When Bitcoin first emerged in 2009, some analysts hailed it as a welcome challenge to the powerful and corrupt global financial system. However, as cryptocurrencies have surged in popularity and value over the past decade, it has become clear that they are just as vulnerable to unscrupulous practices as traditional currencies. The lack of transparency and environmental impacts of cryptocurrencies make them unviable as part of an ethical counter-economy.
Anonymity and Crime
Early critics of Bitcoin claimed that it was merely used by criminals as they traded guns, trafficked humans, and sold drugs on the Dark Web without being traced. In 2016, forensic investigators proved that they could track people who were using bitcoin for illegal activities. They made a series of highly publicized arrests, including ten Dutch online drug dealers, and closed the notorious Silk Road website which facilitated these activities.
Despite these arrests, Bitcoin and other cryptocurrencies remain successful due to their efficacy in conducting black market business. A study by three Australian academics shows that $72 billion worth of Bitcoin transactions annually are associated with illegal undertakings. This represents almost half of all Bitcoin use.
The Vatican itself has become concerned about the role of Bitcoin and other cryptocurrencies in the present-day slave trade. Senior church leaders have attended workshops and seminars to fully understand the role of cryptocurrencies in human trafficking as part of Pope Francis’ initiative to stamp out this unsavory trade.
At present, most underground trades are still conducted in traditional currencies such as U.S. dollars and rubles. However, an ethical investor would probably prefer not to purchase cryptocurrencies given that there is clear evidence that they play a key role in many criminal transactions.
The Thirst for Power
Across the globe, Bitcoin mining companies scour countries for sources of free or cheap electricity. There will only ever be 21 million bitcoins, and 17 million have already been mined. This means that it has become increasingly difficult to mine bitcoins without resource-intensive banks of supercomputers that can compute complex algorithmic problems. These huge buildings which house hundreds or even thousands of microprocessors and cooling equipment require massive amounts of energy. According to a report by the International Energy Agency, Bitcoin mining consumes more energy than the entire country of Switzerland.
In their search for cheap power, Bitcoin mining companies tend to set up near hydroelectric plants or coal-fired power stations. The hunger for electricity can affect small industries in these areas and even push up the power costs for ordinary consumers. In Venezuela, locals face constant blackouts as rogue cryptocurrency mining companies siphon energy from hydroelectric dams. Across the world, electricity companies are being pressured to build more plants or power stations to meet increased demand.
At a time when the world needs to lower its carbon emissions, cryptocurrency mining poses a major threat to reduction targets. Although there are exceptions like Sweden, where mining companies use green energy, cryptocurrency mining has a broad carbon footprint. An ethical investor should not consider an industry that is currently producing carbon emissions that are the same as some countries.
From a moral standpoint, ethical investors cannot support an industry that is largely used for dubious business purposes and causes considerable environmental damage. In the future, it is possible that some cryptocurrencies will be regulated and mined differently. At present, however, this is not a good choice for investors with a conscience.