocurrency is tremendously bad for the environment. A recent study by MIT researchers estimates that “a single bitcoin transaction generates the same amount of electronic waste as throwing two iPhones in the bin,” and there are approximately 300,000 bitcoin transactions every day. This is not including all the other cryptocurrencies available out there.
Crypto has potentially caused social harm as well, with many skeptics drawing parallels to pyramid schemes and gambling, rewarding early adopters and creating a culture where constantly recruiting new members is necessary for first movers to continue reaping benefits.
Crypto is a Bubble Waiting to Burst
Journalist Orge Castellano wrote back in 2018 that bitcoin is “unstable, irrational, speculative, volatile, complicated and way too euphoric right now,” all signs, according to him, that it was a bubble waiting to burst. Crypto’s use case as currency is debatable, as there is evidence that those who possess it are unlikely to use it as such, fearing that its value will go up in the near future.
While this might sound similar to how people treat stocks, stocks derive their value from companies’ ability to create profits whereas crypto’s value is derived merely from the idea that it will have increased value in the next buyer’s eyes. Stephen Diehl likens crypto coins to unregulated securities, where the currency’s only purpose is price appreciation without link to any sort of economic activity. When the bubble bursts, there is nothing to stop crypto’s value from plummeting.
____________
Written By: Techquity India
