The Crypto Question

Since its bubble burst in 2021, we all thought crypto was gone for good. While the more idiotic uses of the blockchain, NFTs in particular, have yet to recover, it looks like crypto is back.

At its peak in late 2021, cryptocurrency, or crypto for short, was the technology that everyone was talking about, reaching an astonishing market cap of $3 trillion. However, this focus on crypto did not last long; in just 8 months, its market cap dropped 66 percent. Since then, the general consensus has been that crypto has no future, but this may be changing. In January 2024, the SEC approved 11 Bitcoin ETFs, or funds, that allow investors to invest in Bitcoin without having to actually buy or store it. This is a big win for Bitcoin, as it not only increases the potential market but also increases its credibility. As Bitcoin approaches its former peak value, the question of its future arises. Proponents of cryptocurrency will argue that it’s on its way to replacing the US Dollar as the global reserve currency, and although this may have seemed laughable in the past, there are reasons now to take this claim more seriously.

In a recent press release, Kremlin aide Yury Ushakov announced that Russia believes "creating an independent BRICS payment system is an important goal for the future, which would be based on state-of-the-art tools such as digital technologies and blockchain." He claims that such a system would be “free of politics,” an argument often made by supporters of cryptocurrency. China has been making progress in developing its own digital Yuan, based on similar principles to Bitcoin. In just a year, this digital currency’s cumulative value has increased by almost two thousand percent. This is obviously concerning as a large part of America’s global power stems from the Dollar being the de facto global reserve currency.

One arguing for the use of Bitcoin or similar technology as a global reserve currency might point out the benefits of a transparent system with a verifiable transaction record. Although on paper this may seem like an obvious positive, it would also allow authoritarian governments such as Russia or China to more easily monitor their population. Another argument in favor of crypto as a global reserve is its stability: due to its capped supply of 21 million, inflation will never become an issue. On the other hand, due to its limited supply, Bitcoin “does not offer the volume that a reserve currency would need to play a much larger role in international commercial or financial transactions.” The volatility of Bitcoin’s price is also a concern - the fluctuation of its value makes it a risky currency for nations to use as their reserve. Due to its lack of regulation, crypto is prone to instability and illegal use. On top of this, the fact that most businesses are hesitant to use crypto is a major blow to its credibility as a medium of exchange.

So, the answer to the question of whether we can use crypto as a global reserve currency is… probably. We already arbitrarily assign value - since 1976, the US Dollar has only been backed by the reliability of the government - and it doesn’t seem like much of a stretch to use crypto as a reserve currency instead. The more pressing question seems to be: should we use it? In 2022, Bitcoin mining created more carbon emissions than the entire nation of Greece, more than offsetting all the carbon gains from the adoption of electric vehicles; if crypto is adopted as a global reserve currency, that number will likely shoot up even further. Vladimir Putin, most well known for starring in Russian Invasion of Georgia, Russian Invasion of Moldova, Russian Invasion of Georgia 2, and Russian Invasion of Ukraine, has expressed support for an alternate, unregulated global currency in order to avoid Western sanctions. North Korea also has an interest in the global acceptance of crypto; they have amassed a sizable amount of Bitcoin by hacking various foreign crypto exchanges. If none of these reasons convince you, there is still concern over the security of the blockchain. Although the network that controls transactions is theoretically unstoppable, by simply being able to outproduce all the other Bitcoin miners (a surprisingly cheap and accessible goal), one can prevent any other transactions from being processed, and drop the value of Bitcoin as seen by the market to $0.

Although there is nothing stopping the world from adopting cryptocurrency as a global reserve currency, it seems that it would be highly unwise to do so. The value of crypto has fluctuated wildly in the past few years, and because of its unregulated nature, there is no way to prevent it from being used for illegal purposes. Crypto mining relies on the burning of fossil fuels and has already had a serious impact on the environment. The people who stand to gain the most from the global adoption of crypto are authoritarian nations like Russia, China, and North Korea, nations that see it as a way to avoid Western sanctions for their actions. Perhaps most importantly, crypto is inherently less secure than pre-existing currencies: even though you cannot destroy the blockchain, you can easily influence the value of a cryptocurrency and cause it to lose all credibility. Crypto may be unethical; it enables authoritarian regimes while burning the planet, but no matter how much you may dislike it, it's not going away.