Writing by Jamie McDonald. Illustration by Berenika Murray (@photograberry_).
The world lurches in a crypto-chasm. In 2021, El Salvador became the first country to make Bitcoin legal tender. Just three months later, China effectively banned all cryptocurrency due to its catastrophic environmental impact. How should the masses respond?
First, the very basics: cryptocurrency is the collective name for a range of different digital currencies. In the same way the pound and the dollar differ in the real world, there are a variety of cryptocurrencies – Bitcoin, the largest, and newer upstarts like Ethereum. Finally, and this is the most important aspect for this article: through a computerised verification system, there is no requirement for a central bank. Transactions are recorded by a technology called ‘blockchain’; to do this, individual crypto-enthusiasts undertake increasingly complex calculations on their own computers in a process called ‘mining’, for which they are usually rewarded a scrap of the ‘coin’. Cryptocurrency therefore appears quite a prospect. We have the opportunity to devolve control of a crucial part of day-to-day life from the established institutions of central banks to the masses.
Cryptocurrency does not come without drawbacks. The aforementioned ‘mining’ process is – much like its real-life counterpart – monstrously damaging to the environment. As more and more people use Bitcoin and others like it, those calculations, blockchains, required to verify transactions become exponentially more complex, and the reward concurrently diminishes with time. Therefore, more and more computing power is required to perform them. Huge server farms constituting thousands of computers appear like termites and leech energy from the local grid in areas across Central Europe, China and the US. It is estimated that verifying transactions for Bitcoin alone uses 0.5% of the world’s entire annual energy supply – more than the nations of Finland (1) or Argentina (2). Only 29 countries use more energy than a single digital currency. Between 2017 and 2021, it is estimated Bitcoin’s energy usage grew twenty times larger (3).
The barrier for entry to mining cryptocurrency is astronomically high: what about the sharpness of the learning curve for trading with it? Those wishing to buy and sell digital coins only need to use a website or smartphone app – often free of charge. This appears relatively simple, and while the digital complexity quickly mounts exponentially as investments become greater – putting off most of us from even beginning to participate in this ‘new economy’ - technological barriers can also represent an entertaining challenge, especially for enthusiastic early-adopters. This is where the danger lies: because unlike paying for goods and services using regular currency, buying, selling, and owning cryptocurrency is an investment; therefore, a risk. With non-traditional currencies, the risk is higher, as de-regulated, niche coins are extremely volatile. In May 2021, for example, one currency, Ethereum, fell from over £4000 per coin to just over £2000, a 50% drop in less than two weeks (4). To put that fall in context, during the 2008 financial crisis, the dollar dropped 30% over nine months (5). Internet forums for cryptocurrency trading are peppered with suicide helplines as investors lose their entire net worth in minutes (6).
Investing in and mining for currency is currently limited to those with significant technological and financial literacy. Around 50 Bitcoin miners – 0.1% of the total number – control at least 50% of the mining capability. Neither are coins themselves evenly distributed: a 2021 study found 5 million Bitcoin are owned by only 10,000 people – just 0.01% of people own about 27% of the currency. This is the excess of capitalism magnified: in the real world, 30% of wealth is owned by 1% of the population (7). Therefore, there is no incentive to remove any barrier to entry and resolve the disastrous environmental impact of cryptocurrency - it’s simply too profitable. The profit is part of the draw. It represents the incentive to overcome those barriers personally if not structurally. One investor explains: “if we get more people to buy [cryptocurrency], the value goes up… I make more money; you make more money. Let’s get more people to buy it… then we all make more money (8)”. Coincidentally, that’s how a pyramid scheme works.
Cryptocurrency is part of the next evolution of capitalism’s relationship with personal responsibility. The philosopher Mark Fisher wrote that at every opportunity, organised capital “contracts out its responsibility to consumers, by itself receding into invisibility” (9). Every innovation – positive or negative – is individualised. The worst part of Kafka’s hellish bureaucracy, Fisher argues, is that “there’s no central exchange”: when things go wrong, it’s the fault of the central character or subservient customer support. There is no central body to blame.
By allowing individuals the opportunity for mass profit and by stripping away what little regulation held the financial system back from its full destructive potential, the ground is fertile for a new class of crypto-despots to tear down our natural environment and leave the rest of us behind. Designed for, and by, those richest in technological literacy and material wealth, cryptocurrency by its very nature rewards individual greed, circumvents moral authority and holds back the fight against climate catastrophe.
When the Government makes a mistake, we can punish those responsible electorally (in theory, at least). When the Bank of England makes a mistake, we look to a central team of experts who can explain their decision-making process and attempt to learn from their past actions (in theory, at least). Organised Capital attempts at every turn to make itself accountable to no-one: faceless, unidentifiable. If you or I commit an offence, we are punished accordingly. How does one punish a system for an unprecedented ecological nightmare?
Cryptocurrency represents the worst of capitalism. By delegating responsibility for its economic and environmental instability to the masses but devolving no new individual power to them – for example, by making currency easier to understand and trade for the ordinary punter – currencies like Bitcoin are another step in the attempt to shift the blame for the devastating excess of capitalism onto its bleary-eyed consumers.
References and Further Reading:
Mark Fisher (2009). Capitalist Realism.