Cryptocurrencies: A forgotten ethical question
By Daniel Lampert | May 28, 2021
On May 22, 2010 the first crypto currency transaction of all time occurred. Laszlo Hanyecz bought two pizzas with 10,000 Bitcoins, today valued at over $600 million dollars. Bitcoin, the first decentralized cryptocurrency, appeared only twelve years ago and at first was considered a potential substitute for traditional, centralized currencies (topics et al., n.d.). Over the years, the use of Bitcoin and subsequent crypto currencies has shifted dramatically. They have shifted from a currency alternative to a speculative investment that fluctuates dramatically in value from day to day. The use and investment in crypto currencies presents both substantial ethical and legal challenges.
Due to their speculatory nature, crypto currencies expose investors to substantially higher risk than do traditional investments. Crypto currencies are known as a fiat currency. This means that their price is purely determined by market demand. This is the case for many currencies including the US dollar, but in the case of crypto currencies, their price is determined solely by people changing their minds about what it is worth (Turchi, n.d.). For centralized currencies, price variation varies in much more complicated ways than simply beliefs of worth. For this reason, crypto currencies are subject to much more instability than both other currencies and other more traditional investments.
Another major challenge with crypto currencies is accessibility. Many people simply do not have access to sufficient resources to open a crypto wallet. This situation means that only a certain class of people stand to benefit from potential profits. The accessibility issue is largely exacerbated by the fact that crypto currencies are not traded on traditional exchanges, meaning interested people need specialized accounts to buy the currency.
The technology that crypto currencies rely on is having a major impact on global warming with many sources indicating that the crypto currencies use more electricity than the entire country of Argentina. As a matter of fact, crypto currencies use more energy per transaction than any other currency (Sorkin, 2021). Research suggests that one crypto currency transaction is roughly equivalent to 735,000 Visa transactions or 55,280 hours of Youtube (Sorkin, 2021). Crypto currency is so energy intensive because the technology that powers it requires substantial computing power, known as crypto mining. The mining process requires that computers solve highly complicated mathematical equations that require a large quantity of electricity. Considering the climate crisis we are currently facing, moving towards a currency system that is extremely energy intensive is highly concerning. Many individuals who work with crypto currencies have stated that the carbon footprint of their products is determined by how clean the energy grid is where the mining took place (Sorkin, 2021). Even if this is accurate, the impact of crypto currencies would likely still be high since many countries and geographical regions still primarily use fossil fuels for energy generation.
Under a legal framework, crypto currencies do not meet the minimum requirement to be considered a valid currency. Legal currencies must have legal tender status, central management, and a physical currency (Bal, 2015). Crypto currencies do not meet any of these criteria. One major issue that arises from this is the question of taxation. Income from crypto currencies is generally speaking taxable, however, it is often quite complicated. The first issue arises from the fact that most crypto currency investors are unaware of the laws governing taxation on revenue from crypto currencies (Bal, 2015). Moreover, many people invest in crypto currencies explicitly to avoid taxes and use them as a pseudo tax haven (Bal, 2015). Another major legal issue arising with crypto currencies is that they facilitate black market purchases, in particular, on the dark web (Popper, 2020). Crypto currencies allow people who deal in the translation of prohibited products or services to do it in a much more anonymous way. In many ways this facilitates illegal transactions.
Perhaps the solution to most of crypto currencies problems could be solved by making the currency less allusive, more legitimate, and lastly, more regulated. Currently the process of owning crypto is quite complicated. One can buy crypto on popular exchanges such as Paypal or Robinhood, but in those cases the individual does not actually own the currency. Improving access to crypto wallets would allow more people access to these markets and likely have the secondary effect of stabilizing their fluctuations. Another move to improve legitimacy would be to increase the markets where crypto currencies are a legitimate way to pay. Over time, these changes would likely reduce the negative impact.
References
Bal, A. (2015). Chapter 14—How to Tax Bitcoin? In D. Lee Kuo Chuen (Ed.), Handbook of Digital Currency (pp. 267–282). Academic Press. https://doi.org/10.1016/B978-0-12-802117-0.00014-X
Popper, N. (2020, January 28). Bitcoin Has Lost Steam. But Criminals Still Love It. The New York Times. https://www.nytimes.com/2020/01/28/technology/bitcoin-black-market.html
Sorkin, A. R. (2021, March 9). Bitcoin’s Climate Problem. The New York Times. https://www.nytimes.com/2021/03/09/business/dealbook/bitcoin-climate-change.html
topics, F. B. F. L. F. T. J. F. is an experienced writer on a wide range of business news, Investopedia, his work has been featured on, topics, T. N. Y. T. among others L. about our editorial policies J. F. F. B. F. L. F. T. J. F. is an experienced writer on a wide range of business news, Investopedia, his work has been featured on, & policies, T. N. Y. T. among others L. about our editorial. (n.d.). Bitcoin. Investopedia. Retrieved May 24, 2021, from https://www.investopedia.com/terms/b/bitcoin.asp
Turchi, J. (n.d.). Rutgers professor raises doubts on ethics of bitcoin, cryptocurrency. The Daily Targum. Retrieved May 25, 2021, from https://dailytargum.com//article/2019/02/rutgers-professor-raises-doubts-on-ethics-of-bitcoin-cryptocurrency