The Perils of Cryptocurrency and Blockchain Technology
This is the third article in a blog series about cryptocurrency. In this article, we discuss the perils of cryptocurrency and blockchain technology. While many have heralded the introduction of blockchain technology, there are still many issues with the new technology.
Environmental Cost of Cryptocurrency and Blockchain Technology
First of all, blockchain technology has an environmental cost. While many may not recognize this at first glance, blockchain technology and cryptocurrency requires a huge amount of energy to maintain. As we discussed in the last articles, the mining and maintenance of cryptocurrency requires complex algorithms and large amounts of computing power to maintain itself. Last year, some estimate that the amount of computing power used to keep the Bitcoin network running was equivalent to energy used by approximately 159 countries combined.
Cryptocurrency and Blockchain Technology Lack Uniform Regulation
Secondly, the lack of uniform regulation provides confusion and unmitigated risk for investors because there is no regulatory oversight. As such, as with any new technology, there are phishing or money scams as well as market manipulation cropping up alongside the creation of cryptocurrency. For example, there was a Ponzi scheme Onecoin, which robbed investors of millions because the investors were eager to invest in cryptocurrency without fully understanding the technology and infrastructure behind it. As there are no true international or federal regulatory agencies, when this happens, investors have no one to turn to for compensation. Similarly, because there is a lack of oversight, cryptocurrencies are vulnerable to being shut down at any time. And lastly, if they are stolen, most countries do not or will not assist in the recovery of the currency. The innate complexity of cryptocurrency and blockchain technology also may make it difficult for end-users to truly accept the technology or for law enforcement to understand how to track it.
Another issue that prevents widespread acceptance of cryptocurrency is that integrating blockchain technology is difficult for companies that do not have the computing power or infrastructure. Blockchains tend to be slow and cumbersome because of the technology used to validate the currency. As the technology currently stands, the currency cannot truly be used for quick transactions between traditional brick-and-mortar establishments. Only very specialized technology companies may have the infrastructure to trade in cryptocurrency. As such, it will be a while before cryptocurrency can become widely accepted.
Cryptocurrency and Blockchain Technology Threat to Financial System
Lastly, cryptocurrency poses a huge threat to established financial sector industries. While blockchain technology can be useful for a number of things outside of cryptocurrency, cryptocurrency itself poses a huge threat to the banking industry and other financial services that could be adversely affected by currency that needs no brick-and-mortar middleman. As such, powerful lobbying groups may provide strong resistance when it comes to trying to adapt the new technology.
Overall, while there are many potential pitfalls and problems related to the introduction and rise of cryptocurrency and blockchain technology, it is unlikely that this will deter the rise or use of either. If anything, as technology improves, cryptocurrency and blockchain technology will become more accepted and accessible to the masses.
More from this series: The Rise of Cryptocurrency Blockchain Technology and How it Relates to Virtual Currencies The Intersection of Cryptocurrency and Intellectual Property Law
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