Even if you’re not deeply versed in the intricacies of various cryptocurrencies, you’re probably aware of some of these issues: Unlike money, crypto still has to persuade people other than enthusiasts to use it. She must persuade governments to leave her alone. Transactions are costly and time-consuming. And one of the most cited drawbacks is the environmental impact of crypto; The “mining” infrastructure of some of the most popular cryptocurrencies is estimated to consume more electricity than many countries.
On Thursday, Ethereum, the second-largest cryptocurrency platform, decided to put that last concern to rest, undergoing a complete overhaul of its architecture. The tricky feat (known as “melting” for technical reasons that need not concern us) drastically reduced the amount of electricity needed to process transactions; according to one estimate, Ethereum’s energy consumption and carbon footprint have now decreased by 99.9%.
This kind of evidence of optimism mixed with continued evidence of pessimism is exactly why we’re still discussing crypto 14 years later – far longer than your typical Ponzi scheme or collectibles craze. If the crypto boom was pure speculative fever, then surely that fever should have been broken by now.
Instead, the possibilities of crypto continue to entice. Even if it never replaces national currencies (although it may still be too early to count), cryptocurrencies could still become the backbone of blockchain-based money transfer networks, in the same way that the banking system is based on the traditional currencies. Or crypto could become the digital equivalent of gold, a hedge against inflation and other disasters.
Additionally, crypto also has non-monetary uses, such as “smart contracts,” which automatically execute without an intermediary once pre-determined conditions are met. Among other things, this function can be used to create NFTs, a kind of electronic document granting rights to a digital asset such as an image or a music file. Last spring saw a real craze for NFTs, some of which sold for millions of dollars.
Yet pessimists can also rightly point out that despite all the hype, crypto remains essentially a hobby. It is, of course, a hobby that made a lot of money for its early adopters, but the same can be said of Beanie Babies, which soared on a mixture of enthusiasm and speculation, then s collapsed when the market ran out of new collectors. . So far, crypto booms have crashed whenever it becomes clear that the long-awaited take-off is not yet in sight. As of this writing, bitcoin and ethereum are down nearly 70% from their November 2021 peaks.
Anything new has growing pains, of course; in 1998, economist Paul Krugman predicted that the effect of the Internet on the economy would be no greater than that of the fax machine. And it’s a good sign for crypto that Ethereum is able to adapt as problems become apparent and architects work to overcome them. The question is whether they solve the most important issues for the future of crypto.
I’m in the camp that thinks there are still far bigger issues than environmental impact. Transaction costs are high and transaction speeds are slow compared to traditional payment processing networks. Crypto boosters tout the idea of cheaper and faster processing layers on top of the core blockchain, but I don’t understand why these second and third layers will be more appealing to consumers or business users than banks. ordinary.
Moreover, if cryptocurrencies and the networks that exchange them become competitive with traditional currencies and financial institutions, governments may well decide to eliminate the challenger – or at least regulate it more heavily so that collectors of taxes and law enforcement can track the flow of bitcoin. and ether as easily as euros and dollars. Compliance would increase costs for users and, of course, reduce the healthy flow of illicit cryptocurrency exchanges.
And even if you think excessive use of electricity was, in fact, one of the biggest barriers to wider adoption, the market still has the final say. Alas, since the completion of Ethereum’s groundbreaking merger, the price of its primary currency has actually plummeted.
I won’t say that crypto can’t overcome these hurdles; cryptocurrencies have already proven to be much more resilient than expected. But I will say that they have a very long way to go and they don’t yet have a very clear roadmap to get there.