Luke Jones

When thinking about what modern business market I knew the least about, cryptocurrency came to mind. I’m not much of a tech-minded person, so it had always seemed above my head. Specifically, the incident of the Bitcoin market crash of 2017 came to mind. In my research on the topic, I came across Nick Paumgarten’s longform article “The Prophets of Cryptocurrency Survey the Boom and Bust,” from The New Yorker. In it, Paumgarten goes deep into the story of Vitalik Buterin, founder of Bitcoin’s less known but arguably fiercest competitor Ethereum. The article covers both the founding story of Ethereum itself, the history of the American cryptocurrency market as a whole (with a focus on Bitcoin, Ethereum, Litecoin, and Ripple, the top competitors in the market), and the modern problems that have arisen with the growth, explosion, and crash of cryptocurrency that has given it such a bad reputation in the last couple of years.

One of the biggest areas covered by this article was Big Idea 4, unintended consequences and unacknowledged assumptions. There were multiple examples of this idea shown throughout the article, but two specifically stood out as the most impactful. 

The first example of this is with the unforeseen negative impact that e-currency would have on the environment through its massive demand for energy for the algorithmic processing process known as “mining”. Mining is when a computer, in competition with dozens, hundreds, or potentially even thousands of other machines, tries to solve a complex mathematical algorithm. Once it does this, the algorithm gets inputted into the cryptocurrency monetary system, creating one bitcoin, worth about 6400 USD. This incredible amount of processing power needed for large scale mining consequently uses a lot of electrical energy, which in turn means more power and pollution is created in power plants.  

“This year, it is said, the Bitcoin network will use as much energy as the nation of Austria, and produce as much carbon dioxide as a million transatlantic flights. Mining rigs—computers designed specifically to do this work—are thirsty machines. Mining farms tend to sprout up where juice is cheap (typically, in proximity to hydropower projects with excess capacity to unload) and where temperatures are low (so you don’t have to burn even more electricity to keep the rigs cool). There are open-air warehouses in remote corners of sub-Arctic Canada, Russia, and China, with machines whirring away on the tundra, creating magic money, while the permafrost melts.”

The pseudonymous original creator/creators of Bitcoin, Satoshi Nakamoto, was only concerned in making as secure of an online bank as possible, and once Nakamoto decided to launch this peer-to-peer payment system in 2008, it was then out of his/her/their hands. As part public domain on the world wide web (and not any private individual, company, or government), there was no oversight as to how the market forces of the cryptocurrency were to be reined in in cases of a greater public need, such as in this instance with the potential increase in pollution and global warming. Mining conglomerates, private groups that own their own massive collections of mining computers, have been slowly converting their privately-owned machines into public goods, relinquishing even more power. 

One of the other unintended consequences of cryptocurrency was the unanticipated conflict in the governance of cryptocurrency blockchains. Blockchains are the systems that record and protect any transactions made in a cryptocurrency banking system. They are also heavily controlled by the managers of the systems themselves. For the money to be protected, there are rules that must be put in place by the managers (in a public system) or owners (in a private system) to keep everyone else in check. The biggest problem that must be overcome is that for the rules to be followed well, the checks and balances between the people on the system must be simple but very thorough, a paradox if there ever was one.  

A good way to understand the extremely complicated and confusing relationship between people using cryptocurrency and the system rules is to compare it to a person following the law in the real world. The best way the American government protects its people is through its creation and enforcement of laws. There are many simple laws that everyday people can understand (such as don’t murder, don’t steal, pay taxes, etc.). However, in order to prevent problems in complex areas such as big business and healthcare, specialized lawyers are the ones who learn the specific law instead of your average citizen. They are the ones who help coach people how to follow the law, and they are the ones that prosecute people who break it as well.  

The same holds true for rules on an e-currency platform. There must be a balance between simple rules that an average miner or currency trader can follow (such as how to properly mine in a legal way on other people’s computers) and the complicated rules that only lawyers specializing in the cryptocurrency field can understand completely in order to properly advise the systems managers (such as how to handle system controls in a way that doesn’t steal miner’s money). Where cryptocurrency was created to be both user- and manager-friendly, people trying to negatively control the system have ruined it for everyone. Cryptocurrency, an online banking platform first praised for its simplicity and independence from the many human errors and corruption found in real world banking, now needs the human interaction and management it once fought against. Not even the “magical fake money” of cryptocurrency can remain untainted by greed in America forever.