"Crypto" Is Losing: The issues are climate and trust. But the crypto community is fighting back.

• Author: Lo, Chi

Privately issued cryptocurrencies, notably bitcoin, have generated a frenzy of excitement, with the bitcoin mania even being (rightly) compared to the tulip mania in seventeenth* century Holland. What the crypto-aficionados have ignored is an imminent development--the world's monetary authorities, including the U.S. Federal Reserve and the European Central Bank, have started to explore the idea of developing central bank digital currencies.

China in this regard is the first mover. The People's Bank of China started experimenting with its official digital currency in major cities in 2017. The Central Bank of the Bahamas has gone even further, having fully issued a CBDC dubbed the "sand dollar" for circulation. Increasing regulatory control, due to central banks protecting their economic policy sovereignty and national governments controlling climate changes, is an imminent risk that cryptocurrencies face.

In particular, China's official digital currency is "anti-crypto." With Cryptocurrency, notably bitcoin, anonymity comes without any recourse or protection against theft, loss, or other forms of financial crime. This is creating an inherent risk which the crypto market is trying to fix. Ironically, the solutions should bode ill for cryptos by destroying their untraceable anonymity.

The starting point for bitcoin, and cryptos in general, is the loss of trust in the government institutions behind money in the developed world since the 2007-2008 financial crisis. Bitcoin has emerged as a new type of institutional arrangement for players to agree on the value of money without the backing of public institutions such as central banks.

In the longer term, if this "crypto/bitcoin protest" forces countries to improve their economic management and strengthen their institutional frameworks, cryptos could be marginalized by CBDCs which will feature "controllable anonymity." China's CBDC, officially called Digital Currency Electronic Payment and dubbed e-CNY by the markets, also highlights the cryptos' inherent risks that could potentially lead to their demise when public trust in government institutions can be re-established.

BITCOIN'S ENVIRONMENTAL COST

Bitcoin's "mining" process, which determines its finite supply ($21 million by 2040), comes at significant environmental cost in terms of massive electricity consumption, which has risen sharply over the years. The Cambridge Centre for Alternative Finance estimated that the bitcoin mining industry burned through about 143 terawatt-hours of electricity per year as of May 2021, or 0.6 percent of the world's total energy consumption. By comparison, Australia's main electric grid uses less than 200 terawatt-hours a year and the whole...