Crypto’s madcap, meme-crazed online culture can make it seem frivolous and shallow. But that’s far from the truth. Behind the glitz and glitter, there is a robust ideological movement that has significant implications for our economic future.
Cryptocurrencies, or crypto, are digital assets that allow people to transfer value online without the need for a bank or payment processor. This enables value to be transferred globally, near-instantly, 24/7 and for low fees. It also enables people to trade and invest in them. Many of these currencies are based on blockchain technology, with some such as Bitcoin and Ethereum having become household names. Others are based on different technologies or have added features that enable them to do more than just transfer value.
Most of the controversy around crypto revolves around a few key issues. First, there’s the question of its legitimacy and security. Critics argue that these currencies aren’t backed by any actual assets and can therefore be used for illicit activities. They are also prone to wild price fluctuations, and their infrastructure is vulnerable to attacks. Some of the most prominent critics are Nobel Prize winners in economics, including Paul Krugman and Robert Shiller, who argue that they’re nothing more than a Ponzi scheme or a means for criminals to hide their wealth.
Other criticisms revolve around the environmental and social impact of crypto. For example, the blockchain networks that underpin most cryptocurrencies use massive amounts of energy. Bitcoin alone uses an estimated 200 terawatt-hours per year, according to Digiconomist, which tracks the currency’s energy usage. That’s equivalent to the annual electricity consumption of Thailand, or the carbon footprint of the Czech Republic. It’s a big deal, and one of the reasons some people have distanced themselves from the sector.
On the other hand, crypto fans say that these networks aren’t just storing transactions; they’re building a new financial system that will eventually be used for all kinds of things — storing medical records, tracking streaming music rights, or hosting new social media platforms, to name a few. They believe that this new system will be worth something, even if the specific coins that comprise it aren’t yet valuable in and of themselves.
Of course, investing in anything comes with risks. And crypto is no exception. Some cryptocurrencies are linked to particular technological products, and investors are often at the mercy of management teams that have no legal or ethical responsibility to their customers. In addition, the lack of regulations means that market manipulation is prevalent and that it’s difficult to know which projects are sound. Nonetheless, it’s possible to gain an edge by understanding these issues and staying informed about the latest developments. Our Simplilearn video Cryptocurrency Explained is a great place to start.