Why cryptocurrencies will change the world
Master Thesis by Otto Maitimu July 2022
University of Amsterdam Faculty of Humanities
Supervisor: Dr. Federica Russo
Table of Contents
Abstract ... 4
1 Introduction ... 4
Part I – Ontology and social epistemology of cryptocurrencies ... 6
2 Is cryptocurrency money? ... 7
2.1 Cryptocurrency's underlying technologies ... 11
2.1.1 Blockchain technology ... 11
2.1.1.1 Consensus mechanisms ... 14
2.1.1.2 Mining Bitcoins ... 16
2.1.2 Cryptocurrency wallets ... 16
2.1.3 Cryptocurrency exchange platforms ... 16
3 But what is money? ... 17
3.1 Money from Bartering to Currency to Bitcoin ... 17
3.2 What is the nature of money? ... 19
3.3 What is money's social epistemology? ... 24
Part II – Ethics of cryptocurrencies ... 28
4 Ethical concerns of cryptocurrencies ... 29
4.1 General ... 29
4.2 Negative aspects related to cryptocurrencies as money ... 31
4.2.1 Lack of regulation ... 32
4.2.2 Volatility and manipulation ... 33
4.2.3 Tax evasion and money laundering ... 34
4.2.4 Poor exchangeability with legal tender ... 35
4.2.5 Cyber security issues ... 36
4.3 Invasion of privacy through cryptocurrency surveillance ... 36
4.4 Energy consumption of crypto mining ... 40
4.5 Carbon footprint impact on developing countries ... 42
5 Positive effects of cryptocurrencies ... 44
5.1 General ... 44
5.2 Pillars of cryptocurrencies ... 44
5.2.1 Decentralization ... 44
5.2.2 Anonymity, pseudonymity, privacy and security ... 46
5.2.3 Fast transactions, low fees ... 47
5.2.4 Strong data protection ... 47
5.2.5 Transparency ... 47
5.3 Regulation and governance ... 48
5.4 Developing countries and inclusivity ... 50
5.5 War on war ... 53
5.5.1 The Gold Standard to regulate money supply ... 54
6 Balancing the pros and cons ... 56
6.1 Pros and cons intrinsic to cryptocurrencies itself ... 56
6.2 Regulation, surveillance and privacy ... 57
6.3 Effects in third world countries ... 57
6.4 Cryptocurrencies will change warfare ... 58
7 Conclusion ... 59
7.1 Cryptocurrencies may fail ... 59
7.2 Why cryptocurrencies are here to stay ... 60
7.3 Why cryptocurrencies will change the world ... 61
8 References ... 64
Table of Figures Figure 2.1 Number of cryptocurrencies 2013 – 2022 ... 8
Figure 2.2 Gross Domestic Product European Countries 2021 ... 9
Figure 2.3 Market capitalization top 10 cryptocurrencies ... 10
Figure 2.4 Simplified representation of a blockchain data structure ... 11
Figure 2.5 Blockchain types ... 12
Figure 2.6 Blockchain - how it works ... 13
Figure 2.7 Power consumption difference PoW and PoS ... 15
Figure 4.1 Bitcoin volatility ... 34
Figure 4.2 Estimated global carbon footprint of the Bitcoin network, as of August 2021 ... 41
Figure 4.3 Bitcoin Energy Consumption ... 41
Figure 4.4 Bitcoin global carbon footprint ... 42
Figure 5.1 Average cost of remitting from G20 countries ... 52
Figure 5.2 Average cost by instrument used to fund the transaction ... 52
Figure 5.3 Average cost by means of disbursing funds ... 53
Abstract
Cryptocurrencies are digital coins that use cryptography. Transactions carried out with cryptocurrencies are immutably registered on a public and decentralized database, the blockchain. This thesis deals with the question of whether cryptocurrencies are money. But what exactly is money? Cryptocurrency is just a few lines of computer code, so how can we trust that it holds any value? But since the abandonment of the gold standard, the intrinsic value of bank notes and coins is also nil. Apparently, we trust the government as an issuer of money that the value on a bank note is guaranteed for now and in the future. Cryptocurrencies are not issued by a central authority, so how can we trust it?
There are both negative and positive ethical aspects to cryptocurrencies. If money's primary function is to store value, then for cryptocurrencies the lack of regulation, the risk of high volatility and the potential for abuse are elements that could make people wary of using it. At the same time, decentralization, anonymity, transaction speed, low costs, inclusivity and security make it very attractive to get in. With their ability to connect individuals without intermediaries, cryptocurrencies allow people to conduct business and to collaborate without the intervention of banks or government. And that has some implications as to why crypto will change the world.
1 Introduction
After the launch of Bitcoin in 2009 by Satoshi Nakamoto, several other cryptocurrencies soon followed. At the time of writing, there are already more than 10,000 different cryptocurrencies. Bitcoin is still the most well-known and the most traded digital currency with Ethereum as a close second. The total market capitalization of all these digital currencies together currently (end of April 2022) amounts to about $1,790 billion as I will show in section 2. Cryptocurrency has become an indispensable part of our world, although it is still not legal tender in most countries. One of the main features of cryptocurrency is that it allows peer- to-peer transactions, i.e. without the involvement of a third party such as a banking institution or the government. And the latter is not only a blessing, but also a threat to cryptocurrencies, as government supervision is one of the conditions for a stable financial system.
I argue that through cryptocurrencies we are on the brink of a new economy and a new world.
Cryptocurrency is not yet a widely accepted phenomenon and not very well known to a large audience. But nevertheless, cryptocurrencies are already getting a lot of media attention, not least because of the negative sides of their use. In this thesis, I take the position to stress the positive sides of cryptocurrencies and to highlight the potential of cryptocurrencies for people's well-being. To draw the attention to the prevailing positive aspects, I will first mention the negative sides of cryptocurrencies and then the positive ones.
This thesis will start in part I, section 2 with an explanation what a blockchain is, why we need it to carry
out transactions in cryptocurrencies, how we agree to add new transactions in a decentralized system and how Bitcoins are created. In section 3 I come to the question of what money actually is, how money originated and evolved from coins with a value equal to the precious metal it's made from, to cryptocurrencies. In the question about the nature of money, I discuss the two prevailing views, i.e. that of commodity money or money as debt. And in the social epistemology subsection 3.3 I discuss the shift from trust in people to trust in technology and why it is important to have confidence in the use of cryptocurrencies. And finally in part II, sections 4, 5 and 6 -the ethical part- I will compare the positives of crypto against the negatives and conclude that the positives will outweigh the negatives. The positives will change the world, because it will (1) mean the end of fiat money, (2) we'll have a form of spending control that we don't know yet, (3) it will be a big step forward for third world countries as improving living standards and access to education can unleash great potential of brainpower and (4) it will put an end to blood spilling wars. In section 7 I summarize and conclude the arguments presented earlier. The growth spurts of maturing cryptocurrencies and the pains that come with them should not be ignored, but let's keep an eye on the bigger picture in which cryptocurrencies will eventually grow into a mature currency.
Before going into the content of the thesis I want to make a methodological note. Cryptocurrencies are a fairly new phenomenon and for that reason there is not much literature on the subject from a philosophical perspective yet. Therefore, I started my research by collecting technical characteristics of cryptocurrencies through various websites, checking the reliability of the information obtained with other websites. I then used literature from ethical and political philosophy, which was not about cryptocurrencies per se, but about challenges of digital technologies in general and applied that literature to cryptocurrencies. There is a part in philosophy and in the history of economics that reflects the ontology and social epistemology of money, but at the moment there is not much discussion of cryptocurrencies in the philosophical literature and this thesis now aims to contribute to that.
Part I – Ontology and social epistemology of cryptocurrencies
2 Is cryptocurrency money?
Digital currency is nothing but the electronic form of existing paper money or coins. With contactless or online payments from a bank account to someone else, digital currency is moved from person A to person B. Only when the digital money is withdrawn at a bank or an ATM does it turn into liquid cash. Basically, digital currency is not cryptocurrency, but the electronic form of the currency that is issued by the government.
Cryptocurrencies are a form of digital currency, but apart from being stored in e-wallets or computer files they are different from digital currencies as we use today. Cryptocurrencies are created privately through advanced blockchain technology and are basically a repository of value in the form of imaginary coins that are protected by encryption but consisting of nothing more than a few lines of computer code.
To get a cryptocurrency one has to go to a crypto exchange platform where you can convert digital money into crypto currency. An important feature of cryptocurrencies is that transactions are carried out very quickly from one person to another, without the involvement of banks and other third parties. All information about the value, ownership and transactions of crypto is stored in blockchain and encrypted via cryptography to secure transactions and validate new blocks. While digital currencies are regulated by a country's central bank, cryptocurrencies have not yet been regularized in most countries. To buy cryptocurrencies you need a bank account from which you can exchange digital currencies for cryptocurrencies of related value. Since cryptocurrencies are not regulated and not backed by any government, their value is determined by supply and demand.
Early attempts to send encrypted electronic money transactions date back to David Chaum in the 1980s.
In 2008, Satoshi Nakamoto, the most famous unknown and a pseudonym for a person or group, published a paper describing an electronic medium of exchange that combines decentralized control, user anonymity, blockchain-based data tracking, and built-in scarcity. He called this a Bitcoin and since then it is widely recognized as the first modern cryptocurrency (Nakamoto, 2008). Nakamoto is said to have been inspired by a short paper by Nick Szabo in 1997 in which he mused about the creation of a be-all end-all technology protocol. In this protocol, God would be designated as the trusted third party through whom all transactions would be conducted.
"Imagine the ideal protocol. It would have the most trustworthy third party imaginable – a deity who is on everybody's side. All the parties would send their inputs to God. God would reliably determine the results and return the outputs. God being the ultimate in confessional discretion, no party would learn anything more about the other parties' inputs than they could learn from their own inputs and the output" (Szabo, 1997).
The point Szabo made was powerful: Doing business on the Internet requires a leap of faith.
In 2009, Nakamoto opened Bitcoin to the public and in the early years since, cryptocurrencies gradually gained more attention in the media and from the public. But from 2011, cryptocurrencies gained more momentum, especially when the Bitcoin price quickly rose in value in April of 2013. At the beginning of
2022, there are already more than 10,000 different cryptocurrencies on the market -see Figure 2.1- and by the end of April 2022, the total market capitalization of all these cryptocurrencies together is $1,790 billion1, the lion's share of which is Bitcoin.
Figure 2.1 Number of cryptocurrencies 2013 – 2022 Source: statista.com
1 https://www.slickcharts.com/currency
Figure 2.2 Gross Domestic Product European Countries 2021 Source: statista.com
The total market capitalization of $1,790 billions of all cryptocurrencies equals the Gross Domestic Product of Italy in 2021 and from this massive GDP number of the fourth European country and the steep increase in number of cryptocurrencies (more than doubled in the past twelve months) we can be ascertained that cryptocurrencies are here to stay (Figure 2.2 above). And when it comes to market capitalization Bitcoin and Ethereum are the largest two cryptocurrencies, together worth over a staggering $1,000 billion as shown in Figure 2.3.
Figure 2.3 Market capitalization top 10 cryptocurrencies https://coinmarketcap.com, retrieved 01-05-2022
2.1 Cryptocurrency's underlying technologies
Cryptocurrencies are powered by three interrelated technology building blocks: blockchain, cryptocurrency wallets, and exchange platforms with blockchain technology being the backbone.
2.1.1 Blockchain technology
Traditionally, financial databases have been centrally structured, but the blockchain is a database that is decentralized and distributed on a network of computers called nodes. Cryptocurrency blockchains are permissionless and since the code for nodes is open source, it is possible for anyone to join the network by running a node. Each node in the network can read the contents of the blocks and thus have access to the data on the blockchain. The contents of a block create a unique identifier, called a hash, and that hash is added to the next new block. A new block is created every ten minutes, containing all new transactions as well as the hash value of the previous block. Revising, tampering, backdating, or deleting a block will change that block's hash value, causing a mismatch between this block and the same block in other nodes.
Since changing block data leads to changing the hash value, the blockchain is seen as a robust and trusted network. Figure 2.4 below shows the data structure of the blockchain technology in a simplified manner.
Figure 2.4 Simplified representation of a blockchain data structure (Narayanan, Bonneau, Felten, Miller, & Goldfeder, 2016)
When blockchain technology was first introduced to the world, it was a public blockchain type. The very first version was created around the concept of decentralized ledger technology (DLT). The DLT concept gave organizations the opportunity to work peer to peer and thus not be dependent on a centralized entity.
While distributed technology solved the drawback of centralization, several other issues cropped up in applying blockchain technology to different scenarios.
One of the first applications of blockchain technology was Bitcoin. Bitcoin requires nodes in the network to be able to solve mathematical calculations, a consensus algorithm known as Proof-of-Work (PoW). As the difficulty of solving the math equations increased, so did the time and energy required. But efficiency
was not the only drawback with the first generation of blockchain technology. Scalability was another issue, and furthermore, the first blockchain was public, which didn't fit everyone's needs (Iredale, 2021).
Basically, there are 4 different types of blockchain as shown in Figure 2.5 here above:
- Public blockchain - Private blockchain
- Federated blockchain (also known as consortium blockchain) - Hybrid blockchain
Figure 2.5 Blockchain types Source: 101Blockchains.com
One of the first blockchains was the public blockchain of Bitcoin, which allowed anyone with an internet connection to perform financial transactions in a decentralized manner. Bitcoin is a cryptocurrency that uses a permissionless distributed ledger technology in a non-restrictive version where anyone can participate and transact. To run a full node, a full copy of the blockchain database - containing all transactions from scratch - needs to be downloaded, validated and hosted. Running nodes places high demands on memory, storage and bandwidth. Fully syncing the entire history on the blockchain for the first time can take days, and after that, nodes generally need to run for at least six hours a day (World Economic Forum, 2021). Each peer has a full copy of the ledger and anyone can access the public blockchain provided there is an internet connection.
Figure 2.6 Blockchain - how it works https://www.capitalgroup.com/
The verification of the transactions is done through consensus methods such as Proof-of-Work (PoW) or Proof-of-Stake (PoS). For the public blockchain to work, the participating nodes must validate the transactions. Should the required peers not participate in resolving transactions, the blockchain becomes non-functional. Examples of cryptocurrencies working on a public blockchain are Bitcoin, Ethereum, Litecoin and NEO.
The advantages of a public blockchain are: (1) it is open to the public and anyone can join the public blockchain, (2) thanks to its rigidity it brings trust among the whole community of users, (3) there are no intermediaries required for the system to work, (4) since the data is available for verification purposes, it brings transparency to the whole network.2
But a public blockchain also has disadvantages: (1) public blockchains are slow. The time it takes to
2 https://cryptocurrencyfacts.com/cryptocurrency-pros-and-cons/
solve math problems to complete a transaction ranges from a few minutes to hours. Bitcoin, for example, can only manage 7 transactions per second, compared to 24.000 transactions per second done by credit card companies.3 (2) The way public blockchain works makes it difficult for them to scale. With the growing number of nodes, the network becomes slower and clumsier. (3) The way a public blockchain gains consensus is also a drawback and (4) Bitcoin uses Proof-of-Work (PoW), which requires a lot of energy.
2.1.1.1 Consensus mechanisms
Proof-of-Work (PoW) is the consensus mechanism that was first popularized for permissionless blockchains and cryptocurrencies through the Bitcoin network. This PoW network is managed by validators, so-called miners, who continuously add new transaction blocks to the network. For this work, these miners receive a fixed fee in the form of block rewards and transaction costs, which are paid by each user who makes a transaction (Schletz, 2021). Bitcoin's PoW miners compete for these block rewards by adding computing power to the network. Whoever manages to add the most computing power to the network has the greatest chance of receiving this incentive. To cope with the growing demand for computing power, ever increasing heavy and specialized PoW mining hardware devices are required, which as a result consume more and more energy. Bitcoin's PoW miners are therefore in a spiral of adding more and more computing power to the network, which therefore consumes more and more energy.
PoW is a form of mining in which the computing power of a computer is used for the benefit of the blockchain. The computer has to solve mathematical problems and has to do intensive work (the W in PoW) to check transactions and create new blocks. These efforts are rewarded in cryptocurrency. Because solving the math takes a lot of energy, mining pools have been created. A mining pool is a group of miners that combine their computing power (also called hashrate) in order to increase the chance that they will be the first to find the outcome (the nonce) of the calculation.4 A reward (block reward) is given for this: Freshly mined crypto coins. Major coins such as Bitcoin, Litecoin, Dogecoin and Ethereum (1.0) use the PoW technology. This way of mining consumes a lot of energy. If the value of the PoW coin you are mining drops, the benefits may no longer cover the costs. And if someone else is faster than you at solving the math, you will receive no compensation, even though you invested the time to solve the mathematical problem and bore the energy costs.
3 https://btcdirect.eu/nl-nl/het-schaalprobleem-van-bitcoin
4 https://iq.opengenus.org/mining-pools/
Another consensus mechanism is Proof of Stake (PoS), which originated as an alternative to Proof of Work.
PoS is basically a form of virtual mining. The greater the number (stake) of a particular cryptocurrency someone owns, the more transactions can be validated and the greater the reward for the person in question.
In other words, the more you own, the more you will be rewarded. Ethereum, the second largest cryptocurrency, is currently transitioning its consensus mechanisms from PoW to Proof-of-Stake (PoS) (Schletz, 2021). Where with PoW the original algorithm of Blockchain transactions is verified and new blocks are added to the chain, PoS miners can validate transactions based on the number of coins someone has in their possession. The main advantage of PoS is that it is much more energy efficient and cheaper than PoW because it does not require countless calculations to make a block.
In Figure 2.7 here below is a graphical representation of the estimated power consumption using PoW (left) or PoS (right).
Figure 2.7 Power consumption difference PoW and PoS Schletz, 2021
An application of consensus finding can be seen in the use of smart contracts. Smart contracts make use of the blockchain and its digital agreements, the outcome of which depends on the fulfillment of the conditions by all parties. An example is replacing the notary's escrow account when selling a house. Traditionally, the buyer of a house deposits the purchase amount into the escrow account of the notary, who checks, among other things, whether the seller is the rightful owner and when everything is in order and both parties have signed with the notary, the notary transfers the purchase amount to the seller. With blockchain technology, both the real estate agent and the notary can be skipped as middlemen, the smart contract holds the buyer's money, ensures that the house is delivered to the buyer and then releases the money to the seller after confirmation from both parties. The desired outcome of the smart contract is therefore conditional. If both parties agree, the contract will be executed, otherwise the contract will be cancelled.
Virtually everything of value and importance to humanity can be recorded in smart contracts: not only financial accounts, but also, for example, birth and death certificates, deeds and titles of ownership, origin of food and basically anything else that can be expressed in code.
2.1.1.2 Mining Bitcoins
Discovering a new Bitcoin is a process called "mining". Originally it was tech enthusiasts who plunged into that process, but it has developed into an entire industry over a period of more than 10 years. Professionals with heavy and specialized computers connect to the Bitcoin blockchain network and process data regarding who owns how many Bitcoins in the system.
Since every transaction is permanently recorded on the blockchain and that transaction cannot be erased or manipulated later, it is in principle very easy to "follow the trail of the money". The money trail is fixed forever and can still serve as evidence many years later. This is impossible for money transactions because time cannot be turned back to see who gave what to whom.
In general, cryptocurrency transactions include the amount of the transaction and a timestamp as well as the sender and recipient addresses. These addresses, in the form of long alphanumeric strings, are often visible but cannot be traced back to a person and are called pseudonyms. Some cryptocurrencies like Monero and Zcash are more privacy oriented and hide the pseudonyms too. Not being able to match transactions to real people in the world makes identifying potentially criminal transactions and the criminals behind them difficult (Paesano, 2021).
2.1.2 Cryptocurrency wallets
Cryptocurrencies are held in wallets, which are stored in wallet software or on a hardware device. Wallet software is installed on a computer or on a specialized exchange and contains the public and private keys of an account. For the management of the account, this software can communicate with the blockchain and it facilitates the transfer of cryptocurrencies from this account to another account (Bierer, 2016).
2.1.3 Cryptocurrency exchange platforms
Exchanges provide through a web service the exchange of cryptocurrencies in various other assets such as fiat money or other digital currencies. For interested buyers, they buy cryptocurrencies from sellers and sell them to the buyers (DeVries, 2016). Examples of exchanges include Kraken, Coinbase, and Deribit. As we will see later, exchange platforms play a vital role in cryptocurrency governance.
3 But what is money?
3.1 Money from Bartering to Currency to Bitcoin
Before the development of money as a medium of exchange, a person exchanged goods and services for goods and services possessed by another person. It is said that the first barter trade began in Egypt around 9000 BC, when people exchanged goods they had in surplus for other goods they needed.5 This usually involved basic commodities such as cows or sheep and grain or crops and this earliest form of exchange practice is called the barter system. The problem with barter is that it only works if all participants get what they need or want and early forms of barter did not offer the divisibility and transferability to trade efficiently. For example, if someone has goats and wants to have walnuts, they have to find someone who not only has walnuts but also wants goat meat. But if the one who wants goat meat has no walnuts but does have bananas, then he has to look for someone who has walnuts and wants bananas. Because you often need three parties in barter, there is a double coincidence of wants, and it quickly becomes complicated to trade which makes barter inefficient. The lack of portability of bartering of goods is not the only problem facing the trader-to-be. There was no standardized exchange rate, so the parties involved had to agree that the goods or services being bartered were of equal value. A kilogram of walnuts does not equal a whole goat, so a way has to be devised to determine which part of the goat is worth how many walnuts. If every trader specialized in one product, it would be problematic for society, as a civilization of individuals with only one specialty could not last long. Commodity money could solve these problems by acting as currency.
There is evidence that cowrie shells were one of the first and most popular forms of money and used as currency to trade in Africa and Asia as early as 1300 BC until the 19th century.6 Commodity money gradually developed around the world as a kind of currency with easily traded items such as animal skins, tobacco, tea or salt, which served as medium of exchange. The goods used to discharge financial obligations had a generally accepted value and could be used to buy and sell other things. A characteristic of these goods was that they were widely sought after and therefore considered valuable. But the use of basic commodities for trade could also cause problems if those items were difficult to store, were highly perishable or difficult to handle.
In addition to commodity money obtained from hunting or harvesting, gold and silver were also used as commodity money. Unlike hunting or land yields, precious metals cannot serve as clothing, food or to keep you warm at night. Precious metals are only valuable because they are relatively rare and many people like and want processed products from them. Gold and silver thus have something of value and in people's
5 https://medium.com/bartersmartplace/the-history-of-trade-and-the-role-of-barter-system-5d4a7b37cfb2
6 https://hackernoon.com/the-history-of-money-the-future-of-bitcoin-and-the-cryptocurrency-economy-5cc25e808275
perception they serve as physical signs of wealth.
Coins were first made in China around 1100 BC. Initially, goods like cowry-shell imitations made of bronze or copper were used as a medium or exchange, and these early metal moneys subsequently evolved into primitive versions of round coins.7 In other parts of the world, the first coins developed out of precious metals like silver and gold were stamped with various gods and emperors to mark their authenticity. The first coins outside China, the Lydian stater, are believed to be minted during the 6th century BC in Lydia - now part of Western Turkey- by king Alyattes (Dale, 2021, p. 520). Although coins solved many problems of commodity money, there were still drawbacks. Because it was made of silver and gold, supply growth was limited by the availability of those precious metals, in addition to being heavy and taking up space.
The advent of paper solved these problems.
Carrying around large amounts of money is physically tiring and around 800 AD early Chinese rulers came up with the idea of issuing paper IOU (I Owe You) certificates and leaving the heavy coins in the palace.8 International trade became possible by the lighter weight of paper money and although the paper had no intrinsic value, people relied on the value written on the paper because they could always exchange it for gold or silver.
Gold served as a backing for paper money for several centuries until the early 1970s. By the end of World War II, a gold standard existed in the form of the Bretton Woods system, whereby the value of the US dollar was linked to the price of gold and many countries linked the value of their currencies to that of the dollar. People trusted their national currency because the value of that currency was linked to the value of the dollar and the value of the dollar was backed by the gold supply. When the Bretton Woods system ended, the dollar became a fiat currency (Lowrey, 2011).
Fiat currency does not require a valuable commodity; its value is instead determined by supply and demand of that currency and the confidence people have in its value. Fiat currency gets its name from the fact that it only works when we all agree that it works: by fiat. Fiat money was able to develop because fast-growing economies couldn't mine enough new gold to back their currency supply (Elwell, 2011, p. 9).
However, the need for gold to represent monetary value is rather inefficient when the value is co-created by people's perception.
People's perception of value is shaped by fiat money. In a growing economy, things are produced that are valuable to itself and other economies, and the stronger the economy, the stronger the perception of money's value if that economy can provide the goods and services that people want.
When the US dollar was decoupled from the gold standard in 1971, the dollar was no longer convertible into gold. As a result, it was now possible to print more dollars than there was gold to back (Elwell, 2011,
7 https://www.pbs.org/wgbh/nova/article/history-money/
8 https://www.britannica.com/video/187664/history-money
p. 13). As a result, the value of the dollar became dependent on the health of the American economy.
Today, the value of money is expressed in purchasing power, which is affected by inflation.9 Simply printing new money does not bring greater prosperity to a country. Value is created through an interaction between tangible things, our perception of their value and our desire for them. Money is therefore only valuable to us because it offers us the opportunity to acquire a desired good or service.
Although nowadays money can have an electronic form and we have been banking digitally for some time now, money is in fact still physical. Ideas or principles cannot be money, but they can make money.
But just being tangible is not enough. What counts as money must also be resilient to withstand financial storms. And of course, the community must agree on what counts as money and have the confidence that those they want to do business with will accept the money, because without consensus, the stability of money is undermined. With the arrival of Bitcoin in 2009, a new era of virtual currency began. While virtual currencies share some features with standard currencies such as the euro and dollar, a key difference is that they are not issued or controlled by a central bank but are usually issued and controlled by individuals and organizations. In addition, virtual currencies do not have legal tender status in any jurisdiction, with a few exceptions.1011 Cryptocurrency and digital money have in common that they both have an electronic appearance, but the difference is that digital money is issued by the government and crypto is not. So, the next question should be: What is the nature of money?
3.2 What is the nature of money?
Leaving aside the origin of money and the long road it has traveled to the meaning we attach to it today, the question is what is the nature of money? There are two theories in economics about money, which are generally regarded as oppositional. I will start with a brief overview of these theories and end with a discussion of how they apply to cryptocurrencies.
Commodity theories assume that certain commodities (particularly gold and silver) form the basis of money, while credit theories emphasize the role of debt and credit (Lawson, 2016, p. 962). A proponent of commodity theories is Karl Marx, while credit theories include John Maynard Keynes, Alfred Mitchell Innes and Geoffrey Ingham. I argue that the credit theory makes the most sense as it also holds up after money has long lost its value from an underlying commodity.
Many authors declare these two theories incompatible, but Lawson defends the position that the two theories are compatible. He argues that we should see money as a social construct, a social positioning in
9 https://www.acorns.com/money-basics/the-economy/what-is-purchasing-power-and-how-does-inflation-affect-it-/
10 In 2021 El Salvador became the first country to accept Bitcoin as legal tender.
11 In the Republic of the Marshall Islands, the SOV is legal tender. While the SOV is a digital decentralized currency based on blockchain technology, it is issued by the Ministry of Finance and for this reason is not a virtual currency in the relevant sense.
an organized society. Derived ontologically, the two theories are different examples of a general conception that money is a social construct. Lawson's premise is that social reality arises from emerging totalities shaped by people and things. Once an emerging totality starts to include people in addition to things, it becomes a community. Emerging totalities or systems in which people and things are included as components often form a large part of social reality. And as soon as a community accepts and incorporates individuals, things or phenomena as components of an emerging totality, they are socially positioned. And money is no exception to the general conception that things and people are positioned together in a social context as Lawson states:
"In all cases, social positioning implies the general acceptance of the following three elements with respect to any item it positions: (i) the assignment of an agreed status; (ii) the practical internship as part of a totality;
and (iii) use some of its abilities that it already had to serve as one or more system functions of the whole. In the case of human positioning, the third element is achieved by granting or assigning certain positional rights and duties" (Lawson, 2016, p. 963).
So, for example the right of football players to play a competition is matched with the obligation of others to organize a competition. These matching rights and obligations are social relations. Likewise, a bicycle can be a means of transport to get someone from A to B or a training object to stay physically fit. When positioned as a means of transport, it is the noted capacity that comes to serve as the system/transport function. Assigning people or objects to a certain position is ultimately a matter of acceptance by the community. The creation of a position or the occupation of this position by people or things can come about by a community authority or spontaneously without a necessary agreement.
Positional rights and duties are characteristic of the organizational structure of human communities, and the glue that holds those rights and duties together is the human capacity to trust others and to be trustworthy themselves. The act of an individual realizing any right actually means exercising positional power over someone else with a corresponding obligation. Trust is especially important where interests conflict.
Individuals and objects are organized as components in emerging totalities, but those totalities are not reducible to the sum of the elements that have come to serve as components. These totalities are partly formed by the way in which the components are arranged relationally. Take a bicycle apart into parts and put them back together in a different configuration: there is little chance that you will be able to ride it afterwards. For this reason ontological reduction of any totality apart from their relational organization is not allowed. The structure makes the difference and positions, rights and duties that organize society would fall apart. Max Verstappen could never have achieved to become world champion in F1 without a world- class team around him.
All social phenomena shaped by social positioning are properties of specific communities and thus community relative. And that means whether a social entity also exists in other communities has to be determined empirically. In human history, what is social appears to repeat itself (Lawson, 2016, p. 965).
So now the question becomes: is money itself a positioned item in a broader system? To answer that question a fundamental set of system functions of money needs first to be identified and then it must be determined what properties an object must have before it is positioned as money. Traditionally, money is almost always considered to have one or more of the following properties: (1) a common unit of account;
(2) a generally accepted means of payment; (3) a store of value; and (4) a medium of exchange. This list is generally accepted by both commodity theorists and debit/credit theorists as an expression of characteristics of money (Lawson, 2016, p. 966).
Of these four characteristics, value appears to be the most basic. Because if an object had no value, then a unit of account is not necessary and it cannot function as a means of payment or on which to base a medium of exchange. In addition, it should be labeled as reliable because if it were not, it is unlikely to be used when placed in a system. So whatever money is, it must first and foremost be a reliable form of value.
Peacock asks the question: "If money is a positioned thing in which value inheres, what is value?"
(Peacock, 2017, p. 1472) According to Lawson the core of the traditional functions of money is the creation and fulfillment of obligations. The fulfillment of an obligation is central to the market exchange, whereby money acts as a medium of exchange and as a means of payment. The concept of value that is relevant here is therefore related to the ability of money to create or discharge obligations. Trust in an item as a store of value is essential to be able to be socially positioned at all. Without that confidence, it is unlikely that it would last long in this position. Therefore, this positioning entails a certain stability and generates trust in interaction. In order to meet commitments made in different ways in the community, it is necessary to have a common measure of value that is accepted throughout the community. In particular, all obligations and the objects used to discharge them must be measured in the same units.
It should also be mentioned in this connection that all specifically assigned or derived exchange values are always relative to something else. Dimensions like length, weight, pressure, and temperature are used to express the value of something in terms of something other than itself. All measurement systems are designed by humans, so every measure of value for a particular item is a social construct. This means that such a measure of value only provides insight in relation to measurements of the same dimensions in other items.
Once a form of value of an item is positioned as a generally accepted form, and in a community usually just one item of value will become recognized as a general form of value, all the characteristics of money are present. Money is then nothing but a positioned individual form of value, which is accepted by the community participants as a general form. Being a means of payment and a common unit of account is therefore not really a function of money, but rather a precondition for a well-functioning monetary system.
At various stages in history, in early communities, accounting frameworks arose around general forms of value with abstract units of account that were widely accepted (Lawson, 2016, p. 970). Whether it concerns system functions or preconditions, characteristics of money such as store of value, common unit
of account and means of payment are essential for a monetary system, in which the phenomenon of value is central. But perhaps even more fundamental is the social positioning of community-based processes. An item of value can therefore arise and be accepted as money only if it is positioned as such and accepted throughout the community. When disparate members of the community do not fully trust each other -I will come back to the notion of trust later- this collective acceptance is indispensable to the functioning of money. Of course, a similar consideration applies mutatis mutandis to a community-wide common unit of account. And that brings Lawson to the next conceptualization of money:
"Money is formed when it is accepted in a specific community that a thing or valuable good is positioned as a general form of value, to function as a general means of payment, under the conditions of an equally accepted and appropriately positioned common or shared system of measuring value. Money is just that positioned form of value" (Lawson, 2016, p. 972).
If money functions fundamentally as a general means of payment, then money itself can be understood as a means of transactions, as a carrier of transaction power. If a condition for the creation of money is a prior existence of value and money is subsequently the accepted means of carrying out transactions, more and more goods and services will be provided in terms of the monetary unit. That generates a desire to easily acquire and accumulate money, which in turn stimulates technological developments and applications to facilitate that desire. Money has thus become a central factor in the structuring of the modern world and probably few other social instruments have had such a major impact on the structure of society as a whole.
Anyone who owns money has a position in society with certain positional rights and obligations, which are linked to specific obligations and rights with related positions elsewhere. The relevant components of a value system are the credit rights of cash holders against debt obligations of the money issuer. In a credit economy, it is these positional rights that make up money and not cash in the form of coins and notes. Debt is a transferable form of value and can be positioned as money in credit/debit relationships. Credits and debts can be moved from A to B and payment obligations can be met without the use of cash. Money thus becomes a specifically positioned set of social relationships and cash is in fact a set of identifiers or tokens of such relationships. Credit theorists in particular proclaim that debt and credit are social relations, as witnessed by Ingham's statement that "money itself is a social relation" (Ingham, 1996). According to Ingham, money is a promise to pay and a promise to pay is an obligation we call debt. And debt is a social relationship between at least two parties. Hence, if money equals debt, then money is a social relationship.
More than a century ago A. Mitchell Innes already wrote that money is credit that has value and that it constitutes movable and transferable purchasing power (Innes, 2004). Peacock adds that this statement also applies to credit because credit is the counterpart of debt. They are two sides of the same coin, so money is both debt and credit (Peacock, 2017, p. 1474).
Now do cryptocurrencies have the four properties of money as described here above (unit of account, means of payment, store of value, medium of exchange)? For sure cryptocurrencies like Bitcoin, Ethereum, Ripple, and so on, can all be considered to be a unit of account. And the majority of these cryptos may be
exchanged for dollars or euros. In fact, you first need to have legal tender like dollars and euros to exchange these for some cryptocurrency and of course you can reverse the conversion albeit probably at a different rate. Although some merchants allow to pay a purchase in a cryptocurrency like Bitcoin, we can certainly not say that cryptocurrencies are a generally accepted means of payment. And although cryptocurrencies store value to a certain extent (at least at the moment of conversion the cryptocurrency value equals the value of the used legal tender), the high volatility of cryptocurrencies makes the conversion a risky business.
The history of Bitcoin has shown that strong gains in value are sometimes quickly followed by sharp declines, so in the current situation it is uncertain what the long-term value will be.
If money is a social construct as contended here above, we must recognize that a social construct can only emerge in an organized society. Without organization any attempt for a social construct would not survive and that means that money needs some kind of structural organization in society. And here I see a problem for cryptocurrencies because this type of currency is precisely set up to function in a transaction between two parties without the intervention of a third party. This means that cryptocurrency can move from A to B beyond control of a central bank or a government and without any regulation or supervision of money flows. But cryptocurrencies cannot completely escape the organization of society. After all, it uses the internet to make transactions, fiat currency is used for the conversion into cryptocurrencies and it is subject to a legal system.
Lawson rejects the idea that money has to be a commodity or that it must be backed by or convertible into a commodity like silver or gold. Nor does he share the view that money originated in barter in which a much sought-after commodity was positioned as the dominant medium of exchange and thus became money (Lawson, 2016, pp. 970-971, notes 11-12). That in history commodities served as money is a claim that is often made. In a number of U.S. states, such as North Carolina, Virginia, Maryland, and Massachusetts, a list of 18 commodities, including tobacco and corn, served as monetary function during the 17th century (Peacock, 2017, p. 1481). Tobacco at the time was not only used to settle private debts but was also used as a means of paying taxes and fines. So if tobacco was actually a means to discharge obligations, then it is a strong candidate to be considered as a money thing. The point here is that tobacco was not a token of a central authority’s debt and that is similar to cryptocurrencies, which are also not issued by a central authority. To this I may add that you can assign the debt before or after crypto is positioned as money.
3.3 What is money's social epistemology?
Living together and working together are essential to our existence and maintaining and improving interpersonal relationships can foster a sense of belonging based on trust. Trust is a fundamental part of partnerships in society and very important in many aspects of our daily life, such as in love and money, and it implies accepting a certain risk towards another. Much has been written about trust in the philosophical literature. It is not my intention to give an overview of this and that is why I limit myself in this thesis to trust in relation to cryptocurrencies.
Trust is crucial for making financial transactions and payments since people and organizations want their transactions to be processed in a fair and secure manner. Financial intermediaries such as commercial banks and a central bank guarantee that financial transactions are carried out correctly and safely. Users of money and the financial system trust these financial intermediaries and pay a certain amount as a transaction fee for their services. People rely on the value of money and that is why money works when people pay for something.
Cryptocurrencies have three main characteristics. First, there is no central authority that could regulate and manipulate the currency. This means that the value of cryptocurrencies cannot be manipulated by the government, which is seen as a big advantage by proponents. For countries with volatile currencies and weak economies, cryptocurrencies can be a good alternative to preserve asset value. Second, cryptocurrencies use blockchain technology. Blockchain technology consists of a distributed and consensus-based database, which is at the same time highly encrypted and transparent, making every transaction tamper-proof and therefore not requiring a trusted third party. The benefit of fraud resistance without an intermediary is hard to overestimate. And finally, the digital nature of cryptocurrencies makes it possible to transfer them easily and quickly across international borders. The latter feature will be especially beneficial for transferring money to third world countries.
But there are also drawbacks to using cryptocurrencies. First, they are not yet equated with money and therefore they are not legally supported. This makes cryptocurrencies volatile, unpredictable and therefore risky for users (Brezo & Bringas, 2012). Second, users cannot be identified by their name and social security number, but only by their public key address, which is a 32-bit string of numbers and characters. Due to this pseudonymity, cryptocurrencies facilitate money laundering, tax evasion and illegal dealing in prohibited goods. Thirdly, due to the lack of legal status, there are various uncertainties and barriers in buying and selling cryptocurrencies, so that a functionality like being a medium of exchange is actually lacking. And finally, the value of cryptocurrencies is highly volatile, which also compromises the functionality of value storage. These drawbacks make cryptocurrencies a money or value that people rely on less than traditional money.
Like digital financial services, cryptocurrencies are built on underlying technologies to secure
transactions, with the difference that in the case of cryptocurrencies there is no institutional support from a central authority. User trust in cryptocurrencies is based on the use of cryptographic techniques, while trust in traditional financial services rely on the institution. Due to the lack of fundamental legal and institutional principles, trust in people - in the case of traditional services - is shifting towards trust in the underlying technology of cryptocurrencies (Jarvenpaa & Teigland, 2017) (Ostern, 2018), because the security of financial transactions depends on it. From the increasing popularity of cryptocurrencies, we can deduce that more and more enthusiasts are willing to continue experimenting with cryptocurrencies, relying on the underlying technology (Lindman, Rossi, & Tuunainen, 2017). Despite these downsides, I argue that the balance is tipping to the positives of cryptocurrencies, as I will elaborate on in part II.
Cryptocurrency is still a relatively new phenomenon that can bring about radical changes in the global financial markets. Initially, traditional financial institutions were reluctant to accept cryptocurrencies and their underlying logic, but now major banking institutions have plans to launch their own cryptocurrencies (Woodford, 2019). A trigger for this changed approach by commercial banks is that cryptocurrencies could become an alternative method for international money transfers.
Blockchain and other automated technologies are increasingly eliminating human intervention in the process, such as in autonomous vehicles. Trust in that technology seems to exclude moral volition, while at the same time making users vulnerable to technology's ability to achieve their intended goals. For example, if you have mapped out a route using GPS in the car, you trust that the GPS connection will remain undisturbed. An interesting question is therefore why we consider technologies as trustworthy. The same question is also raised with Artificial Intelligence (AI) and what is at stake with cryptos and blockchain is exactly the same issue.
According to Mayer et al., trust refers to a party's willingness to be vulnerable to an action by another party that is important to it in the knowledge that it is unable to control that action (Mayer, Davis, &
Schoorman, 1995). So, trust makes an individual dependent on another person and vulnerable to their actions. Trust is not something static, but a dynamic concept that evolves over time (Luna-Reyes, Cresswell,
& Richardson, 2004). And trust allows another person to take control of one's assets.
McKnight et al. (2011) categorized trust in technology into (1) tendency to trust general technology, (2) institution-based trust in technology, (3) trust in a specific technology. When a person is willing to depend on different technologies in different situations, s/he tends to belief in technology and to trust it in general.
The difference between the belief and trust in technology is in one's belief about technological attributes while the trust refers to certain positive results that the use of the technology produces (McKnight, Cummings, & Chervany, 1998). Institutional trust in technology refers to the belief that technology can be successful thanks to supporting structures within a specific context. So the confidence we have in using our cell phone is based on the knowledge that there are cell towers everywhere that our device can contact. In addition, we are convinced that there is legal, contractual and physical support for adequate availability of
the technology (McKnight, Cummings, & Chervany, 1998). According to Friedman et al. “people trust people, not technology” (2000), but in the case of a specific technology, people can have confidence in the beneficial properties of that specific technology. For example, people have faith in their treating doctor and if that doctor uses an MRI scan, that technology resembles the quality of the doctor and the patient trusts that technology.
Marella et al. (2020) divide trust beliefs in technology into two different sets of trust constructs. The first set relates to human qualities and includes concepts such as competence, integrity and benevolence.
The second set looks more at system-like constructs such as functionality, reliability and helpfulness. And while competence, integrity and benevolence are human qualities, these characteristics would translate into functionality, reliability and helpfulness of the present technology (Lankton, D. Harrison, & Thatcher , 2013). Associating trust constructions with technology reveals which attributes of technology add value to trust (McKnight, Carter, Thatcher, & Clay, 2011). So if a cryptocurrency user believes that blockchain is more resistant to malicious attacks due to the decentralized nature of the technology, then this user will see this property as contributing to the reliability and thus the value of blockchain (Thatcher, McKnight, White Baker, Arsal, & Roberts, 2011).
Marella et al. (2020) have been researching online discussion forums to find out how Bitcoin has instilled trust among its users. The aim was to examine which technological features have contributed to building trust among Bitcoin users, despite the fact that the use of cryptocurrencies is anonymous and devoid of any legal and institutional support.
Tabel 1 - Constructs of Trust in Technology * Similarity value expresses how semantically similar the attributes (keywords) are to the words the given post contains
links attributes of trust constructs to Bitcoin (Marella, Upreti, Merikivi, & Tuunainen, 2020)
The research by Marella et al. found that immutability, decentralization, openness, and coin transfers are the main functional features, instilling trust among Bitcoin users. And these are exactly the unique features of the blockchain technology that applies to cryptocurrencies in general. In terms of reliability, the research found that characteristics like security, stability, regulation, and knowledge would make Bitcoin a reliable technology.
So what we're seeing here is a shift from trust in people to trust in systems. This is not unique to cryptocurrencies; Technologies are also increasingly relied upon in other sectors, such as healthcare. A well-known phenomenon is, for example, that people search the internet for symptoms of their ailment in order to confront their GP during consultation hours. Advancing developments in AI raise questions about human-machine relationships in a particular environment. Both AI and cryptocurrency are no longer just about trust in a particular artefact, but about trust in a socio-technical system.
Part II – Ethics of cryptocurrencies
4 Ethical concerns of cryptocurrencies
4.1 General
In this section I will discuss the ethical concerns associated with cryptocurrencies and in section 5 the positive effects that we can attribute to cryptocurrencies. Cryptocurrencies are just some lines of computer code and for that matter they are a result of information technology. The informational environment in which they occur is reflected in a monetary and financial environment with both negative and positive ethical aspects. That the positives outweigh the negatives I will show in section 6 and I therefore argue that the development of cryptocurrencies is a positive contributor to changes in the world.
The computer revolution has brought about an informational turn in society and the rapid development in new information and communication technologies (ICT), including the emergence of cryptocurrencies, has spawned new ideas, but also new problems. Cryptocurrency is still in its infancy, leading to conceptual issues that have yet to be mapped out, and the combination of informational confusion and unexplored territory is ideally suited to philosophical exploration and analysis of this new branch of the world of information. For this reason, learning Philosophy of Information is a tool to properly understand cryptocurrencies.
At present we are living in the information age and according to Luciano Floridi this is the 4th revolution, after the Copernican, the Darwinian, and the Freudian ones (Floridi, 2014, p. ix). In the Copernican revolution we became aware that the earth was not the center of the universe, after Copernicus successfully defended heliocentrism. In the Darwinian revolution we became aware that all living organisms, including human beings, were subject to evolutionary processes and that we could no longer consider ourselves the center of the animal kingdom. And Freud's concept of the unconscious mind is the driver of the Freudian revolution in which we became aware that our cognitive processes can be complex and opaque beyond our conscious knowledge. And in the fourth revolution, the "Turingian", we are becoming aware that we are informationally embodied organisms or inforgs who are mutually connected and embedded in an informational environment, the infosphere (Floridi, 2014). The first three revolutions were initialized by discoveries of hitherto unknown dimensions of human beings and their world and involved reconceptualizing human nature. The fourth revolution, on the other hand, is not about finding but making;
a prospect of engineering human beings (Byron, 2010).
The term infosphere was coined in the 1970s by Kenneth Boulding (Van der Veer Martens, 2015, p.
332) and is based on the term biosphere, as the term referring to the global sum of all ecosystems. The range of infosphere has a minimum and a maximum according to Floridi. Minimally, infosphere is the whole informational environment, which is formed by everything that contains or supplies information, including their properties and mutual processes and interactions. The infosphere consists not only of online
activities, but also includes offline and analog information spaces and in this sense, it differs from cyberspace. If we interpret our reality as informative, then infosphere is maximally a concept in which, by analogy with Hegel's Phänomenologie des Geistes, what is real is informational and what is informational is real (Floridi, 2014, p. 41). This interchangeability of what is real and what is informational has spawned some of the most fundamental transformations and challenging problems we will experience in technology in the near future. For this reason, infosphere as a concept is an environment that evolves very quickly over time (Floridi, 2007, p. 59). Everyone can clearly see how ICT is transforming the world from analog to digital, from a traditional world to an infosphere with an ever-increasing growth of all kinds of information spaces in which we spend more and more of our time.
According to Floridi, a digital divide has developed between the savvies and the unsavvies, which is the source of most of the ethical problems arising from the evolution of the information society. And this digital divide is a combination of a vertical and a horizontal gap. The vertical divide separates ours from previous generations. Just a century ago, we were at the mercy of the forces of nature. But technologies that can destroy the Earth have moved us to a state where we have the means and tools to develop new realities and adapt to our needs. For the first time in history, we can invent our future and are responsible for creating new environments. Our technological strength is immense and growing unparalleled. Unfortunately, our technological power is not matched by ethical intelligence and wisdom. We may have near demiurgical power over our universe but cannot rely on the goodwill of humanity to guide us unerringly through all constructs.
In addition to the vertical digital divide in time, there is also a horizontal divide within humanity, namely that between insiders and outsiders. The information era affects individuals rather than societies and it has caused a dichotomy between the computer literate and the computer illiterate, between the information rich and the information poor (Floridi, 2001). The infosphere, as a world of information, knowledge, data and communication represents a new environment, which is not a political, geographical, social or linguistic space, but crosses the boundaries of both the industrialized and the developing world. As Floridi puts it (2001, p. 4), the infosphere is the totality of informational environment -including nature- that is essentially intangible and immaterial, but no less real or vital for that. The ethical problems that arise from this infosphere are best addressed as environmental problems.
In countries where the central bank has a bad image to curb inflation -like Soedan with 260% inflation in 2022-12, cryptocurrencies could become a serious challenger to the current monetary system (Bagus &
Horra, 2021, p. 428). When applied on a large scale, blockchain cryptocurrencies have the potential to be disruptive and it is still unclear whether you should think of them as a currency, payment method, asset, all in one or something else. In principle, cryptocurrencies cannot be considered morally good or bad just
12 https://victor-mochere.com/nl/top-20-countries-with-the-highest-inflation-rates-in-the-world
because of the ethical or unethical objective they pursue. An ethical judgment on the use of cryptocurrencies as a payment method should be applied to the use of payment methods, not to the payment method itself since cryptocurrencies can be used for morally good or bad ends (Angel & McCabe, 2014). In comparison, you can use a gun to commit a bank robbery, but you can also use it to defend your country.
Despite the great value already stored in cryptocurrencies, the use of cryptocurrencies is certainly not yet widespread. Opponents mainly point to the negative aspects and dangers associated with cryptocurrencies and we should not be blind to that, but despite that I argue that in the end the positive effects will prevail. Internet banking is an example of the long way to go before a new method of handling our finances was accepted. In the 1980s, online banking started via the telephone line and at the time it seemed quite safe in one-to-one communication. The internet gained momentum in the 1990s, but it was still largely uncharted territory and there were fears that hackers could gain access to other people's bank accounts. And although the latter turned out to be a real danger, at the same time the risk was limited if you took sufficient safety measures. With the rise of the smartphone, young people turned to mobile banking en masse and now -40 years later- we have reached the point where both business users and consumers use internet banking almost exclusively to transfer money. We keep the dangers in mind and as a society have accepted that things can sometimes go wrong. For this reason, I will first deal with the negative aspects of using cryptocurrencies, before concluding with the positive aspects.
The negative aspects of cryptocurrencies can be divided into four main groups:
1) negative aspects related to cryptocurrencies as money 2) invasion of privacy through cryptocurrency surveillance 3) energy consumption and carbon footprint
4) impact on developing countries
These four negative aspects run from close to the currency to further and further away, i.e. from the currency itself to surveillance of the currency, to the cost of the currency and finally to the negative consequences in third world countries.
4.2 Negative aspects related to cryptocurrencies as money
The negative aspects of cryptocurrencies associated with cryptocurrencies as a source of value are directly linked to cryptocurrencies. Among the disadvantages are the lack of regulation, the currency's volatility against the dollar, the potential of manipulation, the potential for tax evasion and money laundering, the poor degree of exchangeability for fiat currency and cyber security issues. Society has an interest in a stable monetary system and the disadvantages of cryptocurrencies mentioned here do not contribute to this.
