Crypto Quill

Cryptocurrency’s rise has been nothing short of meteoric, with Bitcoin leading the charge. But now, as a pro-crypto president takes office, investors are questioning whether crypto can be an ethical choice in the current landscape.

The Cryptocurrency Boom Under a Pro-Crypto President

In the U.S., over 18 million Americans have dipped their toes into cryptocurrency, a number that’s growing as the digital currency sector garners attention. With a pro-crypto president now in the White House, the industry is poised to ride a wave of newfound popularity. Bitcoin, the first decentralized cryptocurrency, remains the crown jewel of the market, attracting both seasoned investors and curious newcomers.

This surge is not just about making money. For many, crypto represents a challenge to traditional banking systems. By bypassing banks and financial institutions, supporters argue that crypto offers a more democratic way to handle money. It allows anyone with an internet connection to participate, promising an alternative to traditional financial hierarchies.

However, despite its allure, cryptocurrency brings with it a host of ethical dilemmas, raising questions for investors eager to cash in on the digital gold rush. Here are the three major ethical issues surrounding cryptocurrency today.

The Environmental Toll of Crypto Mining

Cryptocurrencies like Bitcoin are created through a process called “mining.” This involves solving complex mathematical problems using vast amounts of computational power. The result? An enormous consumption of electricity. In fact, Bitcoin mining alone accounts for nearly 1% of global electricity demand, which is equivalent to the energy usage of an entire country like Australia.

The environmental impact of this energy consumption cannot be ignored. Many cryptocurrencies still rely on energy-intensive mining methods. While some projects, like Ethereum, have made strides in reducing energy use by transitioning to more eco-friendly models, Bitcoin remains a significant offender. And as global concerns about climate change grow, this becomes a pressing issue for anyone considering the ethics of crypto investment.

• Bitcoin’s energy consumption equals that of entire nations, contributing massively to global carbon emissions.
• Ethereum has reduced its energy consumption by over 99%, but Bitcoin has yet to follow suit.

The Dark Side of Cryptocurrency: A Haven for Criminals

One of the darker sides of cryptocurrency is its use in illegal activities. Because of its anonymous nature, crypto has become the preferred payment method for criminals involved in everything from fraud and tax evasion to human trafficking and ransomware attacks. In fact, ransomware alone has cost victims over $1 billion in cryptocurrency extortion payments.

Historically, criminals used cash or complex financial structures like shell companies to launder money. But with the rise of cryptocurrencies, the process became much simpler. As long as transactions remain anonymous and there’s no central authority overseeing them, illegal activities flourish.

The ethical question here is clear: who is responsible for the criminal activity tied to crypto? Banks are legally required to monitor and report suspicious activities, but cryptocurrency operates in a decentralized space, making it difficult to hold anyone accountable. As a result, anyone involved in the crypto ecosystem may inadvertently be contributing to these illicit activities.

Predatory Investment Culture in Crypto

Beyond its environmental and criminal issues, crypto also suffers from a predatory culture. Many smaller cryptocurrencies and initial coin offerings (ICOs) share characteristics of Ponzi schemes. These investments often promise large returns to early adopters, only to rely on the influx of new money to pay out older investors. Once the new money stops coming in, the system collapses.

A well-known example is Bitconnect, a crypto scheme that collapsed after its founder was indicted. Investors who lost money in Bitconnect were left with nothing, while its creators walked away with millions.

This kind of predatory behavior raises serious ethical questions for investors who might not fully understand the risks involved in these investments. It’s easy to get caught up in the hype of cryptocurrency’s potential, but without proper regulation and transparency, these investments can end up being dangerous for those who don’t know the ropes.

Cryptocurrency: A Tool for Financial Inclusion or a New Elite?

Cryptocurrency’s proponents often claim that it provides financial services to the unbanked, offering a lifeline to the global poor. But the reality is much more complicated. While crypto can theoretically enable international transfers without relying on banks, the process isn’t as simple as it may seem. Converting fiat money into cryptocurrency, and then back into local currencies, involves hefty transaction fees that often negate any benefits for those on the receiving end.

Moreover, the distribution of wealth in crypto is highly concentrated. A 2021 study found that just 0.01% of Bitcoin holders control 27% of its value. This means that, far from democratizing finance, crypto has created a new class of elites: early investors, creators, and backers who control the majority of the digital assets.

The myth of cryptocurrency as a tool for financial equality simply doesn’t hold up when looking at the actual distribution of wealth within the system. Instead of dismantling traditional power structures, it has simply replaced one elite group with another.

Moving Toward Ethical Crypto Investments

Despite the ethical challenges, the crypto community hasn’t turned a blind eye to criticism. In response to growing concerns about environmental impact, a number of crypto firms have joined the Crypto Climate Accord, which encourages members to reduce their carbon footprint. Additionally, Ethereum’s transition to a more energy-efficient mining system has set a precedent, though Bitcoin remains a major outlier in this regard.

Governments are also starting to regulate the sector, with the European Union, the United Kingdom, and the United States taking steps to curb illicit activities and protect investors. In January 2024, U.S. regulators approved exchange-traded funds (ETFs) that allow traditional investors to buy into crypto assets more safely.

While this movement toward regulation is a step in the right direction, it raises a new set of ethical questions. Some investment funds, claiming to focus on social or environmental impacts, have made significant gains by betting on cryptocurrency. For example, the Nikko Ark Positive Change Innovation Fund saw a 68% return in 2023 by investing heavily in crypto.

Ethical Choices for Crypto Investors

For ethical investors, the question remains: should you invest in cryptocurrency, and if so, which coins? Divesting from Bitcoin and opting for other, more environmentally friendly alternatives is one option. However, even so-called ethical cryptocurrencies can come with their own set of issues, especially when they are part of an ecosystem that still operates without sufficient regulation and transparency.

Investors must remain vigilant about the broader ethical implications of their choices, ensuring that their investments align with their values. The rise of cryptocurrency has undoubtedly opened up new opportunities, but it has also introduced a host of ethical challenges that investors cannot afford to ignore.