The spruikers of cryptocurrencies — the politicians, the business geniuses, the “one in five Australians has bought crypto!” crowd in the media — have gone curiously quiet as FTX, once the most well-regarded cryptocurrency exchange, has imploded, sending $32 billion in valuation up in smoke and the value of bitcoin plummeting yet again. It has now lost two-thirds of its value since January.
There are a huge number of beneficiaries of these collapses — and the benefits will be all the greater if bitcoin falls further in value.
The biggest winner is the effort to control CO2 emissions and energy prices. As the Financial Times pointed out, bitcoin mining used to use around 0.5% of the entire world’s power output. But the lower the price goes, the less profitable mining becomes, reducing energy demand and CO2 emissions.
That’s good news at a time when global energy markets are experiencing turmoil as a result of the war in Ukraine.
It might also reduce demand for computer chips, another item the scarcity of which has played a major role in supply chain disruptions and inflation.
The collapse in bitcoin’s value is also the biggest crime-fighting outcome of recent years around the world. Cryptocurrencies are the lifeblood of the dark web and of the hacking world, and anyone holding substantial assets in crypto courtesy of criminal activities has suffered a major loss in wealth this year as a result.
Legitimate investors have lost a fortune as well, but they only did so as a consequence of ignoring a plethora of warning signs that cryptocurrency was a speculative bubble and that cryptofinance was a largely unregulated market populated by shonks and spivs — with the inevitable result of such markets. The lack of oversight by major institutional investors like Sequoia Capital, SoftBank, Temasek Holdings and BlackRock while giving FTX US$2 billion was astonishing. According to the BBC, Sequoia analysts happily signed off on an investment of more than US$200 million despite CEO Sam Bankman-Fried playing a video game throughout discussions.
That episode epitomises the profound dereliction of duty by major institutions in falling for the crypto scam — including Telstra here. Others, like the Commonwealth Bank, came perilously close before backing out at the last minute.
There has been literally nothing positive to emerge from cryptocurrencies — not in terms of financial markets, inflation, energy usage or carbon emissions. Those who spruiked them ought to be offering apologies for trying to encourage Australians to jump on a bandwagon to financial destruction.
Crypto is an interesting idea – or at least the blockchain / public ledger part is. Otherwise it kinda escaped from nerdy discussion groups and became “something else” as the spivs, shonks and criminals jumped on the band wagon – a bit like what happened to the internet when it’s main purpose suddenly became advertising and surveillance about 25 years ago.
The strange thing about crypto is that it’s not necessarily as secure or well implemented as the underlying standardized crypto algorithms (mostly AES256).
I started looking at the source code for Etherium a few years ago and was horrified – the second biggest currency was this sprawling mess of aspirational stuff way over and above the basic algorithm mostly put together by one person. No way was it secure – the attack surface was huge!
In the case of Monero (North Korea’s favourite apparently) a computer science professor did some basic optimisation on it’s code over a summer break, hired some Amazon servers and made himself several $100k before his code was released into the wild.
In the end the blockchain is a solution looking for a problem. Maybe there’s a killer application yet to be thought up – otherwise crypto is just the latest bandwagon – remember the New Economy, the Asian Tigers, and if you work for a big company the last 20 or so silver bullets adopted by management.
> “In the end the blockchain is a solution looking for a problem”
^ 100% this ^
Agree with everything you’ve said, except the first sentence. It’s not even that interesting. The bits that are new are not useful, and the bits that are useful are not new. The sooner the entire thing disappears up its own fundament, the better.
Estonia uses blockchain technology for to its security on several systems including company registration, voting, residency (inc. e-citizenship) etc.
However, popularity and supposed value of cryptocurrency seemed to be based more on PR around ‘blockchain’; an analogy would be media being credible simply because it’s ‘digital’? (pardon Crikey)
A good article.
Only a fool would consider politicians, businesses and banks to be reliable advisors regarding anybody’s investment choices.
That leaves the mainstream media. Unfortunately the mainstream media has such a poor understanding of economics and finance that its only option has been to endlessly regurgitate the same mindless groupthink and sensational stories.
I have never seen an article explaining why a fiat currency dollars created out of thin air by a bank is nothing like the same as a Bitcoin created out of thin air. For those interested, fiat currency is the only way to pay tax – if you don’t pay tax then eventually men with guns will put you behind bars. The demand for fiat currency is therefore guaranteed literally by the full coercive force of its issuing government.
The only solid use case for Bitcoin is hiding criminally related financial transactions. In fact this is a weakness – at some point governments are going to want transparency at which point Bitcoin will be useless. Likewise for the rest of crypto.
“if you don’t pay tax then eventually men with guns will put you behind bars” If only that applied to everyone!
Good points though 🙂
It seems that “eventually” is a foreign concept to the habitual tax cheats in Australia….
https://www.ato.gov.au/Business/Large-business/Corporate-Tax-Transparency/Corporate-tax-transparency-reports/
Check the top 25 corporates who pay no tax.
Turnover $150 BILLION
Tax paid between them?………… $30.00 (Yep – that’s Three Zero, THIRTY Dollars)
“I have never seen an article explaining why a fiat currency dollars created out of thin air by a bank is nothing like the same as a Bitcoin created out of thin air.”
Pretty straightforward.
Fiat currency has the explicit backing of the government of a country.
Cryptocurrencies are cheques drawn on the Bank of Nowhere.
Errr, you’ve just explained the difference ?
There’s another fairly important one as well – the total number of Bitcoins is limited.
It’s Tulip Mania without any tulips.
Perhaps a Non-Fungible Tulip.
The madness of crowds.
…. Time to invest in lilies….
Crypto trading seems about as beneficial to society as poker machines.
To quote Ulysses Everett McGill “Well, I guess hard times flush the chump….”