*could be controversial?

With the explosive growth and acceptance of cryptocurrencies, society has been rendered a paradigm shift in its financial transactions. This article delves into the enigmatic world of cryptocurrencies, the ripples they’ve made in our world, and their potential future impacts.

Cryptocurrencies entered the mainstream lexicon with Bitcoin’s remarkable ascent and subsequent volatilities, which have spurred a global debate. Governments, businesses, and individuals are grappling with both the promise and the pitfalls of these digital assets(1).

It all began in 2008 when an obscure person or group of people known by the pseudonym Satoshi Nakamoto wrote the blueprint of Bitcoin(2). It was envisioned as a peer-to-peer network, disrupting traditional financial systems and bring about financial inclusivity. Since then, cryptocurrencies like Bitcoin, Ethereum, and thousands more have become a part of our economy.

This article will demystify the societal impact of cryptocurrencies. It will present key themes revolving around the use and spread of cryptocurrencies, delve into its implications, analyse various viewpoints, and explore probable future impacts.

The Digital Gold Rush

Cryptocurrencies have ushered an unprecedented gold rush, empowering individuals to transact, save, or speculate outside of traditional banking channels. The promise of astronomical gains has enticed millions to mine, invest in, or trade these digital currencies. On the other hand, it also sprouted scams and thefts that played out in the absence of regulatory oversight(3).

As cryptocurrencies operate independently of a central bank, they offer alternatives to traditional banking. In developed nations, cryptocurrencies are frequently used as investment assets. In contrast, in developing nations, these orientation extends to the use of cryptocurrencies as a medium of exchange — substituting traditional banks. In countries like Venezuela with high inflation, millions have turned to Bitcoin as a store of value and means of transaction(4).

In a broader economic perspective, cryptocurrencies have presented a challenge to central banks’ monopoly on controlling money supply. This disruptive potential of cryptocurrencies has engaged economists and policymakers in a protracted debate.

The Social Divide

An unexpected social repercussion of cryptocurrencies is the emergence of a new social divide. On one side, are crypto enthusiasts who believe in the principle of decentralization and applaud technological innovation. On the other side, are critics who view cryptocurrencies as speculative bubbles that enable illegal activities like tax evasion and money laundering.

There’s been an increasing disparity between the ‘crypto-rich’ and the general population. The skyrocketing value of cryptocurrencies has created new wealth for a relatively small group of cryptocurrency enthusiasts. As Naomi Alderman states, “The fact that a small number of people accrue staggering wealth by doing almost nothing is a scar on our society”(5).

Crypto Economy and Environment

Creating and maintaining cryptocurrencies require enormous computational power, ramping up energy consumption to levels that rival some nations. Experts have discussed the environmental implications of cryptocurrencies, given that the crypto-mining performed globally results in considerable carbon emission(6). Initiatives like ‘green cryptocurrencies’ are sprouting, trying to counter these environmental concerns.

Tomorrow’s Crypto Impact

The definitive trajectory of cryptocurrencies is still a spirited debate among technocrats, regulators, investors, and even among its users.

One potential path sees cryptocurrencies evolving into a globally accepted method of payment. With Facebook announcing Libra (now Diem) and central banks exploring their own digital currencies (CBDCs), this pathway seems more probable with each passing day.

The other direction foresees cryptocurrencies as a speculative bubble that will eventually burst. The highly volatile nature, intrinsic value debates, and the dark side of illegal activities bolster this viewpoint. Economist Nouriel Roubini states, “Bitcoin, in my opinion, has no fundamental value and is likely a bubble that is already bursting”(7).

Shifts in regulatory approach to cryptocurrencies are already witnessing turning tides. Countries like Japan and Switzerland have been crypto-friendly, whereas countries like China have clamped down, citing financial risks(8).

Concluding Notes

Much of the societal impacts of cryptocurrencies are direct outcomes of its volatility, decentralised nature, and technological brilliance. Regardless of praise or criticism, cryptocurrencies have redefined our conception of money and raised important societal and regulatory questions.

How well this digital evolution integrates into society hinges on a wide variety of factors, not least public acceptance, regulatory environment, technological advances, and markets mechanisms.

What possible future awaits us in the combination of society and cryptocurrency? Is it Utopia, Dystopia or somewhere between waits to unfold with time.

References and Further Reading:

1. Vigna, P., & Casey, M. J. (2016). The age of cryptocurrency: Bitcoin and the fight for the future of money. Picador USA.
2. Nakamoto, S. (2008). Bitcoin: A peer-to-peer electronic cash system.
3. Tapscott, D., & Tapscott, A. (2016). Blockchain revolution: how the technology behind bitcoin is changing money, business, and the world. Portfolio.
4. Guiso, L., Sapienza, P., & Zingales, L. (2018). Time Varying Risk Aversion. The Journal of Financial Economics.
5. Alderman, N. (2017, December 15). Bitcoin is a bubble, but the technology behind it could transform the world. The Guardian.
6. Mora, C., Rollins, R. L., Taladay, K., Kantar, M. B., Chock, M. K., Shimada, M., & Franklin, E. C. (2018). Bitcoin emissions alone could push global warming above 2°C. Nature Climate Change, 8(11), 931-933.
7. Roubini, N. (2018, November 26). Opinion: Why Bitcoin is the largest Ponzi scheme in human history. The Guardian.
8. Zetzsche, D. A., & Föhr, L. (2018). The ICO Gold Rush: It’s a scam, it’s a bubble, it’s a super challenge for regulators. University of Luxembourg Law Working Paper, (11).