Crypto-Currency: Currency or Scam?



A novelty physical bitcoin is seen on a phone screen silhouetted by the Ukrainian flag.

Words to understand:

Ruble: The basic monetary unit of Russia.

Crypto-Currency: Any digital currency with no central issuing authority that has transactions validated through a digital method; blockchain. 

Blockchain: A digital database containing transaction information that is publicly accessible. 

Central Bank Digital Currency (CBDC): A digital currency backed by a national government, matching their traditional currency. 

Mining: Complex computations that are performed to create new cryptocurrency coins which enter circulation.

Hashrate: The rate at which a computer can mine a cryptocurrency. It is often measured in megahashes. 

Bitcoin: The most popular cryptocurrency, which uses traditional mining methods. It has a circulation cap of 21 million coins. 

Ethereum: The second most popular cryptocurrency. It uses typical mining methods presently but is planned to move to a proof of stake model in 2022.

Proof of Stake: A system that reduces the computational requirements compared to traditional cryptocurrency mining. The system is based upon validators chosen at random to verify the transaction. In order to become a validator, a person must have at least 32 Ethereum coins—about $80,000 worth on March 15, 2022.

Crypto-Exchange: A place where cryptocurrencies can be exchanged into typical, government-backed currencies or into other crypto-currencies. 

Non-Fungible-Tokens (NFT): An asset—most commonly images—backed by a blockchain to validate these assets’ transactions and verify their ownership. 

On Thursday, Feb. 24, 2022, Russia invaded Ukraine after months of military buildup along the border. In response to the invasion, Ukrainian banks shut their doors to patrons, and ATMs ran out of currency. Residents instead turned to Bitcoin as a currency instead of traditional notes.

In response to the military invasion, the Russian Ruble plummeted in value on Feb. 28, dropping over 25%. Meanwhile, crypto-currencies, such as Bitcoin, gained approximately 15% on Feb. 28. These changes during the short period of time do not show any long-term trends but do demonstrate a differing application between traditional and novel digital currencies. 

In early September 2021, El Salvador became the first country to accept Bitcoin as an official currency. Consequently, on March 9, 2022, President Joe Biden signed an executive order directed at advancing crypto-currencies in the United States. The order addressed more widespread adoption of cryptocurrency and the development of a CBDC. The executive order also sought to reduce the environmental damage caused by the vast energy needs of mining cryptocurrencies. 

News surrounding crypto-currency has spiked in recent months with the advent of technologies like NFT, which have faced stark criticism for their volatile nature and scamming potential. Despite the controversy, multiple social media sites, including Twitter and Instagram, have announced that they will implement NFTs on their sites. Social media sites currently are only applying it to icons for accounts. Some popular video-game publishers have also announced plans to implement NFTs in their games, including popular developers like Ubisoft and Square-Enix. 

Services like crypto-currency exchanges have also gained media buzz with multiple hosting advertisements during the 2022 Super Bowl, which had over 100 million viewers.

Crypto-currency in the past has faced many challenges with things like theft—a hack in 2016 netted hackers $4.5 billion in stolen bitcoin. So far, officials have only recovered $3.6 billion of the stolen coin. Thefts like this are not uncommon and show some flaws an anonymous, decentralized system possesses. Additionally, many crypto-currencies have faced criticism for the role they play in climate change due to the large amounts of energy required to mine coins; countries like China have outright banned crypto-currencies. To combat energy use, some popular coins like Etherium are moving to a proof of stake model. 

Cryptocurrencies threaten the environment in implementing blockchain technology and have a volatile security history. However, these flaws also ensure that citizens worldwide have access to their currency despite geopolitical events. With the new adoption of digital currencies from large countries like the US, cryptocurrencies have ensured a future alongside the traditional dollar.