Part 2: How can crypto become the finance of the future?

First published on Coinpass.com - Markets blog

New technology often evokes fear in people, especially if they can’t understand it. Today, we stand at the frontier of a new technology that could profoundly change our way of life. For many, choosing to embrace cryptocurrency or to ignore it will depend on the answers to some key issues. Here we will examine two of the most polarising issues: regulation and sustainability. 

Safety, Security, and Regulation 

Many of us have fallen victim to identity fraud, but with a quick phone call, our financial losses are repaid within a few days. That is one of the advantages of having a central authority manage our finances. But what of crypto? It is autonomous, decentralised and trust-less by its very nature, so when something goes wrong there is no one to bail you out. That is a big concern, but change is on the horizon. 

There are over 100 different countries looking at ways to regulate cryptocurrency. The UK treasury has announced plans to regulate some cryptocurrencies including stablecoins later this year, but has stopped short of confirming which ones specifically, and U.S. President Joe Biden recently signed an executive order to develop plans for regulating crypto.  Although there are no definitive details, it’s likely to include cracking down on criminal activities like money laundering, which saw a 30% increase in 2021 from the previous 12 months. 

The International Monetary Fund has also called for global digital asset regulation to defend against the risk of financial destabilisation, including licensing and authorising crypto asset service providers, and separating regulation for crypto investments and crypto payments. 

There is outcry from purists about what the implications of regulation would be to cryptocurrency, especially the market value, but when regulation does come it could be a milestone moment for mainstream adoption. 

Sustainability 

Sustainability is no longer just a buzz word. Organisations and governments the world over are prioritising it in their plans and business models. Bitcoin mining consumes a huge amount of electricity, approximately 150 TWh per year, and those who oppose Bitcoin have highlighted this environmental cost repeatedly, comparing it to entire nations like Egypt, Malaysia and Poland. However, nothing worth doing is free, there are costs associated with everything, so the more pertinent question is, is it worth it? The total value of all bitcoin mined is close to $650 billion, which is more than the GDP of Poland, and the same as Egypt and Malaysia combined. 

A report by Cambridge Bitcoin Electricity Consumption Index (CBECI) also showed 23 countries with higher electricity consumption than Bitcoin, including China, Japan, India, U.S. and U.K. Making comparisons between Bitcoin and individual countries helps to visualise the huge energy figures reported, but this is neither fair nor highly informative. A better comparison would be to compare it against gold mining or fiat currency, with which Bitcoin is directly competing. A study by Galaxy Digital, a New York based crypto company, published in May 2021 has done that. It estimated Bitcoin used less than half the total annual electricity consumption of the banking system and gold mining (although the methodology used is based on several assumptions).   

Green Bitcoin 

Recent reports show that almost 40% of the electricity miners use is from renewable sources. Gold mining in comparison consumes as much energy, but is heavily reliant on fossil fuel generated electricity, not to mention the vast quantity of waste produced each year. There is a growing trend by miners to go green with 76% of those surveyed in the report saying they use renewable energy as part of their mix.  

In Canada, Poland and Russia, minors are adopting unique approaches to sustainability by funnelling the excess heat production to warm their homes, strawberry farms, and chicken coops. The result is a reduction in heating bills, an off-set of their carbon footprint, as well as, increased revenue. Several companies, including Great American Mining, are harnessing methane gas - a harmful by-product from oil fields - to power their bitcoin mining, making both operations more efficient. 

Closing statement 

The future is impossible to predict - we still don’t have flying cars or hover boards 37 years after Marty and the Doc hit the silver screen. The debate over regulation and sustainability will rage on with opposing sides fiercely defending their viewpoints. Cryptocurrency has the potential to revolutionise the global financial system, but only if people have the confidence to start using it – a confidence that will only come from healthy debates of information, not misinformation. 

The views and opinions expressed therein are the authors, and are not intended to be used as advice to trade on the crypto markets.