The falls of FTX, Luna and Celsius shook markets last year, but 2023 has started with a spring in its step, and Bitcoin is up more than +55% since January 1.
While the sense of trepidation the tumultuous events of the last 12 months caused are understandable – and the losses incurred by investors hugely regrettable – the fallout from each case has come with a silver lining. All of these companies had ‘something else’ going on with them and, looking at it optimistically, they have provided hard, but important, lessons that will fashion a better industry. And, it’s not like traditional banks have been a paragon of stability either…
The regulation and increased transparency in crypto that will surely follow can only help to improve how the industry works and perceptions from those outside. But the experience of the last year has also dispelled some of the more enduring misconceptions around crypto. Here are just a few of them:
- Crypto is a fad
According to research by the crypto platform Gemini, nearly one in five UK adults are now owners of cryptocurrency. Similarly, international levels of adoption have risen over the past five years, particularly since Bitcoin’s 2019 bull-run and the price rises in 2020 and 2021. You can now use crypto as payment for many goods and services including luxury watches, travel and hotel rooms, and even Xbox games via Microsoft.
As well as newer developments, you can also look to the history of digital or electronic currencies. In Switzerland it is a tried and tested concept, with the origins of WIR dating back to the 1930s. It now has a turnover of more than $6 billion, which is a substantial addition to Swiss GDP.
Sardex is another example from Sardinia, Italy, which was launched as a response to the 2008 financial crisis. Although not a crypto, the digital currency initiative encourages the retention of money locally. Only companies and people within the area are eligible to participate, helping regional economic growth. Similar local currency schemes have been tried and tested in the UK too, such as the Bristol Pound which operated from 2012-2021.
- Dealing with crypto is difficult
In the beginning, the process of buying and selling cryptocurrency was undoubtedly more complicated than it ought to have been. But now, in many cases sending and receiving crypto is easier than dealing in fiat currency like pounds, euros, or dollars – and there are no hidden fees attached to transactions.
Buying it is similarly straightforward through exchanges such Coinbase. All you need to do is set up a free account to get started (completing Know Your Customer and Anti Money Laundering checks), transfer in some fiat, and purchase the tokens you want.
- Trading crypto is like gambling
At a recent university lecture I delivered, the majority of the audience said their main reason for not holding crypto was a fear of losing money. Any investment comes with a degree of risk and it is important that you feel comfortable with that before you start buying any crypto. That said, investing in crypto with the expectation of becoming rich overnight does fall into gambling territory – you need to have a long-term outlook and research the projects behind the token.
Compared to traditional markets, crypto has tended to offer a degree of protection from inflation. Many projects have restrictions on how many tokens or coins can be created, which means the market can’t be flooded with new supply, creating inflationary pressure. Any financial advisor would tell you that a balanced portfolio of assets is the best strategy and the same applies to crypto: don’t put all of your hopes in one token.
- Crypto has no real-world uses
I’ve talked about a few of the companies now accepting crypto as payment for goods and services. As well as the speed and low cost of transactions, particularly compared to traditional banks, crypto is guaranteed to reach the right person – provided you have the recipient’s wallet address. It is also highly secure, with no blockchain having ever been hacked.
We saw the real-world benefit of that play out last year when crypto played an incredible role in supporting the people of Ukraine. Since the beginning of the Russian invasion, more than $250 million has been donated to the Ukrainian Government and non-governmental organisations (NGOs) in crypto according to the official fundraising site, United24.
The uninterruptable, peer-to-peer features of exchanging crypto have made it the ideal way for people to donate to Ukraine directly, particularly in the first few weeks of the war when other crowdfunding sources encountered problems.
- Crypto is bad for the environment
For a range of reasons, the carbon footprint of crypto and Bitcoin mining often comes under the spotlight. Not too long ago, authorities in Canada and Kazakhstan clamped down on the energy used by Bitcoin miners, making it more complicated to secure new grid connections.
What that doesn’t account for, however, is the amount of mining that is done via renewable energy sources. Yes, it is an energy-intensive process but, according to the Bitcoin Mining Council, almost 60% is powered by sustainable electricity – one of the highest proportions of any global industry.
With the right infrastructure, mining could, in fact, take place alongside sectors that produce excess, often wasted energy. For example, offshore oil and gas platforms where gas flaring is routine practice.
Individual networks are also making their own environmentally-minded improvements. Last year, the Ethereum network moved from proof-of-work to proof-of-stake, reducing its energy usage by up to 99.5%.
It’s easy to see how misinformation could put people off using crypto, but the more people that use it, the more they will see and understand it for themselves. In the meantime, those of us who are more familiar with it should also help to drown out the noise.
Temple Melville is CEO of the Scotcoin Project Community Interest Company (CIC)
