The mania surrounding Bitcoin appears to be more popular than ever and the widespread appetite for cryptocurrencies has encouraged more countries and corporations to dabble in this emerging market. Only this month, El Salvador introduced Bitcoin as its legal tender, and there have been rumours circulating that Ukraine is contemplating a similar move.
Earlier this year, Elon Musk toyed with the idea of consumers being able to purchase Tesla vehicles with Bitcoin and financial institutions such as JP Morgan and Wells Fargo have got more involved in the space.
I am fascinated by technology and am always excited to read about the latest advancements being made to improve our lives and am supportive of the core principles of cryptocurrencies. The notion of having sole ownership of your money seems reasonable and the ability to easily transfer money across the world seamlessly seems inevitable considering we are living in an ever-increasingly globalised world in which remote work is becoming the norm.
Decentralisation also means that because the system is run by a large number of people across many different countries, it is harder for one government, corporation or entity to control it or have unnecessary leverage over individuals. This in theory down the line should mean it is harder for these groups to continue to put outdated fees on money transfers abroad and control where and to whom your money can go. This is why, for many, crypto is liberating and a breath of fresh air for the finance world.
At first glance, cryptocurrency may seem great and make you think that you want to get involved as soon as possible to maximise any possible returns. You may even be tempted to open up a Coinbase account and watch some YouTube videos on which coins are the best and start investing. Herein lies my main problem with cryptocurrencies and why I see them as potentially harmful – the hysteria that comes with the fear of missing out.
With just a few clicks on your phone, you can deposit as much cash as you want into your virtual wallet and invest it in minutes. For most of us though, this ‘investment’ in reality resembles a modern form of gambling because the fundamentals of crypto are incredibly confusing and complicated.
Do you know how blockchain works? Do you understand the differences between Bitcoin, Ethereum and Cardano? I know I certainly don’t, so why would you put in hundreds or thousands of your own money into something you know very little about?
A survey conducted by Cardify found that 16.9% of investors who have bought crypto ‘fully understand’ the potential of the currency, whilst 33.5% of buyers have either no knowledge of the space or describe their level of understanding as ‘emerging’. This is seriously worrying, and likely one of the reasons why Western governments are reluctant to get involved in this space. It would be politically costly for them to introduce support for Bitcoin if the wider appetite and understanding for this technology is not there.
Due to it being a digital asset, and many young people being glued to their computer screens, cryptocurrencies like Bitcoin have attracted their fair share of student investors hoping to make a short-term profit without putting in the effort which comes with working a part-time job or even the patience it takes to read a book on the technology behind crypto.
Recently, Save the Student found that the proportion of students investing in cryptocurrencies tripled in the last year, with many of their investments ending up depreciating. This is because as cryptocurrencies are unregulated due to its decentralisation, the market is incredibly volatile. Understandably, some are drawn in by the huge gains, but too many forget that with these often come sharp losses too. Sadly for many though, they only realise this after it is too late.
Many young people are attracted by the hype and media sensationalism that they forget to do their research. They blindly follow the wisdom of a personality on YouTube without researching in detail the risks and consequences that come attached with this form of gambling and speculation. Regulation and oversight of this industry by governments may be needed, though I understand it would undermine the principle of decentralisation that the crypto supporters value so greatly.
I wish to stress that I am not against the introduction of cryptocurrency into public life, and as I stressed earlier, believe there are some key advantages and benefits that come with its adoption such as easier peer to peer transactions.
I welcome the idea of making Bitcoin a legal tender and see this as a big and bold step forward. My issue lies in the fact that far too many are putting their money into something they know nothing about and speculating about future price rises without doing sufficient research and improving their understanding first.
Individuals should only gamble as much as they are willing to lose. They should not listen to the constant buzz of the media machine and ultimately act sensibly and rationally. This advancement in technology is exciting, but for those who are careless, it may end up being a costly mistake.