You read that title right! I never thought I would write about cryptocurrency (again, in this economy?). I polled my Instagram followers a while back and they were split on whether I should even consider discussing cryptocurrency. It didn’t help my own ambivalence on the topic, but I decided to be the tie breaker.
Let’s start with the logistics and go over the naysayers’ position and the positives of cryptocurrency (there’s like two, OK?). Then, I’ll share my own opinions and whether I foresee investing in cryptocurrency.
An AAII article about cryptocurrency defines it as “a digital asset that is constructed as a medium of exchange.” The first cryptocurrency that comes to mind is bitcoin. Another more recent AAII article goes into more depth and discusses bitcoin as “a decentralized cryptocurrency. It is decentralized because there is no single individual or company that owns or issues new coins, as compared to airline miles or rewards points from your favorite restaurant or retail store.”
I’ll spare you any more detail about how cryptocurrency runs, mostly because I don’t have much interest in that part (if you do, check out one of the articles linked above!). I’m more curious about how cryptocurrency is used, and how it impacts individuals and the world.
I think the biggest draw to cryptocurrency is also its biggest drawback: the idea that you can make a lot of money in a short span of time. In practice it seems to be the exact opposite.
If cryptocurrency (or bitcoin specifically) sounds like a Ponzi scheme to you, you’re not alone. Many people think the same, as this article from Jacobin confirms. In it, author Sohale Andrus Mortazavi states:
“Just as torrents allow users to share files directly, cryptocurrency blockchains allow users to maintain a shared ledger of financial transactions without the need of a central server or managing authority. Users are thus able to make direct online transactions with one another as if they were trading cash.
“This, we are told, is revolutionary. But making unmediated online transactions securely in a trustless environment in this way is not without costs.” This also means that none of these cryptocurrency transactions are insured by, say, the Federal Deposit Insurance Corp. (FDIC) that insures most banks, making it a risky way to spend or invest your money. Since investing is already risky, why make it riskier?
Another concern about cryptocurrency is its lack of sustainability. In a blog post about why I care about sustainable investing, I noted that “according to Digiconomist on Twitter: ‘During 2021 Bitcoin consumed 134 TWh [terawatt-hours] in total, which is comparable to the electrical energy consumed by a country like Argentina. Related CO2 emissions were ~64 Mt [metric tons]; enough to negate the entire global net savings from deploying EVs [electric vehicles].’”
We know the world isn’t black and white (or green and brown for that matter), so I dug up some positive notes on cryptocurrency.
People backing cryptocurrency will say that one of its advantages is that it’s not being run by the government. They see it as a form of anarchy, or crypto-anarchy, to have this advantage of existing outside of government control. I’m all for a little anarchy, and not being “identified” by the police state, but it seems that as cryptocurrency has gotten more popular, it has lost its anarchist beginnings. If the goal now is to get everyone into using cryptocurrency, then who are we supposed to be hiding from?
Another advantage of cryptocurrency is that there is less possibility for charge-backs, like with a credit card, or bounced checks. The Federal Trade Commission (FTC) states that “Cryptocurrency payments typically are not reversible. Once you pay with cryptocurrency, you can usually only get your money back if the person you paid sends it back. Before you buy something with cryptocurrency, know the seller’s reputation, by doing some research before you pay.” Though this may be concerning for the person paying with cryptocurrency, it benefits those receiving the payment who might be independent workers like housekeepers, landscapers and freelancers.
If you’ve made it this far, what do you think? Would you invest in cryptocurrency knowing the risks?
For my personal investing strategy, my research confirmed that cryptocurrency doesn’t have a place in my portfolio. However, this could change in the future if the way cryptocurrency is mined becomes more sustainable. I also don’t want to invest in something I don’t understand, which is the case when people lose gobs of money investing in cryptocurrency that is volatile and unpredictable.
