Is Cryptocurrency a Wise Investment? Also, is it Responsible?

Article to be attributed to Mr. Sanjay Dangi, Director – Authum Investment and Infrastructure Ltd., & Financial investor to many startups.

I was halfway through this article when Russian tanks rolled into Ukraine. I had to tear it up and rewrite it as I watched the situation unfold. I am no expert in warfare or international diplomacy or even in national morals – so I won’t comment on those. What my article has become is whether cryptocurrency (crypto for short) is a good and sustainable investment choice.

First things first – cryptocurrencies have not really met their promise of being currencies that are free of the current monetary system. They don’t do any of the things a currency can do. You can’t purchase goods with them – you have to convert them to a government-issued currency whether you want to buy an apple or an Audi (and since 13th May 2021, not even a Tesla). They are not a store of value because of their current volatility – and the lack of a stabilizing hand. And frankly, people still don’t treat them as currency – and that matters. A currency is only valuable as long as it is ‘current’ among people. That does not mean cryptos are fake. It just means they are a form of digital asset, and taxed as such in many jurisdictions – including India, from

April 1 this year.
Let’s look at the good of investing in crypto first. If you bought a Bitcoin on 17th July 2010, you could have bought a hundred for 9 US dollars. If you held on to it through thick and thin and kept your faith and didn’t panic, you could have sold it on 10th November 2021 for 6,899,090 US dollars. No investment in any other kind of asset would have brought you such a whopping profit. This provided, you have a stomach of steel for the kind of volatility cryptocurrencies have undergone in the past few years – with steep crashes in 2011, 2014, 2019 and 2021. In the last year, it danced around dizzily from month to month. The same for other cryptos – and now there are hundreds of them. Unlike currencies, there are no central banks buying or selling dollars to prevent the currency from sliding or rising too fast. The risk is all yours.

I hope you remembered your password all this while. There has been news about people who found themselves in digital penury after forgetting their passwords. Others have died taking their passwords – and thus their wealth – with them to the grave, defeating that old adage.
It’s not just a volatile investment. It brings new technology to the public table, such as advances in cryptography (which is where the crypto part comes from) and of course, blockchain – the recordkeeping technology. The latter has been used extensively by the Indian government to keep track of citizens’ vaccination status. So that is a net plus.

The other thing is to at least initiate discussion about the role of banks and central banks. Indeed, crypto started as a concept of reliable transactions that did not depend on a bank as guarantor of that trust, in the wake of the 2007-08 financial crises. It has provoked central banks to toy with the idea of issuing their own digital currencies. These will be more secure and usable as real currency to buy things.
Also, digital currencies cannot be stuffed into tijoris like in 1970s movies. Who owns how much and who traded with whom is recorded in the distributed ledgers. These books cannot be cooked like in a Jeffrey Archer novel – although new ways have been found. Governments and banks have gotten into the game – which may not amuse Satoshi Nakamura, who started it all.
Now to the sustainable part. Are cryptos sustainable?

Mining cryptocurrency is hugely energy intensive. Mining one bitcoin (and other cryptos as well) requires computing that in turn consumes 1,544 kiloWatt-hours (kWh) of electricity. If all that electricity came from coal, that is 1 kg of CO2 per kWh. Though some cryptos like SolarCoin and Cardano claim to be based entirely on renewable energy, cryptos are not green at all. They’ll cost us a planet unless all electricity production goes to renewable energy.
There has also long been trouble with other kinds of sustainability. People get excited by the whopping returns (76656555.56% ROI anybody?) without fully understanding how the market works. Scams are thus dime a dozen and investors get disillusioned. Sensational reports of crime syndicates using crypto to launder money, or trade in illegal drugs, weapons and traffic people appear daily. Cyber blackmailers, who hack into corporate computer systems, lock them and demand huge ransoms also thrive on crypto.

This truly exploded after the Russian invasion of Ukraine. Both countries have been looking (officially and clandestinely) at crypto for vital payments. Ukraine because of the widespread disruption of its economy, and Russia to get around sanctions. The shady, unrecognised ‘country’ of Transnistria was long considered a hub of shady deals in weapons, oil and nuclear technology involving Russian companies, and sometimes the Russian government. Now it is emerging as a hub of crypto mining and deals made on the dark web.

Russia and the Taliban in Afghanistan, both have been locked out of their foreign reserves by SWIFT. Crypto trading has risen in both countries, especially among the public, to get and make payments for essentials. Crypto is taking on the role of a currency, albeit for all the wrong reasons. Crypto is proving to be a double-edged sword. While it helps common people access their money, it is becoming a ‘get out of jail’ card for rogue states. In turn, the international finance system, underwritten by the US dollar, is becoming warier. For example, the US treasury is criminalizing anyone who helps Russia evade sanctions through the use of crypto.

Yet there is an honest future for cryptocurrency – and its promise of not getting the state involved – in spite of sarkāri
digital currencies. It is honest by nature, driven by technology rather than by law. It cannot be debased, unlike currencies based on gold and silver coins. There is historic evidence from the Roman and Kushana empires that governments often cheated people by reducing the purity of the coins in circulation. Countries cannot print more digital currency to escape debts – as Britain did after World War II. Finance ministers cannot devalue them, nor can investors who short cryptos drive market panic (as happened in Britain in 1992). The result in each case was inflation – a burden borne by citizens rather than governments.

The underlying technology of blockchain is already revolutionizing government and private-sector record-keeping. Combined with AI and data science, it promises better governance and greater transparency. And at some stage, cryptocurrency, like Pinocchio, will become a real currency, that you and I can use.
All said, I am truly excited at the brave new world that is emerging.

This article was shared with Prittle Prattle News as a Press Release.

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