THE RISE OF CRYPTOCURRENCIES
By LIAM GARNIER
Form of payment that can be used to exchange services and products online, cryptocurrencies are numerical money usable without a central bank. For these to work, a decentralised computer network is used to make transactions. They are becoming very popular around the world and for different reasons. Here is a brief overview at this new worldwide trend.
How cryptocurrencies work and their environmental impact: As stated before, you can use cryptocurrencies without a central bank with a system of transparent transactions called a blockchain. If someone wanted to give money to someone else, the transaction would have to be verified by a multitude of users so that the person can’t use this exact same money for another transaction. But here is the catch, people could create multiple other accounts to verify their own transactions and bypass the system to multiply the money they possess. Therefore, a way to limit this behaviour had to be found which is why there is a second step to the verification process. Every time a user wants to verify a transaction, a computer needs to resolve very complicated calculations. With this, one person would need a gigantic amount of the computer calculating capacity of the world to verify his transactions which is non plausible for him to have alone. This is of course an oversimplification of the way this system works.
As a result, this verification process is veryenergy-consuming. The electricity consumption of bitcoin (the most popular cryptocurrency) per year is very comparable to the electric consumptions of countries such as Nigeria. In fact, one unique transaction could cost around the electric consumption of a house for a week. This leads to bad or worse consequences for the environment depending on how green the electricity of a nation is. Unfortunately, cryptocurrencies are the most used in country such as India, the USA, Niger, or Russia which are using fossil fuels as their main energy sources. At a time where we try to stop climate change and reduce our carbon emissions, the rise of cryptocurrencies is the opposite. However, digital currencies are also an opportunity for many people.
Development of digital currencies in the world: In Central America, the country of El Salvador adopted bitcoin as legal tender in September 2021. The president Nayib Bukele stated that it would make it easier to send money largely because a majority of the population do not have a bank account. Cuba, in the Caribbean, is also starting to accept cryptocurrencies as it would be less costly and quicker than the use of central banks due to the American and international financial sanctions. For Venezuela in South America, it is seen as an alternative to their own domestic currency which is plummeting in value. Several countries in sub- Saharan Africa are also in a similar situation. In general, poorer countries where a big part of the population does not have a bank account are very favourable to cryptocurrencies in the hope of developing the economy.
Southeast Asia is also a major player in the digital currency market. While some countries such as Indonesia and Vietnam have banned cryptocurrencies as a payment tool or even have a banking ban in the case of Cambodia, most of them have regulated its usage so that it can be included in the economy. With a stable economy and coherent laws, Singapore was able to attract businesses which can invest in a blockchain technology research. The government itself is partnering with private firms to develop the technologies around cryptocurrencies. In Thailand and the Philippines, education programs around blockchain technologies are now available. Cambodia on the other hand have launched a central bank backing digital currency. In the future, and with the increased growth of the crypto market in the region, the countries will want to regulate cryptocurrencies to be able to get the backing of big cryptocurrency and development companies and develop the digital economy.
At the end of the day, digital currencies such as bitcoins are harmful to the environment and are not as stable as the main classical currencies of the world due to the impact of supply and demand, government regulations and the choices of the users. But it is an opportunity for countries with a less stable currency to help their population and strive economically. Will this trend last? The future is still uncertain as there are many disagreements internationally around the regulation of cryptocurrencies and its value relative to regular money.