Digital currencies: Does Bitcoin’s Recent Crash Spell the Beginning of the End for Cryptocurrencies?

China’s alerts on the use of digital currencies indicate that the long-awaited crackdown on the official industry has begun, and that is also a good thing.

Are cryptocurrencies in their final stages? (Digital currencies)The leader of the package, Bitcoin, has lost almost half its value since its peak in mid-April, and others have also been denied following the Chinese government’s decision to handle all cryptocurrency transactions. The Securities and Exchange Commission has also indicated that it will monitor it. Despite market fluctuations, cryptocurrency champions still see these currencies as an ideal solution generated by the market as questions arise about the future profitability of paper currencies in a global economy characterized by rising debt and inflated government/bank balances. Fans of Bitcoin, Ethereum, Tether, Dogecoin, and a host of other cryptocurrencies seem to think that the wonders of 21st-century financial technology (or ‘fintech’) allow us to define these digital creations as completely external alternatives. control is. central banks whose shares (as Austrian economist Friedrich von Hayek said) are regularly cut from traditional paper money.

This is obviously an attractive story, but does it correspond to reality?

Ironically, cryptocurrencies share many of the characteristics that their libertarian supporters do not approve of in so-called government-created currencies. Like our traditional currencies – the dollar, the yen, the pound, or the euro – created by the “fiduciary” government, cryptocurrencies are not supported by anything. Participants are actually trading a legitimate or very good dollar that is accessible on a digitally created card, which has no intrinsic value or yield (and whose shares are artificially controlled by a complex computer algorithm). The manufacture of these coins also has an environmental cost (some more than others); trading outside a regulated financial system and turning it into fraud (for example, breaking into investor cryptocurrencies to steal your currency, creating fake wallets or wallets for client money (theft) and then turning money into dangerous money during the week.

Even as a medium of exchange, the use of cryptocurrencies is unpredictable.

 A few weeks ago, you could no longer use Bitcoin to buy a Tesla, less than two months after Elon Musk helped create a new speculative market frenzy by announcing that his company wants Bitcoin. . The resulting drop indicates a problem with using these digital tokens as alternative storage (unless you are a low-capacity criminal). It also points to another issue raised by Yves Smith of Naked Capitalism: “ The cost and time it takes to validate Bitcoin transactions make it useless in retail transactions. ”

The change in Musk’s heart comes when the (literally) dirty secret about cryptocurrencies grows in popularity: ‘mining’ is worse than traditional mining. According to the Pennsylvania Sierra Club branch, “Bitcoin produces only 36.95 megatons of carbon dioxide (CO2) per year (comparable to New Zealand) and it is estimated that only Bitcoin can raise world temperatures by 2 degrees in 30 years. “

As for the technology behind cryptography, central banks are increasingly using digital technology for their “paper” currencies. In doing so, they increasingly seek to regulate the use of cryptocurrencies. The People’s Bank of China, for example, announced only tougher restrictions on banning financial and payment institutions from offering cryptocurrencies, indicating a further crackdown on digital money. Other countries – such as Algeria, Bolivia, Morocco, Nepal, Pakistan, and Vietnam – have already banned cryptocurrencies because criminals and terrorist organizations around the world can spread through the eyes of national governments and the police. At the same time, Jerome Powell, president of the US Federal Reserve, also announced the consideration of a possible digital version of the dollar that would be controlled by the Federal Reserve (indicating that he wants to use the technology, but controls it). currency transfer. to take).

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