Points to Consider When Investing in Crypto

Crypto Caveats

So you know about Crypto? Well, there’s no doubt the crypto craze is real, but it comes with some major caveats. Like any innovative new technology, cryptocurrency continues to navigate some significant challenges as it moves mainstream.

From scams, to environmental concerns, to the threat of government regulation, the future of digital currency hangs in the balance.

Crypto Scammers

As crypto use grows, crime has become increasingly prevalent. Scams accounted for the majority of crypto crime in 2021, as scammers siphoned a staggering $14 billion over the course of the year.

Scammers often use social media (who hasn’t had a crypto bot slide into their DM’s guaranteeing to make them rich overnight?!) to build fake profiles and dupe people with the promise of huge returns. But when it comes to crypto crime, the eye-popping numbers don’t tell the whole story.

Crypto crime actually makes up just a tiny fraction of crypto transactions, and accounts for just 0.15% of the $15.8 trillion traded in 2021.

Environmental Impact of Mining

Another major crypto caveat is the controversial impact mining has on the environment. Bitcoin is mined by millions of computers across the globe in a hugely energy-consumptive process. Some Bitcoin-mining server farms rely on fossil fuels to power their crypto creation. On average, Bitcoin mining generates emissions comparable to the huge London metropolitan area, and nearly 40% of miners across the globe rely on coal for their power source.

Crypto’s harmful impact on the environment has had major repercussions. China recently banned Bitcoin mining because miners were contributing to the revival of coal. Tech titan Elon Musk originally said Tesla would accept Bitcoin as payment for new cars, but then switched gears just days later after pointing to the harsh environmental impact of Bitcoin mining.

But when it comes to crypto and the environment, the news is not all bad. New “ESG-friendly” bitcoin-mining projects are finding alternative energy sources to power their crypto creation. Ether, a Bitcoin competitor, is getting one node ahead. Ether is on the brink of transforming to a new mining method called proof-of-stake, which is a far less energy-consuming process than Bitcoin’s proof-of-work principle. And on the other side of the coin, Bitcoin consumes significantly less electricity than the ATMs and servers of traditional banks…which begs the question, should crypto be under the ESG microscope?

Regulatory Risk

Governments across the globe are flexing their muscles against cryptocurrency. In the US, the Biden administration has called for crypto regulation and tougher enforcement against bad actors. In China, the government has banned all crypto mining entirely, citing its harmful impact on the environment.

The Chinese crackdown has led to an exodus of crypto startups from the country, and only a quarter now remain. Many of the Chinese crypto miners have fled to neighboring Kazakhstan, a country four times the size of Texas, which is the second-largest crypto miner behind the United States. However, recent political unrest in the Central Asian nation meant that 15% of bitcoin miners went offline during an internet shutdown, and bitcoin prices dropped 8%.

As governments across the world grapple with how to handle the rise of cryptocurrency, its success could be its own worst enemy. If crypto challenges the primacy of a nation’s currency, some governments will undoubtedly want to step in with strict regulation.

The Future is… Unclear

Cryptocurrency has had a wild ride over the past decade. While it has the potential to alter the financial landscape of the future, crypto has to grapple with some real challenges to its growth and dominance. Ten years from now, will crypto be king? It seems only time will tell.

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