The rise and fall of cryptocurrencies over the last decade has been accompanied by an extraordinary degree of waste.
Trillions of notional market value have been created, traded and then evaporated. Up to 170 million tons of carbon dioxide are pumped into the atmosphere each year by cryptominers, equivalent to the carbon footprint of the Netherlands. Hundreds of thousands of computer mining rigs are in unopened boxes, according to Coindesk, waiting for prices to rise enough to make them profitable. In previous bear markets, truckloads of burnt-out mining rigs have reportedly been sold for scrap.
Alongside all of this, however, is an extraordinary waste of human creativity. As Matt Levine recounted in a recent Bloomberg BusinessWeek story, the institutions created by crypto enthusiasts were little short of a mirror-image financial system, complete with protocols for lending money, creating derivatives, entering into contracts, and settling transactions. The fact that this architecture was structurally compromised, and collapsed under its own weight, does not detract from the amount of ingenuity with which it was built.
At an end-of-term party at my kids’ school earlier this month, I found myself talking to a friend about the collapse of FTX, the cryptocurrency exchange run by Sam Bankman-Fried. To my surprise, my friend – a thoughtful and kind doctor and father of three – had more than an academic interest in the subject. Last year, he spent A$2,000 ($1,367) on cryptocurrency and treated it as a hobby, avoiding further investment and making and selling NFT art as a sideline. (1)
It’s almost not alone. More than half of the adult populations of Nigeria and Turkey buy or sell cryptocurrencies each month, according to a July survey conducted by Morning Consult, a business data firm. In all, in the region of 900 million people – about one in seven adults on the planet – are making regular transactions on the blockchain, based on survey figures.
Impossible to know the motivation of all this activity. For all the attention garnered by testosterone- and adderall-fueled crypto traders and broke billionaires trying to escape the long arm of justice, the vast majority of crypto players are likely to do so for more mundane reasons.
All that Nigerian and Turkish activity is probably driven by a very understandable desire on the part of mom and pop savers to escape those countries’ exchange controls and double-digit inflation. Others will do it as a creative and intellectual outlet, like my friend. Others will buy cryptocurrencies in the same way they might have an occasional bang on a lottery ticket or a horse race.
For the record, I’ve never believed any of the claims of cryptocurrency promoters: that it’s a viable alternative to fiat currency or a stable reservoir of wealth, or even that it has a place in an investment portfolio. The fact that so many ordinary people have invested in cryptocurrencies should worry governments and make them much more ready to not only regulate the fledgling industry, but crack down on it to ensure people’s savings aren’t wasted in a Ponzi scheme. The fact that it is pumping huge volumes of carbon into the atmosphere should encourage them to force activity on the less harmful proof-of-play protocol used by Ethereum, rather than the emissions-intensive proof-of-work of Bitcoin.
However, you don’t have to believe the millennial claims of blockchain online evangelists to think it deserves its place in the world. Many human activities do not meet very obvious basic needs and can even be mildly harmful, from art to gambling, fashion to alcohol consumption. The pleasure that people derive from such aimless activity should be recognized as a value for its own sake.(2)
A better comparison might be another group of eccentric idealists celebrating their annual party this Thursday. Speakers of the invented language Esperanto, developed by Polish ophthalmologist LL Zamenhof in 1887, have been pursuing their hobby on a global scale for more than a century. The language has long been a pastime of brilliant, quixotic visionaries making a real impact in the non-Esperanto world – from writers Leo Tolstoy and JRR Tolkien to figures like Ho Chi Minh, Pope John Paul II and George Soros.
Esperantists have their own flag and radio broadcasts, and have on several occasions tried to come up with a currency based on a slightly creaky economy (an early variant was pegged to the price of bread in the Netherlands). To this day, they still write poems and novels in the Esperanto language, hold annual conferences, and stay at each other’s homes while travelling. They even made a 1960s B-horror movie starring William Shatner, scripted entirely in poorly pronounced Esperanto. In short, they have created an extraordinarily fertile and sustainable worldwide community of weirdo aficionados.
This suggests a more promising future for cryptocurrencies than the current conflagration would suggest. Mandatory deposit limits similar to those incurred for online gambling and moving the business away from proof of work, and it will be possible to balance the genuine interest of millions with the need to prevent harm to people and the planet.
Amidst the ruins of the 2022 cryptocurrency crash, we should be feeling pretty comfortable with this outlook. Most of the harmless amusements humans indulged in were once new and frowned upon by those who disliked it. One day soon, cryptocurrencies and NFTs will join the ranks of such businesses. After their angry adolescence, they will no longer try to change the world. Chances are they’ll find something better, though: the knowledge that happiness and undirected pleasure can often be its own reward.
More from Bloomberg’s opinion:
• Sam Bankman-Fried’s apology is as hollow as his empire: Lionel Laurent
• Do you have change? Why Digital Money Must Feel Real: Andy Mukherjee
• What sixteenth-century Venice teaches us about cryptocurrencies: David Fickling
(1) He believes he is still ahead on his investment, while admitting that most of that value is tied to the notional selling prices of his illiquid NFT artworks.
(2) Jeremy Bentham, whose utilitarian philosophy is a source for the creed of effective altruism professed by many cryptocurrency players, argued that the push-pin, a popular children’s game, was as useful an activity as poetry and the music.
This column does not necessarily reflect the opinion of the editorial board or of Bloomberg LP and its owners.
David Fickling is a Bloomberg Opinion columnist covering energy and commodities. Previously, he worked for Bloomberg News, the Wall Street Journal and the Financial Times.
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