Despite its beginnings as a niche financial technology project, cryptocurrency and its byproduct, non-fungible tokens (NFTs), have evolved into a mainstream topic on the minds of many people across the class spectrum. Whether it’s the latest celebrity or athlete endorsement of NFTs, banking apps like Venmo, your retirement plan pushing crypto investments, or even fundraising for national armed forces, the blockchain technology behind crypto and NFTs continues to gain traction. Seeing the spectacular rise in prices coupled with the high flown promises of the blockchain, more people are beginning to pay attention. But drilling down to the essence of this technology, it is not a departure from the current monetary system that favors the rich and does not offer a way out of the current economic crisis that so many working people find themselves in.
Coming out of the 2008 financial crash, it was made clear to millions that the global banking system was not only run by crooks, it also had the full support of national governments. In the U.S., millions of working people lost their jobs, homes, and retirement as a direct result of Wall Street’s greed, and were then double-tapped when the government used taxpayer money to bail out the banks instead of them.
Bitcoin, the first cryptocurrency, entered into this social and political landscape around this time as a libertarian dream: a way to establish free markets without government interference. The attraction of crypto is its “decentralization” – an electronic peer to peer currency system that would bypass the regulation and biases of banks and governments so users can transact amongst themselves. Transactions are verified by computers in the entire network as a part of a consensus protocol, which creates new Bitcoin (“mining”), and are then added to a digital ledger called the blockchain which is immutable and available for any user to see at all times.
Crypto evangelists refer to blockchain technology as “democratizing finance.” Owners of coins have full control over their digital wallet – bypassing banks entirely – as opposed to currencies like the dollar where banks act as intermediaries and hold customer’s assets. Crypto miners have the ability to accept or reject transactions, or in other words, each have their own vote and theoretically anyone can do it, they just need to buy the equipment.
Additionally, crypto is marketed as a way to help those who are “unbanked” improve their situation through financial inclusion and as a way to “grow wealth and safeguard assets.” Because banks are closed on weekends and after business hours, the 24/7 nature of cryptocurrencies is seen as improved accessibility for its users. It’s no secret that banks have absolutely gouged their customers, specifically on things like overdraft fees, raking in tens of billions every year. Since there are only a finite amount of coins, cryptocurrencies also claim to be more resistant to inflation than fiat (government-backed) currencies since you can’t just print more, another supposed benefit over central banks.
NFTs are a more recent entry into blockchain technology. The buyer of an NFT becomes the owner of a non-replicable, unique digital object. NFTs have been created for things like digital artwork, video games, trading cards, and music with the supposed appeal that the owner of the NFT is the holder of something original that cannot be recreated. To actually purchase NFTs, users have to create a crypto wallet and link it to an NFT marketplace, where the NFTs are priced in cryptocurrency. This provides the user with security of ownership since it is recorded on the immutable blockchain. The technology has been marketed as a way to protect artists from others appropriating their work without permission.
Not a Replacement for the Dollar
Cryptocurrencies like Bitcoin and Etherium are not yet suited to being used as day to day money. They are too slow, too inefficient, and too costly when compared with standard currencies such as the U.S. dollar. One of crypto’s supposed advantages, the fixed money supply, works against it as a currency since its extreme volatility can’t be stabilized by a central bank and makes transacting with it subject to chaotic fluctuations in price. As an inflation hedge, an investment that protects its value during periods of high inflation, crypto has not lived up to its lofty expectations. Bitcoin has lost a large percentage of its value since inflation began to heat up last year.
So the question remains why is it still so popular if it’s useless as a currency? Speculation.
Investors are purchasing crypto in the hope that its price will rise, completely divorced from its fundamental value or claimed promises as a currency. In other words, it’s gambling on something extremely risky which provides nothing useful to society. Investors have been betting on price fluctuations for as long as currency has existed, but the difference with crypto is that it’s not backed by a government. It doesn’t create new wealth and isn’t supposed to.
In the initial days of its debut, a single Bitcoin traded for mere cents of a U.S. dollar. At one point last year it was trading above $60,000! Crypto prices, just like other assets such as stocks, corporate debt, and real estate, have benefited from the “easy money” policies of central banks that have cut interest rates to zero and poured tens of billions a month into financial markets through “quantitative easing.” Ironically as a result of this, Bitcoin’s fluctuations are highly correlated with the Wall Street markets it claims to decentralize from, with the danger of crypto becoming a systemic risk growing.
This skyrocketing rise in price for an asset that has little to no use is nothing new – it’s the definition of a bubble, similar to the meme stock craze of last year. Karl Marx deemed this phenomenon “fictitious capital” where the buying and selling of capital is disconnected from the productive material base. This, of course, is a continuation of capitalism’s decades-long global shift away from investing in production and instead towards the colossal financialization of everything, for the benefit of investors that bet on their value.
In essence, cryptocurrency has massive drawbacks to efficiently function as a currency – but its continued existence and value as a profit-making scheme for the rich depends on the illusion that it can.
Billionaires Set The Odds
Crypto’s claim of decentralization or democratizing finance might give the idea that ownership of the coins is spread out amongst many, but the opposite is the case, with a small minority concentration of owners. Only 10% of miners control 90% of the Bitcoin capacity, with just 50 miners controlling half of global mining capacity. The claim that anyone can get into mining ignores the ever-growing costs of the arms race to build bigger and bigger machines to successfully mine the coins, which prices out everyone except the already wealthy.
Some of the largest crypto advocates are among the richest people in the world including Elon Musk, Twitter CEO Jack Dorsey and Wall Street and Silicon Valley billionaires. The owners of crypto and NFTs have a material interest in pumping up the benefits of the blockchain technology since the only way they can cash out their holdings is to have a new person buy in. This is how bubbles work, where early entrants to a now-inflated asset need a “greater fool” to think they’ll get in on the ride too. But unlike assets with at least some underlying value, crypto has none.
In El Salvador, the first country to adopt Bitcoin as legal tender, many working people have yet to adopt using cryptocurrency with a very low number of transactions completed per month. What is their hesitation? “70% of Salvadoreans have little or no trust in Bitcoin and think it mostly benefits foreigners, like the crypto enthusiasts who visit the country, business leaders and rich people,” a recent poll showed. To prove their point, the country’s latest attempt to launch a Bitcoin bond has been ignored by traditional investors so they are turning to the crypto “whales” to get the project off the ground.
On the other side of the bitcoin [sic], ordinary people in Turkey have responded to the volatility of the Turkish Lira by buying cryptocurrencies. This shows how bitcoin can intersect the unfolding global economic crisis driven by inflationary pressures massively reinforced by the war in Ukraine.
The U.S. Dollar is still the world reserve currency, yet as China challenges the economic dominance of the U.S. this will also be a challenge to dollar dominance. In a broader sense, as key imperialist powers face off in a new Cold War they will seek to maintain control of and expand the reach of their currency. Crypto can become a threat to that agenda. China has already made moves against cryptocurrency, effectively banning crypto mining. This may be an indication of things to come. The U.S. is moving to impose a regulatory framework on crypto, no doubt also driven by fears of the impact of the bubble bursting.
Despite the claims of the crypto-believers, investing in crypto won’t bring working people the financial security they seek. While crypto is not tied to the reputation of a government, any and all currencies are connected to the international economy which is entering a new phase of deeper crisis.
For Bitcoin’s infamous volatility to be reduced and make it more functionally usable it will require more and more investors to take it up. This would mean broader adoption by big institutions and the ultra wealthy. With the blockchain landscape already resembling the inequality we see under global capitalism, this would cement it as yet another casino for the rich. The democratization of finance will have to wait another day.
NFT’s – A Shell Game?
The artist Beeple made an incredible windfall selling an NFT for $69 million giving the impression that many more could broadly cash in using the technology. However it was revealed that the buyer of the NFT already owned the world’s largest NFT fund, meaning the purchase was more about good PR through market manipulation than representing the value of the art.
The reality is NFTs have not protected artists in any way, and many have lost money after getting involved with them. An artist with a large following who heavily promotes the value of blockchain technology could stand to make some money, but the vast majority of artists will lose since minting a new NFT is definitely not free. Third-party corporations take fees to create NFTs cutting into the income of independent artists.
The reason NFTs exist is for the benefit of those who already hold the underlying cryptocurrency, since NFTs are bought using coins like Ethereum. Artists and celebrities are simply used as the face to sell the benefits of the blockchain with the “crypto-rich” becoming the real benefactors as more new people buy into the grift. There’s speculation that the NFT market may have already peaked, as at the time of writing they are broadly plunging in value.
One of the most recent examples of this scam involved Melania Trump’s NFT sale, where the winning bidder was revealed to be the creators of the project themselves, a classic example of wash trading. In most markets, one investor buying and selling the same asset to themselves just to artificially raise its price is illegal, but since NFTs are unregulated this is considered fair play, and only the people caught up in the middle of it suffer.
This is part of a broader issue of crypto being rife with scammers and fraudulent activity involving outright theft. A downside to not using banks and the decentralized nature of crypto means that if people have their wallets hacked and assets stolen, they have no recourse to fall back on. Hackers know this and managed to steal assets worth $14 billion in 2021 alone!
The Environmental Cost
With the understanding that cryptocurrencies and NFTs are not so different from other types of money, it’s even more alarming to see the massive expenditure of energy resources to this technology. The “proof of work” system required by crypto miners to verify and add transactions onto the blockchain requires a mind-boggling amount of electricity, which is more than what is used by many midsize countries. Since miners are rewarded by being the first to solve the cryptographic puzzle, there is market incentive to continually ramp up the power of their systems which has been steadily increasing the energy output of crypto use.
The average current energy consumed for just one bitcoin transaction is over 2,300 kWh, which is nearly 80 times the average daily household usage! While crypto advocates claim environmental friendly mining is a possibility, it simply hasn’t happened yet, not to mention that any renewable energy allocated to crypto mining would be better used on virtually anything else.
Socialism, Not Regurgitated Capitalism
Some working people are intrigued by the potential returns of crypto investing, since playing the game the “right way” has yielded so little for so many. Wage growth has not kept pace with inflation, job security is more tenuous with every passing year, and benefits are constantly rolled back while soaring housing, education and healthcare costs continue to weigh people down. It makes perfect sense that many would also want to be a part of an investment that has enriched a few select individuals .
But is this a strategy that all working people could take up? Not at all. Crypto at best is just another currency to invest in, at worst it is a negative-sum game – a Ponzi scheme, a pyramid scheme – meaning that a small minority of people who set the odds of the game stand to make big windfalls but many will be left holding the bag. The very people that caused the 2008 crisis have already dug their hands into the blockchain space. Blockchain has simply become a new market where the early entrants and ultra wealthy are trying to secure their holdings by making its use broadly acceptable.
Technological advancement can be used to make the lives of working people better, but harnessed by the capitalist class will instead be used to exploit the working class one way or another to make more profits. Without a complete overhaul of our current capitalist system, the tech will always remain in the hands of the billionaires. In many ways, the worst elements of capitalism are being recreated in the crypto space as a technocratic elite control much of the supply and require exploiting or tricking ordinary working people to cash out.
Of course, no working-class person should have any faith that the big banks or national governments have their best interests in mind – “he who pays the piper calls the tune” – they will always do what’s best for billionaires and corporate profits. Unfortunately, crypto’s claim to decentralize the monetary system out of these hands doesn’t hold up, and in fact creates a whole host of additional problems that demolishes consumer protections, putting people at risk of fraud and theft – not to mention the massive environmental costs.
The broad appeal of cryptocurrency to many working-class people demonstrates how, in an economy where it is increasingly difficult to make a living, many are seeking a more “democratic” system. A truly democratic system would prioritize things like health care for all, housing for all, and decreasing carbon emissions. These decisions are political and won’t just happen due to the byproduct of a new form of money as long as the capitalist class is in control.
This is why Socialist Alternative calls for the big banks and financial institutions to be taken into public ownership and their unification into one public financial tool under democratic control and the resources used for the transformation into a green, sustainable, planned economy. One of the main contradictions of capitalism is that it cannot provide for everyone, since resources are irrationally allocated toward profit-making. Under socialism, our planet’s resources and human abilities and talent could be focused towards projects we democratically decide are necessary. It’s hard to fathom that we would choose to mine crypto so a small group of finance and tech oligarchs can get a little more wealthy.