Benjamin Franklin famously responded to those who questioned the value of scientific experiments by asking, “What good is a newborn baby?” Similar questions may be asked regarding the merits of virtual currencies.
But unlike many of Franklin’s forays into science, the justification for this new and, to most people, incomprehensible form of monetary exchange is less clear-cut. Developed as an alternative to financial transactions typically conducted through banks and government agencies, now in its 10th year (the first cryptocurrency, Bitcoin, was created in 2008), the entire industry appears to be clouded by conspiracy, fraud, bribery, money laundering, and various other illegal activities. However, the industry often thrives with government approval, and currently has a market value of more than $3 trillion (highly volatile).
Like most people, I don’t claim to have a true understanding of this subject. The underlying concept seems incredibly complex. But given the prevalence of monetary forms and the amount of money involved, the fact that so few people are actually speaking intelligently about this issue is frightening.
A Google style search on the subject yields some interesting information.
The digital ledger format known as blockchain, the basis of cryptocurrencies, enables verifiable, secure, and permanent monetary transactions between parties over the Internet. And these transactions are processed outside the realm of banks and governments. These transactions must be verified, and this is done through a process of “mining”.
There are currently over 11,000 different cryptocurrencies in existence around the world. Most such currencies employ one of two verification (mining) systems to commemorate transactions. Importantly, one of these verification systems uses large amounts of electricity during the mining process. Bitcoin uses this energy-intensive verification system.
This brings us to a local controversy: the Greenwich plant permit application on Seneca Lake. Many people have rightly written about the negative environmental consequences of allowing this facility to operate: the release of large amounts of hot water into the lake, the burning of large amounts of natural gas, air pollution, and other problems. Compounding the situation is the fact that Greenidge mines Bitcoin, which is the most energy-intensive of all the major cryptocurrencies currently in circulation.
And for what? So can we evade viable regulatory frameworks and facilitate digital forms of currency transactions that are particularly conducive to money laundering, internet fraud, bribery, pornography, and other illicit activities? Indeed, virtual currencies are like a new version of “Law West of Pecos,” a modern frontier suited primarily to shady operatives who transact outside the jurisdiction of modern law equivalents of county sheriffs and federal marshals.
Another notable feature of cryptocurrencies is their striking similarity to Ponzi schemes. These currencies have no intrinsic value. There are no government or institutional guarantees. Unlike corporate stock, it does not provide any ownership in a functioning business. Unlike gold and most precious metals, they have no inherent utility. If public demand dries up, its value will shrink to zero. In this game of musical chairs, whoever is standing when the music stops can suffer devastating losses.
Particularly frightening is the possibility of wrongdoing by politicians and other powerful people. For example, contractors in classic corruption schemes who bribe politicians to promote lucrative government contracts no longer need to hand over paper bags full of cash. Instead, the two simply set up virtual currency transactions that are virtually untraceable. This practice could become (or very likely already exists) so widespread that we could add a new word to our lexicon: “cryptogrift.”
Now imagine that a prominent politician with influence, political power, and even the ability to grant pardons launches his own cryptocurrency business. Or maybe you run a family-run business based in crypto finance. Is it inconceivable that criminal amnesty be granted to wealthy individuals who financially support these businesses?
Many crypto billionaires have been in the news for violating the law. Will they be tempted to test the waters? Is it possible that other wealthy individuals, seeking preferential treatment for their own benefit, invest in or otherwise financially support those companies for reasons other than good investment? And what about abroad? Could other countries seeking preferential treatment in trade or arms procurement engage in similar behavior? Would powerful politicians, indifferent to the consequences such a shenanigan might have on their constituencies, be tempted to stick such spoils in the seat of their pants?
Hmm.
John Gilbert is a former Canandaigua attorney and frequent contributor to the Finger Lakes Times opinion page. He is married with two adult children and lives in the town of Middlesex.
