Introduction:

In November 2021, Bitcoin reached one of its all-time high values of around $69,000 per coin. It was gaining more investors at a rapid rate, and cryptocurrency was a craze on social media all over the world. At its highest, Bitcoin only took nine months for the market to completely crash and drastically decrease its value to $20,000 (Browne). It isn’t uncommon for economic experts to deprecate Bitcoin for reasons like this, yet some experts support it for its difference from other currencies. Everything in the business world evolves to keep up with the rest of society, and Bitcoin is a potential way to progress with society’s increasing use of technology. Despite the crash, Bitcoin has drastically stimulated the economy and raised profit for some, but there are more underlying issues that reside within BTC and its investors.

Evolution of Currency:

  Changing currency is no new challenge, in fact, the world has changed currencies numerous times. The idea of currency began with trading. It is still used a lot today, but 4,000 years ago, it was the main way of obtaining items (Mint). The idea of trading revolved around giving and receiving something in return. Trading increased economic growth as it allowed cities to exchange with other cities for goods that were otherwise unobtainable. Another benefit of trading was that it allowed low-income classes to be able to make a living. For example, farmers were able to trade their crops for other goods that they needed, and since farmers were the only people that grew crops, it was necessary to trade with them. Because of these benefits, trading was widely accepted in society and was used for many years. 

Eventually, civilizations started to implement the use of a tangible currency. There were a lot of different types of currencies ranging from beads to shells, but the most used currencies were in the form of coins (Tikkanen). Coins still maintained value as they were made of precious metals that were used for jewelry like gold and silver. They provided many benefits to society as well. The main benefit was that coins were very portable and durable, and easy to transport. Comparing it to trading, coins were a much more efficient way of purchasing and selling goods. In addition, governments were able to manage the production of coins as well as their circulation and use which made it easier to maintain a stable economy.

Currently, most countries use banknotes as their form of currency. Although being very portable, carrying a large number of coins was still heavy due to the fact that they were made out of metal. Carrying them for long distances was impractical, so paper bills started to be used.  Paper bills were extremely portable, but a lot less durable than coins. Costing practically nothing, governments were able to generate a lot of bills for cheap, however, since they had no physical value, many people were initially hesitant to shift from coins to paper because of the fear of inflation. Eventually, the benefits became apparent, and banknotes were a norm in society. As technology advanced, credit cards, debit cards, and online cash exchanges like Venmo were introduced. This method of payment is the most efficient because all it requires is a card or device and it is also very quick. While the seemingly theoretical currency used today doesn’t seem out of the norm. The transitions of each form of currency took years to be accepted and catch on.

As humans continue to innovate, a new form of currency is on the horizon -- cryptocurrency. A completely new and unique approach to currency, Bitcoin, the most “stable” cryptocurrency,  has been growing at really fast rates and is continuing to gain new investors. Crypto is very different from previous currencies because of factors like volatility, no central government, no physical value, and more. Like all new things that enter society, there are many pitfalls that come along with it. Just as currencies in the past took time to solidify themselves, Bitcoin is still in a transitionary phase seeing if it will impact society and be effective in usage.

Social Impacts:

Being a high-risk, high-reward system, Bitcoin is an incredibly unreliable currency. With the increasing popularity of social media and the news, there are even more people investing in it without knowing the risks. A survey by the Pew Research Center found that 86% of Americans have heard of cryptocurrencies (Perrin). Some people compare it to stocks as both have a fluctuating value, but Bitcoin and other cryptocurrencies are so much more unstable than the stock market because the value of a currency can change within minutes. In just the first half of 2022, Bitcoin has already lost 70 percent of its value from its $69,000 all-time high (Browne). An example of the risks of Bitcoin’s volatility is shown through NFL player Odell Beckham Jr. He received his paycheck of $750,000 in Bitcoin in late 2021, but in January 2022, Bitcoin was worth half the value from when he received the paycheck making it a horrible net loss for him (Selbe). When notable figures on social media make public decisions like this, it influences other followers to do so as well. This is bad because individuals are taking financial advice from non-credible sources. 

Because of all the risk involved with Bitcoin, many experts describe it as a Ponzi Scheme, a type of fraud that lures new investors and pays profits to previous investors with the money that was put in by recent investors. Experts say Bitcoin is a Ponzi Scheme because it lures new investors with ads, influencers, and even stadiums named after crypto. The expectations from new investors are sustained when investors gain a profit, but the only source of profit comes entirely from new investments. A major flaw of Ponzi Schemes is that when they lose popularity, they are bound to fail since there are no new investors which means that Bitcoin is highly susceptible to failure. Even if Bitcoin remains relevant to society, then there are still other factors that will contribute to its fall.

Bitcoin, like many other cryptocurrencies, has a mining industry, where people looking for fortune use graphics processing units to mine Bitcoin. Although profitable, Bitcoin mining requires a lot of fuel. Normally, it wouldn’t be that big of a problem, but in the last few years, energy consumption from Bitcoin has increased by almost 62 times (Cho). In our society, the global climate is already reaching dangerous levels with temperatures being 1.2 C higher than the pre-industrial times. Britain's National Weather Service found that if temperatures continue to rise past 2 C, a billion people would face heat stress (Taylor and Stevens). Also, many countries have already formed regulations and laws to reduce global warming through the 2015 Paris Climate Agreement. This type of Bitcoin mining isn’t showing many signs of slowing down and it conflicts with the laws that are being made. In the small chance that Bitcoin Mining drastically reduces its carbon emissions, fewer people would be able to mine for Bitcoin. Additionally, since most people come to Bitcoin and other cryptocurrencies to get rich, fewer people would have an incentive to buy Bitcoin. 

Nefarious Activities:

With Bitcoin being a relatively new currency, there are always people trying to take advantage of it. A study done by a student from the Stockholm School of Economics found that around $76 billion of illegal activity used Bitcoin transactions (Foley et al.). Since Bitcoin is almost completely anonymous, most transactions are really difficult to trace which promotes illegal activities. 

The anonymity also harms society as well. Using social media and ads, there are many lucrative ways to make people fall into scams. According to the Federal Trade Commission, nearly half the people that fell victim to a crypto scam started with an ad, post, or message on some sort of social media, and with these scams, the median reported loss was $2,600 among nearly 50,000 people with 70% of the transactions being through Bitcoin. In total, the losses from 2021 amount to almost $700 million dollars (Fletcher). Illegal activity with Bitcoin only affects a relatively small percentage of people, but the loss of money is only increasing. 

Bitcoin also tends to favor the rich. Most participation in Bitcoin is from wealthier people. Using their money to manipulate the crypto market. Even though this tactic isn’t illegal, it can still trick others into making bad investments and losing money. Normally, this wouldn’t matter much because regulations could be put in place, but Bitcoin and other cryptocurrencies are not regulated by any sort of central government and are almost completely anonymous. Because of this, no regulations can be made and investors are free to do what they want. This allows the market to be manipulated by the top 1% of investors, while everyone else is in the dark. For Bitcoin, one tactic investors use is Whale Walls. In short, with the Whale Wall technique, a market participant will place a large set of orders but have no intention of following through with the order. This creates the illusion of large demand and supply in the market causing people to buy. In the end, the order doesn’t follow through and the people that bought lose money. A Silicon Valley CEO by the name of Nitin Kumar saw an order of 3000 Bitcoin made which triggered him to buy as well, but in the end, he lost money (Kumar).

In the future, if more investors were to participate in Bitcoin, there are many new dangers that are bound to be faced at one point. In a survey with 2,000 adult Americans, of those who bought crypto, only 24% of people understood how crypto works very well, leaving 76% that do not understand the currency (Caporal). As Bitcoin continues to grow, there will be fewer people that have knowledge about the currency which makes it highly likely to lose money.

Opposing Views:

On the surface, Bitcoin may seem like it has a lot of potential, and it shows some benefits. One main reason why Bitcoin piqued the interest of people was because of its uniqueness and specifically, its anonymity. It’s said that with Bitcoin, you’re able to do transactions that have no name or address attached to them and private transactions can remain private, however, it’s still possible to trace transactions to the origin. In fact, one transaction can be linked to real-world identities with some effort. The anonymity that is said to come with Bitcoin is not fully true and it can be unsettling to users.

Additionally, Bitcoin’s uniqueness comes from the fact that it has no government regulation. Initially, it seems good because authorities aren’t able to freeze or demand coins, but authorities are still able to trace transactions at any time. Also, having no government means that there are no recovery systems for Bitcoin. This means that if you lose access to your Bitcoin wallet, it’s impossible to access it again.

Another point made towards Bitcoin is that many of the problems caused by Bitcoin can be prevented with education, however, as of now, it is almost inaccessible for multiple reasons. One is that Bitcoin is relatively new to everybody and only got popular over the past few years. This means that reliable Bitcoin education is scarce. Another reason is that reliable courses most likely cost a lot of money, and some people might not be able to afford a course on top of the money they invested into crypto. 

Closing:

Bitcoin has attracted attention from around the world for how different it is from other currencies. More transactions are being done in Bitcoin every day. As it continues to grow, the major concern is the future. Many people say that Bitcoin is a new currency with a lot of benefits such as freedom from government control and anonymity. In addition, it can bring wealth and fortune, but inevitably, it is set to fail. Bitcoin is highly risky and the lack of education among the Bitcoin community makes investing in it even riskier. Also, Bitcoin’s growth is harming the environment with all the carbon emissions it generates. It can also be easily manipulated by the rich and is being increasingly used for scams online. Bitcoin may be the current of the future -- or it may not -- society has yet to decide, but understanding the current status of this economic wave is important as it looks like people involved at this point are fighting an uphill battle.

Work Cited:

Browne, Ryan. “Bitcoin Could Plunge Even Further to a Low of $13,000, One Strategist Warns.” CNBC, CNBC, 22 June 2022, www.cnbc.com/2022/06/22/bitcoin-btc-price-may-tank-as-low-as-13000-strategist-warns.html.

Caporal, Jack. “Study: Over 46 Million Americans Likely to Buy Crypto in the next Year: The Ascent.” The Motley Fool, The Ascent by The Motley Fool, 21 June 2022, www.fool.com/the-ascent/research/study-americans-cryptocurrency/.

Cho, Renee |September. “Bitcoin's Impacts on Climate and the Environment.” State of the Planet, 16 Sept. 2021, news.climate.columbia.edu/2021/09/20/bitcoins-impacts-on-climate-and-the-environment/#:~:text=Between%202015%20and%20March%20of,impacts%20on%20ecosystems%20and%20biodiversity.

Fletcher, Emma. “Reports Show Scammers Cashing in on Crypto Craze.” Federal Trade Commission, 6 June 2022, www.ftc.gov/news-events/data-visualizations/data-spotlight/2022/06/reports-show-scammers-cashing-crypto-craze#crypto4.

Foley, Sean, et al. “Sex, Drugs, and Bitcoin: How Much Illegal Activity Is Financed through Cryptocurrencies?” OUP Academic, Oxford University Press, 4 Apr. 2019, academic.oup.com/rfs/article-abstract/32/5/1798/5427781?redirectedFrom=fulltext&login=false.

Kumar, Nitin. “Spotting the 5 Common Crypto Price Manipulation Patterns.” LinkedIn, LinkedIn, 1 Sept. 2021, www.linkedin.com/pulse/common-crypto-manipulation-techniques-nitin-kumar-.

Mint. “Guide to the Barter Economy & the Barter System History.” MintLife Blog, 26 Aug. 2020, mint.intuit.com/blog/personal-finance/guide-to-the-barter-economy-the-barter-system-history/.

Perrin, Andrew. “16% Of Americans Say They Have Ever Invested in, Traded or Used Cryptocurrency.” Pew Research Center, Pew Research Center, 11 Nov. 2021, www.pewresearch.org/fact-tank/2021/11/11/16-of-americans-say-they-have-ever-invested-in-traded-or-used-cryptocurrency/.

Selbe, Nick. “Rodgers, OBJ among Athletes Hurt by Bitcoin Price Collapse.” Sports Illustrated, Sports Illustrated, 27 Jan. 2022, www.si.com/nfl/2022/01/27/bitcoin-price-drop-impacts-salaries-aaron-rodgers-odell-beckham-jr#:~:text=Beckham%2C%20who%20signed%20a%20one,salary%20in%20the%20popular%20cryptocurrency.

Taylor, Adam, and Harry Stevens. “2C Or 1.5C? How Global Climate Targets Are Set and What They Mean.” The Washington Post, WP Company, 11 Nov. 2021, www.washingtonpost.com/world/2021/11/10/15c-2c-climate-temperature-targets-cop26/.