Long back, during the days when I watched TV, I came
across a movie while surfing channels. I can’t recall the name, but I remember
the scene. Shatrughan Sinha was playing the role of some local goon. When the
character played by Rishi Kapoor asked him for money, he pulled out a piece of
paper and, using not a pen but a burnt matchstick, scribbled the words ‘Rs. 100’.
That paper worked as a currency in the neighbourhood!
Think
this is absurd? The movie must have been one from the 90s. If the makers were told
what they had then included for drama would one day become a widespread reality,
imagine what their reaction would be? Welcome to the world of cryptos. Before I
proceed, one disclaimer. There was a time when even I was taken by the crypto
story. The promise of a decentralized currency meant a more egalitarian world.
One in which monetary power would devolve from the hands of Governments to the
people. I was also under the mass delusion that still affects many.
It is
simple. Rules and regulations may be annoying. But it is better to have them
than none at all. All those who drive any vehicle will agree to this. No rule
does not make the system more egalitarian. It only leads to dominance by power
players who have a field day running amok over the smaller fish. In the world
of cryptos, the power players are the different exchanges, crypto banks, and
issuers of digital tokens. This article is not about the detailed m.o. of the rampant
manipulations done by the crypto entities.
In
most cases, the manipulations involve issuing some new crypto token, creating hype
around them, artificially raising prices, showing self-created money as balance
sheet assets, and then taking loans or venture-fund in fiat currency using
cryptos as tokens. With some variation here and some there, one factor remains
common. Cryptos are about manipulating the prices of otherwise useless entities
and convincing buyers that the price will increase. Many people know the
stories of the crash of Terra, Celsius, and FTX. Their charismatic founders
were once the darlings of a particular set of people, quite similar to the gangster
in the aforementioned movie.
What
explains the high price paid for obscure tokens like Dogecoin? Or the craze of
last year- Non-Fungible Tokens (NFTs). I value art. But why should I pay real
dollars to purchase drawings of apes anyone can see online for free? Jack Dorsey,
the former chief of Twitter, made the image of his first tweet into an NFT. Common
memes have been made into NFTs and sold for ridiculously high prices- the
disaster girl meme was sold as an NFT for half-million dollars. Imagine the real
disaster when the bubble bursts!
The
problem with Cryptos is that after 14 years since the first Bitcoin came into
existence (3rd January, 2009), it still does not have a good use case apart
from speculation. Its volatility prevents its use as a method of exchange, a
very necessary feature of a currency. And speculators do not want to use
cryptos for trading with physical goods or services. The one industry that has
benefitted a lot is the global scamming network. First, it was internet-enabled
finance. Now with cryptos, it is impossible to detect money flow from source to
destination. Frauds happened before as well, using bank wire transfers. Cryptos
have made the process easy and undetectable.
Apart
from creating ambiguity in the global money supply, cryptos are a terrible
waste of resources. The proof of work algorithms needed to generate new coins take
increasingly more computing power to solve. Hence, crypto mining happens in
dedicated server farms with hundreds of high-power machines operating in
tandem. With so many real problems the world faces, shouldn’t the resources be
diverted to something more useful?
To sum up, cryptos are the wild-west of modern
finance. I once believed that regulations would be of help. But as John Oliver
pointed out in his show’s latest episode, regulations would only add a veneer
of legitimacy to the proceedings. It would make banks and financial institutes delve
into the world of cryptos, putting public money at risk. Many people are
already calling for a ban, following the example of China. That may appear
anti-democratic. I do not normally favour any prohibitions. But this may be an
exception. We can start at the leaves, if not the root, by heavily penalizing
errant people and companies. Before it is too late, the world should come out
of the cryptoverse of madness.
