Dogecoin co-founder Jackson Palmer slammed the cryptocurrency industry and said that he would not return to it. He explained his decision in a series of tweets calling cryptocurrency “an inherently right-wing, hyper-capitalistic technology.”
He added that it is “built primarily to amplify the wealth of its proponents through a combination of tax avoidance, diminished regulatory oversight and artificially enforced scarcity.”
Palmer isn’t the first but a significant critic who has once again brought the focus back to the dark side of cryptocurrency and whether it lives up to the potential of becoming a legal tender as few countries are moving in the direction to do so.
At a time when the cryptocurrency frenzy has swept not just the young and new investors but also the experienced ones, governments around the world have shown not just displeasure but have called for tighter norms around currency.
Time and again governments have warned investors to carefully consider the high risks associated with the currency before investing in it. However, looking that the speed at which the cryptocurrency markets have grown in the last few years, the warnings seem to have fallen on deaf ears. Eight years ago, the market capitalisation of cryptocurrency was over $1.2 billion and today it stands at $1.2 trillion, a 1000 percent increase, according to Coinmarketcap.com.
Let’s look at the dark side of cryptocurrencies and the issues related to them:
Serves the rich?
Cryptocurrency enthusiasts have defended it with the argument of ‘decentralisation’ as the currency exists and operates on a peer-to-peer blockchain system. A major cryptocurrency wealth is owned by billionaires, companies and investment funds whose decisions play a role in the volatility of prices.
Palmer came down hard on the claim and said that “despite claims of decentralization, the cryptocurrency industry is controlled by a powerful cartel of wealthy figures.” He further claims that they have “evolved to incorporate many of the same institutions tied to the existing centralized financial system they supposedly set out to replace.”
He also believes that cryptocurrency is “purpose built” to make “the funnel of profiteering more efficient” for the rich and powerful and “less safeguarded for the vulnerable.”
Liquidity problem
The blockchain technology that makes cryptocurrency unique and gives it the status of perceived superiority is also a bane when it comes to liquidity. The process of mutual agreement-based transactions may take time to update and validate in multiple blocks. In comparison, the traditional modes of currency are faster.
After El Salvador’s decision to adopt Bitcoin as a legal tender, JP Morgan said that a large portion of Bitcoin is locked in illiquid assets and 90 percent of them have not exchanged hands in more than a year as a “significant and rising” portion is held by wallets with light turnover, Bloomberg had reported. The global investment bank also pointed out other challenges including high volatility and scepticism among the people.
Lacks regulation
No regulatory body has been set up yet to play a watchdog for cryptocurrency unlike other trading options in the market. This leads to almost no accountability in case of miscreants using it on the dark web. Large holding of cryptocurrency has been lost as a consequence of the owner's death, lost key, accidental bug in the system or just by an accident with no one to approach in such cases.
Palmer also seconded saying that cryptocurrency is “taking the worst parts of today's capitalist system (eg. corruption, fraud, inequality) and using software to technically limit the use of interventions (eg. audits, regulation, taxation) which serve as protections or safety nets for the average person.”
“Lose your savings account password? Your fault. Fall victim to a scam? Your fault. Billionaires manipulating markets? They’re geniuses. This is the type of dangerous “free for all” capitalism cryptocurrency was unfortunately architected to facilitate since its inception.”
Aids illegal activities
With no regulation, cryptocurrency aids illegal activities including money laundering and other illegal activities. A study by the Society of Financial Studies found that approximately one-quarter of bitcoin users are involved in illegal activity. It further said that around $76 billion of illegal activity per year involve bitcoin (46 percent of bitcoin transactions), which is close to the scale of the US and European markets for illegal drugs.
“By providing an anonymous, digital method of payment, bitcoin did for darknet marketplaces what PayPal did for eBay—provide a reliable, scalable, and convenient payment mechanism,” it read.
Power consumption
Several leaders and studies have raised concerns over the carbon footprint of cryptocurrency mining which involves creating new coins through several computers that use up electricity for the analysis and computation of complex mathematical equations. Most of this electricity used is derived from fossil fuels.
US Democratic Senator Elizabeth Warren claimed that Bitcoin "requires so much computing activity that it eats up more energy than entire countries."
Tesla chief Elon Musk had also reversed course on the use of bitcoin to purchase its vehicles. Musk said Tesla would not sell any bitcoin and intends to use bitcoin for transactions as soon as mining transitions to more sustainable energy.
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