The rise of Crypto: Decrypted

By  Parth Bhasin

In 2009, the world’s first Cryptocurrency Bitcoin was invented. It was a major breakthrough in the world of commerce. It has now become a very sought-after alternative for currency. The sheer number of types of cryptocurrencies itself speaks about their immense demand. As of November 2021, there are more than 10,000 cryptocurrencies in existence.

Satoshi Nakamoto, the pseudonymous founder of Bitcoin, described it as a “purely peer-to-peer version of electronic cash that would allow online payments to be sent directly from one party to another without going through a financial institution.” This means that if cryptocurrency is granted a legal tender universally, it would inevitably bid adieu to all the banks, credit cards, and any other organisation having a business model of transferring money. And though some people see cryptocurrency as an alternative to all types of currency. However, I spot many loopholes on the path to granting cryptocurrency a legal tender.

Firstly, most cryptocurrency investors have total anonymity. There are no “Know Your Customers” (KYCs) and no way to identify who paid the money and to whom. This shields tax evasion, money laundering and illegal transactions. Even though some people call this ‘pseudonymous’ rather than ‘anonymous’ because there is a record of all the transactions in the blockchain. However, this effectively leads to anonymity because it requires vast resources to track the person behind the crypto address.

Secondly, the regulation issue. No entity, organisation or individual in the world is responsible for managing or regulating the virtual currency. Cryptocurrency is a decentralised currency. If cryptocurrency gets legal tender, the government will have no say whatsoever in the monetary policy, which would be unacceptable to many democracies. For instance, during the pandemic, when levels of unemployment were skyrocketing, governments around the world printed money and initiated schemes to fund people and help them. This could not have been possible if money was regulated by some private entity. This not only makes cryptocurrency very unreliable but also poses a risk of an implosion of the economy.

The third loophole is energy consumption. It takes vast amounts of electricity to mine cryptocurrency. The process of creating just Bitcoins consumes around ninety-one terawatt-hours of electricity annually. Thousands of computers, processors, Graphics Processing Unit (GPUs) and Central Processing Units (CPUs) simply need tons of resources. When the world is already facing climate change and global warming, the last thing we need is tons of electronics, guzzling the world’s energy and accelerating climate change. According to the New York Times, mining Bitcoins requires more electricity than is used by Finland annually.

Another factor is that dealing in cryptocurrency requires the internet and devices such as mobile phones hence, poor people may not be able to use it.

China has totally banned cryptocurrency while some other countries have left it unregulated. Only one country, El Salvador has granted cryptocurrency a legal tender. There have been mixed responses around the globe regarding cryptocurrency. The Financial Action Task Force (FATF), International Monetary Fund (IMF) and United Nations Economic and Social Council (UN ECOSOC) really need to step up and settle the various questions about cryptocurrencies so as to draw up a uniform global view on this technology.