Amidst the global economic blues that preceded the Covid-19 pandemic and then were exacerbated by, it was the rising popularity of digital cryptocurrencies such as Bitcoin.
The invention of modern currencies passed through many stages of development. In the past century, it was thought that any legitimate currency issued by a national bank was an acceptable payment method. New forms of credit such as cheques and credit cards were all based on the fact that the currencies they used were issued by a designated entity, usually a central bank, regardless of the nationality of the country concerned.
There has always been some twisting of the rules, according to which certain commodities can also be accepted as currency in certain circumstances and not necessarily through barter deals. Cigarettes are accepted in prisons around the world as a form of a currency for services among inmates as cash is usually not available, for example.
However, today the world is facing a stranger phenomenon that is being assisted by global economic woes and people’s desire to garner any financial gains they can, even by the most eccentric methods such as cryptocurrency mining.
In 2009, a new form of currency was introduced by a group of computer programmers and hackers. Satoshi Nakamoto is presumed to be the alias of the Japanese creator of one of these, Bitcoin, though the true identity and nationality of the Bitcoin founder, or founders, remains unknown.
Bitcoin can be defined as a decentralised digital currency issued without the approval of a central bank or a single administrator. It can be exchanged from user to user through a Bitcoin network. Bitcoins or other types of cryptocurrency such as Ethereum can be transferred between users on a peer-to-peer network without the need of intermediaries. There are only 21 million Bitcoins available in the world right now, and millions of computer users are trying to “mine” them through dedicated computers.
From the early beginnings of the new Bitcoin currency, it was noticeable that the identity of its creator was shrouded in secrecy. Initially, it was used to finance underground and black-market transactions on the so-called Deep Web. These could be done without leaving a paper trail, and therefore they were ideal for black-market transactions.
Today, when the currency is being more widely used, there is still doubt about its validity. Some online stores have announced their acceptance of Bitcoin as a method of payment, and people are now buying many sorts of items with them, including Microsoft products. However, one of the first supporters of Bitcoin, US billionaire Elon Mask, also the founder of the Tesla car brand, announced in May that his company would no longer accept Bitcoin as a form of payment despite his having announced a few months earlier that the company would accept it.
Bitcoin mining around the world has been a major source of disturbance as it is extremely energy consuming. The energy required by so-called mining “farms” comprised of computers and supercomputers processing complicated algorithms to unlock Bitcoins are now a major concern. The current global consumption of energy used to mine Bitcoins is more than the annual energy consumption of an industrial country such as Argentina, and it is nearing the energy consumption of Egypt, a nation of over 100 million people.
If Bitcoin were a country, it would be the 30th most energy-consuming nation in the world. Bitcoins and other cryptocurrencies consume a significant amount of global energy production, and this is not poised to drop. According to Microsoft founder and US billionaire Bill Gates, Bitcoin consumes more electricity per transaction than any other method. The power consumed for every Bitcoin created is said to be equal to a million credit-card transactions.
The cryptomania surrounding the mining of Bitcoins has also meant a huge increase in the prices of computer components. Computer processors, memory cards and graphic cards have all soared dramatically in price over the past two years. Graphic cards, formerly sold at an average price of $500, could easily reach $1,500 as a result of the extreme demand for them. This would jeopardise the computer-gaming business, especially for PCs and console gaming because games for devices such as Nintendo, Playstation and Xbox use high-end computers.
However, there seems little chance that world governments will allow their economies to be ruled by groups of computer programmers or by billionaires with time on their hands such as Musk. The stability of the economy is equivalent to the stability of the state. One of the most important pillars of a stable economy is the stability of the currency, and the volatile nature of Bitcoin, along with other cryptocurrencies, produces the exact opposite effect to currency stability.
The enormous fluctuations caused by mass purchases or sales of Bitcoins cannot bring stability to a market. In April, for example, Bitcoin reached a record high valuation of $63,000 per Bitcoin, only to slump to $30,000 in May.
This is a ludicrous situation to be in regarding any sort of currency, and it would be a disaster were Bitcoin to be recognised as a currency that could be used for regular commercial transactions. The currency’s conversion to bank notes remains extremely limited, since Bitcoins cannot be transferred to a bank account but have to go through a third party who accepts them and transfers their value into cash.
China, where unverified estimates claim that 70 per cent of cryptocurrency mining currently exists, notably because of low energy prices, banned the activity in May. However, it also announced that it would create its own digital version of the Yuan, which will allow the authorities to regulate all financial transactions as flows will be completely traceable.
“The whole thing is a joke. I fully understand that our financial system isn’t perfect, but at least it’s real,” commented US TV presenter Bill Maher of the ongoing cryptomania in the US, where statistics show that one in every ten Americans have invested their Covid-19 stimulus cheques in a cryptocurrency.
“It’s like Tinkerbell’s light: its power source is based on enough children believing in it,” added Maher, referring to the character in UK author J M Barrie’s famous children’s book Peter Pan.
Maher’s description could not be more accurate. The entire affair remains dangerous and time-consuming, as well as environmentally hazardous to say the least. Even so, many environmentalists worldwide, including celebrities who have been drawing attention to the dangers of carbon emissions and the use of plastics, have remained silent about or have even endorsed the use of cryptocurrencies.
They include people like Musk, whose model for manufacturing electric cars is based on saving the environment, although he did decide to stop all online purchases of Tesla cars with Bitcoin last month.
The hypocrisy is unbelievable, and cryptomania, unless stopped, will surely cause more damage to the world than bring tangible benefits.
*The writer is a political analyst and author of Egypt’s Arab Spring: The Long and Winding Road to Democracy.
*A version of this article appears in print in the 3 June, 2021 edition of Al-Ahram Weekly