Can crypto investments be sustainable? A comment

Cryptocurrencies as a sustainable investment – absurd idea or sensible option? ECOreporter has looked around the world of Bitcoin, Ethereum, Dogecoin & Co. and draws a clear conclusion.

Cryptocurrencies are currently the most spectacular investment topic. According to a Postbank survey, 7 percent of all Germans already own cryptocurrencies. Even conventional banks now offer cryptocurrencies. Bitcoin and other digital currencies have made it from the niche to the mainstream, including reports in recognized media. Despite recent major losses, the global crypto sector currently has a market value of nearly $ 1.2 trillion, making it worth more than Amazon.com, one of the largest companies in the world.

In addition to supposedly sensational returns opportunities (which in many cases have not yet been confirmed), crypto fans may also like to refer to the positive social characteristics of digital currencies. The independence of central banks and government protection make it possible to send money around the world more freely and faster. One of the most popular examples of the usefulness of cryptocurrencies: Ukraine’s war chest. According to government reports, the country was able to accept cryptocurrencies from around the world faster and easier than conventional cash payments.

However, there are good reasons to doubt the sustainability of cryptocurrencies:

The environmental damage


Cryptos are mainly generated in large-scale mining. They need more electricity than many states. / Photo: imago pictures

By far the largest digital currency, Bitcoin, consumes gigantic amounts of energy, both when making the coins (so-called mining) and when making transfers. This is due to blockchain, a complex data system that guarantees the security of payment transactions, but which requires a strong, global computer network to do so. According to calculations from the information portal digiconomist, a single Bitcoin transaction uses as much power as an average American household in just under 73 days. And it generates more CO2 than 2.6 million payment transactions from the credit card company VISA. In addition, about 350 grams of electronic waste is generated per Bitcoin transfer – the high-performance computers in the blockchain are often replaced after a short time.

According to the digiconomist, the global crypto industry currently uses more than 200 terawatt-hours of electricity per year, which is about as much as the whole of Thailand with its 70 million inhabitants. For comparison: The conventional global financial system requires about 260 terawatt hours of electricity per year. CO2-Cryptocurrency footprint is estimated by digiconomist at 114 megatons per year – equivalent to the footprint of the Czech Republic. Should interest in cryptocurrencies continue to grow, digital currencies are likely to consume more energy than traditional means of payment, even though they only handle a fraction of the world’s money transactions.

At this point, crypto-advocates would like to object that there are low-energy alternatives to Bitcoin. That is true, but the market share of these more climate-friendly currencies has so far been small. And no one knows if it will increase significantly. Because “green” coins also need less power, because they dispense with the very complex (and energy-intensive) security calculations in the Bitcoin blockchain. This makes them more susceptible to scams and hacker attacks.

Another popular environmental argument in cryptocurrencies: Yes, you need a lot of power, but it can also be generated with wind and solar parks – with the energy transition, the digital currency sector will also be climate neutral. The problem with this is that at present there is not even enough green electricity worldwide to ensure an emission-free basic supply of, for example, food and heat energy. The green electricity that cryptocurrencies consume is lacking elsewhere for really important things. And then there are the mountains of e-waste.

Crime


In 2021, US pipeline operator Colonial paid cryptocurrencies to blackmailers who had paralyzed the group’s network. / Photo: Company

If you want to trade cryptocurrencies, you do not need to open a bank account. Digital wallets, so-called wallets, can be set up on the Internet without proof of identity. Their owners can remain anonymous – an invitation to criminals. Many extortionists now demand payments in cryptocurrencies from their victims because their tracks are easier to cover. The Mafia also uses cryptocurrencies to carry out part of their business.

According to research from the US blockchain data platform Chainalysis, cybercrime alone triggered crypto payments for the equivalent of 14 billion US dollars last year – twice as much as in 2020. In addition, the regime in North Korea, for example. bitcoin thefts for years improve state finances. And drugs, weapons, or child pornography are largely paid for with crypto on the unregulated Darknet.

The Great Nothing

What is often forgotten in discussions about investing in Bitcoin, Ethereum or Tether: Cryptocurrencies should primarily be a means of payment, digital alternatives to conventional money. But with cryptocurrencies, it is still almost impossible to trade anywhere. The rolls at the bakery, the entrance to the swimming pool, the condominium – crypto payments are not planned here so far. That Tesla electric cars in the US can now also be paid for with Bitcoin: above all a PR coup by coin fan Elon Musk. From a global perspective, cryptocurrencies have no function, they remain pure objects of speculation. And because they do not do what they were originally created to do, they ultimately have no real value either socially or economically.

Profits can only be made with cryptocurrencies if you find someone who pays more for them than you paid for them yourself. So the price goes up, but not the value of the coins – until the system collapses. A pyramid scheme.

The strong fluctuations

Sustainability has something to do with value retention, reliability and stability. All of this does not yet exist with cryptocurrencies. Prices fluctuate widely, the two largest currencies Bitcoin and Ethereum having lost more than 60 percent in value since November 2021. The Central American state of El Salvador, where Bitcoin has been an official means of payment since 2021, is therefore in the deepest financial crisis in decades.

Not even the so-called stable currencies, which are supposed to guarantee a fixed exchange rate for currencies such as the US dollar, are storm-proof. Stable currency UST lost e.g. 70 percent against the dollar at times last week – a fall that seriously shook confidence in the reliability of cryptocurrencies.

Conclusion

Maybe one day, cryptocurrencies will be useful to many people. Perhaps they can even contribute to more sustainability in the financial sector. At the moment, however, ECOreporter sees the biggest drawbacks: environmental damage, speculative bubbles, playgrounds for criminals. So far, Bitcoin and its relatives have not been sustainable investments.

Here you can find out how you can really invest your money sustainably.

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