Crypto crisis: making sense of the digital disaster

Cryptocurrency, NFTs, mining, Bitcoin, Blockchain and “buy the dip” are just a few of many terms that have become common in the last two years.

As the once quiet chatter surrounding cryptocurrencies becomes a painfully loud and constant wail further fueling an environmentally damaging and financially unpredictable form of currency, many questions pervade. What does any of that mean? What does it all amount to? What benefits and consequences come with the use of these currencies?

Let’s start with the basics. What is a cryptocurrency? Investopedia defines a cryptocurrency as a digital currency that is secured by cryptography (the art of writing or solving codes).

These digital currencies have some serious real-world value with price tags for the most popular cryptocurrencies like Bitcoin and Ethereum ranging anywhere from $3,000 per coin for ETH to $40,000 per coin for BTC. However, most investors choose to buy fractions of these coins instead of paying the full price.

In a study conducted by the University of Cambridge, researchers found that in 2021 Bitcoin mining alone consumed an estimated 144 Terawatt hours of electricity. To put that into scale the entirety of New York City uses 52 TWh annually, which means one year’s worth of electricity used in Bitcoin mining could power all of New York City for almost three years. The University of Cambridge also found that when compared to the top 59 countries in the world for energy consumption, Bitcoin mining came in 27th place — ranking its energy consumption above countries including the Philippines (population 109.6 million), Ukraine (population 44.1 million), and Argentina (population 45.3 million). 

I fear what the future holds for a world where popular cryptocurrencies are responsible for power consumption rivaling that of multiple countries, but staggering consumption is not the only real-life consequence of these digital currencies. 

Alongside the massive amounts of electricity used to fuel crypto mining and transactions, physical waste also comes as a result in the form of the exhausted computer components used to mine and acquire cryptocurrency. Digiconomist, a widely cited database used to track the energy consumption and electronic waste of various cryptocurrencies, estimates that Bitcoin mining alone is responsible for 30+ kilotons of electronic waste. While that number is relatively small in comparison to the electronic waste of other industries, the rate at which the amount of electronic waste produced by Bitcoin mining is increasing rapidly with Bitcoin being responsible for just 2.6 kilotons of electronic waste in 2017.

While the global environmental damage caused by cryptocurrency consumption and waste are most concerning, the societal impacts of crypto-culture are arguably more frustrating. 

Whether its impacts on the supply chain for computer technology, social media promotional campaigns, pressure from other investors to pour in more money or the obnoxious and cult-like supporters, cryptocurrency has invaded every walk of life.

When it comes to mining cryptocurrency, the stronger the computer you use the faster the process goes. Consequently, everyone scrambling to mine as much crypto as possible is also scrambling to build the strongest computer possible by whatever means necessary. 

In the world of computers, it’s not uncommon for anyone who keeps up with high-end or newly released tech to have experienced the dreadful escapade of attempting to purchase the newest and most powerful computer parts only for them to sell out instantly. 

When it comes to purchasing high-end computer parts from a big name website like Amazon, you’ve likely fallen victim to bots that purchase items the moment they become available. Guess who sets up these programs? Crypto miners. 

It’s frustrating for tech enthusiasts to spend months attempting to get their hands on computer parts that are being ravaged by bots. But there’s a new level of frustration added by knowing that once crypto miners have used their unfair advantage to acquire high-end tech, they will effectively destroy it by running dozens or even hundreds of top of the line computers under high stress conditions until they no longer work. Then the cycle begins anew.

Even if you’re not a tech enthusiast, there’s a high chance you’ve seen one of those promotional campaigns on Instagram for a new collection of NFTs, or non-fungible tokens: unique pieces of digital media like pictures, videos or audio that are individualized using blockchain technology. NFTs are purchased with Ethereum or Solana (SOL) through online marketplaces like Open Sea.

The nature of NFTs, allowing for artists to sell their work for large sums of money to people all around the world, isn’t inherently bad. Still, NFT collections like the “Bored Ape Yacht Club” infiltrate and sour the market. The thousands of slightly different drawings of monkeys that sell mostly to celebrities for hundreds of thousands of dollars take away from the work of real artists trying to make a living off of their passion, thus encouraging the creation of copycat NFT collections flooding the market.

Many entry-level crypto investors purchase less expensive and less popular cryptocurrencies called altcoins. They hope that these coins will rise in price to allow early investors to profit. Due to the typically low cost of altcoins, they’re a relatively low investment risk in comparison to mainstream cryptos like Bitcoin or Ethereum. 

With a low investment risk and massive room for profits, investing in the cheapest altcoin you can find seems like a no-brainer, but making money from them requires patience and luck. Altcoins take some of the downsides of mainstream cryptos to an extreme. With so many altcoins on the market, it’s nearly impossible to invest the right assets without investing money into dozens of altcoins. In the event that an Altcoin does manage to value above a few cents, their prices often fall way back down as the conversation surrounding them dies down. 

Crypto price dips encourage an addiction like “buy the dip” behavior. Investors pressure each other to use price dips as an opportunity to spend more money and buy more rather than selling off their assets before prices drop too low and investors lose money.  An example of this risky behavior would be Dogecoin. After gaining traction online Dogecoin amassed millions of investors, many of whom swore that the more money they put in, the more they would get out. However after Doge prices rose to 74 cents per coin they quickly plumbitted down to 14 cents per coin and cost investors major profits.

Along with volatile prices, investing in altcoins also brings risky rug pull schemes, a danger not present with more mainstream cryptocurrencies. In November 2021, the creators of ‘Squid Coin’ cashed out completely and crashed the Squid Coin market resulting in millions of investors losing their money while those responsible for the rug pull made off with millions of dollars in profits.

At the end of the day, we live in a world where people pay tens of thousands of dollars for an environmentally devastating, unique string of codes or hundreds of thousands of dollars for an atrocious digital monkey — all while swearing that those who don’t see the appeal have so much more to learn. After hours of research and puzzling through the intricacies of the market, I guess I still have a lot to learn.