The Cryptocurrency Bubble Is Only For the Richie Rich

The obscure world of cryptocurrency is a dream-come-true for the rich as it’s a smooth way to evade accountability.

There are many social implications of this still nascent but incredibly glamorous species of virtual currencies.

(Photo: iStock)

So your niece was born yesterday. ‘Pandemic baby’, celebrations in the family during these dark times. They’ve named her Khushi, the bundle of joy that she is. Tomorrow, you’re going to see her along with the rest of the family, for the first time. Are you going to make her a Fixed Deposit (FD), that she can use once she turns 18, maybe to go study abroad? Or give her a gold necklace that she will one day wear for her wedding? Or are you going to gift her 10 Bitcoins, as you peer into her pink little flushed tiny human face?

‘Flash in the pan’ they called it. During the California Gold Rush, roughly in the mid-19th century, as the feverishly enthusiastic diggers panned for gold, they would often mistake anything that had a glint for gold, though it often turned out to be just something that reflected the harsh sun that they toiled under. The relationship between man, civilisation and their unique invention — money — has been perhaps the longest, most fraught and complex relationship of all time, rarely rewarding, and, mostly, crippling.

Though money and currency are used colloquially to mean the same thing, in essence, money is just a theory, while currency is the tangible authentication of it. The earliest form of ‘currency’ was cattle, which, as early as 9000 BC, was used for bartering before the evolution of finance. This evolution took place as civilisation progressed, and ”money” could facilitate the growth of speed at which the “businesses” of civilisation (construction, engineering, war, etc.) took place.

How ‘Money’ Came Into Being

Roughly around 750 BC, the Chinese, instead of using actual tools and weapons to trade, started using miniatures of these items cast in bronze. The impracticality of this led to the formation of uniform circle-shaped objects, which eventually became the crudest form of coinage. In 600 BC, King Alyattes started the first industrial facility in modern-day west Turkey (then called Lydia), to manufacture coins made of a naturally occurring alloy of gold and silver called electrum, which became the first mint of the world. These coins had imprints, usually of animals, that were used as denominations. This helped the kingdom of Lydia to flourish and become one of the richest in Asia as it increased both its internal and external trading.

Around the 13th century, the daring Mongolian emperor Kublai Khan decided to unify all the different types of coinage being used in various parts of the Chinese empire and replace it with a common form of paper that had the inscription “those who counterfeit shall be decapitated”.

Though in various parts of Europe coinage of various precious metals were still being used, once the banking system came into being, they started using paper notes for their patrons and borrowers. Eventually, as society became more centralised, governments started to mint these paper notes instead of the banks, to become the arranged financial apparatus that we know today.

Paper money came to India in the 18th century, and with the Paper Currency Act of 1861, the notes were printed by the Bank of England.

As currency began to be centralised by governments and state authorities across the world, there inevitably began currency wars wherein countries would begin to try to drive down an enemy state’s currency by using various methods of manipulation. The difference between theory and corporeal has never been more merged or polarised.

Money Is An Ever-Changing Game

Standing firmly in the middle of 2021 today, as we reflect on history and evolution, it is important to remember that change is an ever and ongoing process — we are witnessing another quantum transformation of the elements of the ancient process of exchange of trade and goods. Mobile payments and virtual currency have taken the notion of finance to an almost existentialist plane now, with exchange being carried out on a network that exists all around us but cannot be seen or felt.

Virtual currency is any currency that’s available only in electronic form — that never takes physical form. And as of now, though most central governments and banks are researching on centralised digital currencies, none of them have launched one formally yet. There are many social implications of this still nascent but incredibly glamorous species. Glamour, however, is mostly empty and insubstantial, and, most importantly, attracts trouble and volatility. Two elements are detrimental to the whole idea behind a secure financial system, upon which the economic fate of entire populations of countries depends.

Virtual currencies use blockchain technology, which means that AI (Artificial Intelligence) solves complex equations to verify and document transactions. This requires electricity and connectivity and gets more expensive as the number of transactions grows. Sounds pretty exciting, but how does it work for the common man?

Would You Give Up Control Over Your Finances?

In different times, physical pieces such as cash, gold or other precious items had a fixed value that one could hoard and have full control of, but now authorities, or really anyone working behind virtual walls, could have a person locked out of their own belongings in a click.

Are we ready to relinquish control over our own finances, or allow someone else access to them? Blockchain technology, which is supposed to provide protection against assailants, just works in the favour of the early birds in this wave, cementing their position further.

Powerful microchips called ASICs (Application-specific integrated circuits), which were initially just meant for securing the Bitcoin blockchain, are now electricity blackholes and profit generators for hardware manufacturers. Bitcoin’s laissez-faire mining incentives have only led to the control of almost 40% of the entire network hash rate and the supply of the hardware as well, by only one company. Despite this technology, it’s elitist in nature as the largest operations with the most computers win, while other options like cloud mining are just riddled with scams. In fact, the only community to have truly adopted this as their way of financial exchange is the grey world of dark markets, such as the Silk Road, which first gave Bitcoin celebrity status.

Stability is just notional, as a pound of wheat could cost double in a matter of a few hours. The reality is that all this is a fairy tale for wealthy elitists, who would now have a legitimate way of evading their taxes and carry out other sorts of (as yet) illegal or criminal financial transactions while arguing against the entire system of financial governance that has evolved over the years.

Crime, Darknet, Digital Attacks: Where Crypto Shines

It doesn’t take Einstein’s IQ to see cryptocurrency’s role in the facilitation of crime around the world. The darknet, with its drugs and guns and human trafficking, welcomes this new unaccountable and untraceable commodity with beaming grins. It has hackers salivating, as ransomware is almost exclusively commissioned by cryptocurrency now due to its protection from tracing. Phishing and digital attacks, even on small organisations such as businesses, hospitals as well as individuals, have become a societal menace, almost elevating itself to pop-culture status.

In the wake of the recent Intergovernmental Panel on Climate Change (IPCC) report that says it is now “Code Red for Humanity”, the high levels of energy consumption and wastage caused by the acceleration of the cryptocurrency mining performance is absurd.

According to sources, as of 2019, which is two years before the present day, just Bitcoin mining was using more electricity than all of Switzerland.

To think of what the estimates must be today after these two hugely successful and progressive years of virtual currency, is, frankly, terrifying.

Does cryptocurrency work for the elite, the rich, the yacht club, the Winklevoss brothers (remember the humble beginnings of Facebook?), the oligarchs, the ones with a finger in a dirty pie and the loan sharks left out of the system? Yes, most definitely. As much as 40% of the Bitcoin market is owned by about 1,000 people. As Ethereum co-founder Vinay Gupta said, “Right now, cryptocurrency is a form of elite defection”.

But for the common man, who earns and eats the fruits of his labour — let alone the poor — what function do cryptocurrencies have apart from being an unstable, insecure and perhaps a dizzyingly accelerated journey to the depletion of hard-earned money?

A Wild Ride Only a Few Can Afford

As Mastercard, the old elephantine pillar of modern-day finance, prepares to adapt to the changing world by starting to support select digital currencies, ultimately, the pantomath opinion is that it is just a bubble waiting to burst. Billionaire John Paulson recently called out the crypto bubble, terming it “eventually worthless”.

At the end of the day, what it mirrors is a world becoming increasingly capitalistic, dangerously elitist, with a vertiginous wild ride of the highest peaks and deepest troughs.

Capitalism has its logical roots in Darwinism, and the rich and the powerful have always dominated, till the rest have risen to overthrow them — and the cycle continues.

Is this our present? It definitely seems so. Is this our future? Maybe it is. Perhaps the bubble will expand, perhaps it will burst, but as history has shown us, there will eventually be something new once all this is over.

(Monjorika Bose is a freelance writer based out of Delhi. Her interests include lifestyle, culture, current affairs, literature, art, food, and humour. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)