India plans to ban Bitcoin, making it illegal to mine, trade, or even own cryptocurrencies, and experts say this is a good thing.
Bitcoin and other cryptocurrencies are dangerous, according to experts. They are an environmental nightmare, and they may destabilize global geopolitical and financial systems. Harvard fellow Vivek Wadhwa calls it “the most dangerous global scam in 20 years.” And for what benefit? So nerds can lose hundreds of millions because they forgot their passwords? India is doing the right thing, and the rest of the world should follow as soon as possible.
“Crypto may affect [countries'] ability to conduct monetary policy,” blockchain "growth hacker" Giacomo Arcaro told Ach5 via email. “Furthermore, distributed digital currencies may undermine the ability of central banks to manage national economic policy goals.”
What's The Problem?Unsplash / Photoholgic
Cryptocurrencies use a digital chain of authentication, or blockchain, to prevent them from being copied, and to verify their authenticity. Any time a Bitcoin, for example, is traded or spent, this transaction is recorded in a distributed register. The result is that you can't duplicate or fake Bitcoins, but the transactions also are effectively anonymous. Transfers can be peer-to-peer, without any middle entity like a bank or a credit card company.
To create, or “mine,” a Bitcoin, you have to use a computer to solve complex math. In concert, all these computers across the world authenticate Bitcoin transactions, and are effectively paid in Bitcoin.
The problems are twofold. One is that mining uses an absurd amount of energy to power all those computers.
“Well, to create and use cryptocurrencies/NFTs a certain amount of energy is and will be always necessary,” says Arcaro.
According to figures from the BBC, Bitcoin mining alone consumes 111.7 terawatt hours of energy. That's a hair more than the energy consumption of the Netherlands (111 TWh), and not far off the energy used by all data centers worldwide (199 TWh). This means that Bitcoin, alone, is a big source of carbon emissions.
The other problem is that Bitcoin can be used independently of any other financial system. It can be used to launder money, transfer money around the world with no trace—good for funding terrorism, paying assassins, or other nefarious activities—and to avoid paying taxes. And it's not just for hiding money.
“Some governments fear that cryptocurrencies can be used to circumvent capital controls, can be used for money laundering or illegal purchases, and could be risky to investors,” says Arcaro. “Still others have voiced more systemic concerns over the decentralized cryptocurrency's potential to destabilize or undermine the authority or control of central banks.”
You might not think that undermining global financial institutions is a bad thing, but at least they pay taxes, and are (somewhat) accountable to law. Sci-Fi author and critical thinker Charles Stross says that Bitcoin appears to be “designed as a weapon intended to damage central banking and money-issuing banks.”
"Distributed digital currencies may undermine the ability of central banks to manage national economic policy goals."
Not everybody agrees. “While some crypto proponents claim that cryptocurrencies will (and should) destabilize national governments, this is extremely unlikely,” Miklos Zoltan, cryptocurrency advocate and CEO of cybersecurity and privacy education company Privacy Affairs, told Ach5 via email. “Cryptocurrencies are still a relatively small niche market, and will continue to be that for the foreseeable future.”
Benefits of CryptoUnsplash / Taylor Vick
India isn't the first country to ban Bitcoin or other cryptocurrencies. Ecuador banned it in 2014, China also has banned it (though it hasn't made much difference), and other countries have various bans in place. But an outright ban may not be the best option.
“Rather than banning them,” says Zoltan, “governments should instead introduce legislation to regulate the cryptocurrency space in order to prevent illegal activities such as money laundering and purchase and sale of illicit goods and services.”
India does not plan to eliminate cryptocurrency altogether. Instead, according to Reuters, it will use blockchain technology to build its own virtual currencies.
If you can significantly reduce the carbon footprint, and tie a cryptocurrency to existing financial systems, you can enjoy some benefits.
“A correct use of a national cryptocurrency...may take over the old-fashioned use of the SWIFT protocol, and save billions of fees and days of delay in receiving wire transfers,” says Arcaro.
Imagine that. Instant bank transfers, reduced fees, and better security. I'm sure the banks will pass all those savings on to the customer.