Beyond Bitcoin: The Big Gamble

Cryptocurrency is believed to be the future of the currency of the world, with tech-optimists calling on others to embrace decentralized and “trust-less” money.

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By Ying Chen

Chances are that you’ve heard of crypto, the latest investment fad. Crypto, short for cryptocurrency, is a decentralized digital currency that is secured using cryptography, a computerized encrypted code. Since the beginning of the year, the market value of cryptocurrencies has soared nearly 150 percent from $1 trillion to over $2.48 trillion. Investing in crypto has become a craze that has taken mainstream media by storm, luring many to invest in various “coins” like Bitcoin and Ethereum to potentially expand their wealth. Many have not hesitated to jump on the hype train, believing it to be the future of money.

Crypto’s run-up has prompted a great deal of “if only” thinking. If you bought $1,000 worth of Bitcoin, the world’s largest cryptocurrency, a decade prior, the investment would amount to over $287 million today. Since its launch in 2009, Bitcoin has crossed $63,000 at its peak and is currently valued at $50,700. In the past year alone, this individual cryptocurrency spiked nearly 400 percent.

Bitcoin, however, or any other cryptocurrency, was not created to become a part of the current global financial system; it was meant to replace it. Laid out in a whitepaper under the pseudonymous Satoshi Nakamoto, Bitcoin was created in response to the financial crisis of 2008, a worldwide disaster that led to economic decline and nearly brought down the global financial system. A significant cause was the global dependence on banks. Nakamoto proposed a decentralized payment system that would eliminate the intermediary role banks have in transactions. The system would function without trust and allow transactions without going through a financial institution. Nonetheless, with Nakatomoto’s disappearance and the cryptocurrency’s initial volatile value, its new system only drew skepticism. As its price surged over time, Bitcoin shifted from replacing the financial system to being absorbed by it, becoming merely another investment vehicle. Incidentally, the Internal Revenue Service recently declared that cryptocurrencies, such as Bitcoin, are property, meaning that gains and transactions in those cryptocurrencies can now be taxed.

However, Bitcoin’s ascent has not been without cost, causing many experts and analysts to be bearish on the cryptocurrency’s fate. One of the greatest and most common risks of the investment is the sharp crashes that may follow drastic surges in price. Additionally, its definition as a digital asset means that it is not kept in a physical wallet; rather, it is stored in a digital wallet, which can be web-based or hardware-based. This makes it prone to online hacking or technological failure that can erase a wallet of Bitcoins with no recourse. Since Bitcoin is not regulated by the government, it can also easily be a vehicle for fraud, including scams that have soared in number by nearly 1,000 percent in the past few months. It is also limited in its applications due to vendors’ unwillingness to take these risks. Appropriately, experts suggest erring on the side of caution and investing only as much money as one can afford to lose.

As Bitcoin set records with its recent peaks, other cryptocurrencies gained popularity as well. A novel cryptocurrency named Internet Computer increased its market value to over $45 billion just a day after its debut. Dogecoin, a cryptocurrency based on a 2013 meme, surged nearly 14,000 percent this year alone, with spikes credited to tweets by Elon Musk, the self-proclaimed “Dogefather.” Musk even accepted the meme-inspired cryptocurrency as payment for Teslas. The rise in cryptocurrency’s traction has also paved the way for the absurd upsurge of the market value of exchanges. Coinbase, an exchange platform for cryptocurrency founded in 2012, has amassed a market value surpassing those of veteran giants like BP, an oil company, and General Motors, an auto manufacturer, both founded in the early 1900s.

Recently, cryptocurrencies have taken a hit after news disseminated that “mining” for cryptocurrency, like Bitcoin, is immensely harmful to the environment. To mine cryptocurrency, a miner must solve complex math problems, which requires immense electrical and computational power. In fact, Bitcoin mining uses more electricity annually than the entire population of Argentina does. A single Bitcoin transaction consumes 1200 kilowatt-hours of power, more than the average American household uses in a month. The rising price of Bitcoin has attracted more miners, contributing to a colossal surge in carbon emissions of 40 million tons in the past two years, surpassing the carbon emissions by American Airlines. If the price of Bitcoin continues to rise, it could soon become the fifth-largest carbon dioxide emitter worldwide.

As a result of the increasing environmental impacts, companies like Tesla, which has invested billions of dollars in cryptocurrency, have suspended their use of it. Tesla’s CEO also announced the company’s pursuit of alternative cryptocurrencies that use less than one percent of the energy that Bitcoin consumes. These backtracks have taken their toll on the world’s largest cryptocurrencies. $365.85 billion were wiped from the market for Bitcoin and its price plummeted 17 percent. Following the Tesla action, Dogecoin and Ethereum also plunged 34 percent and 12 percent, respectively. The performances highlighted the sensitivity of cryptocurrencies, obliterating the confidence they had recently bolstered in investors.

Cryptocurrency is believed to be the future of currency, with fellow tech-optimists calling on others to embrace decentralized and “trust-less” money. Especially for beginners enticed by the surges but blind to the plummets, crypto has become another investing fad to make or break a fortune. Though its roller-coaster volatility garnered significant skepticism after another inevitable crash, many believe in cryptocurrency and continue to fuel its burgeoning. The takeover has been hindered by its absorption into the current financial system and reports of its detrimental effects on the environment. Regardless, cryptocurrencies’ bullish runs have proven one thing: it is a hype train running at full speed with no intention of stopping.