By Larry Wright
Introduction
Cryptocurrencies are one of the most talked-about and unique technologies emerging into mainstream popularity in the last decade. Ever since the introduction of the first-ever cryptocurrency named Bitcoin in 2009, the world has issued both positive and negative reflections on disruptive technology.
As happens with every new technology on the horizon like newspapers, books, the internet, and others blockchain sector has also experienced its fair share of endorsements and criticism. It is interesting to see the views of the masses playing an important role in shaping the cryptocurrency sector for the future.
Importance of Cryptocurrencies
The very first governance models in the world emerged in the form of monarchies, with only one king at the center of all political, economic, and social powers. However, as humanity evolved, the political structure improved and converted into a democracy where the masses could vote and select their required candidate. However, the monetary policy monopoly still lies with a few elected government officials.
Cryptocurrencies and blockchain gained their popularity as another important transition among human beings. Using models such as decentralized finance or DeFi, cryptocurrencies granted an alternative to the government-controlled and sanctioned monetary system.
Furthermore, it also warranted an independent investment infrastructure that grants financial, economic, and political freedom to individuals. On the other hand, blockchain has given birth to innovative byproducts such as stablecoins, NFTs, Web 3.0, DAO, and several other programs that warrant the evolution of the internet and web.
Cryptocurrencies have changed the views of many renowned financial experts. Some people believe the future of financial infrastructure is tied to cryptocurrency because it will change the ways we transact money. Cryptocurrency brings more privacy and security. However, there are some people who think cryptocurrencies will not survive, and instead, central bank digital currencies will become the new normal.
Cryptocurrency Gets Criticism
Cryptocurrencies faced their biggest criticism from the giants of traditional finance at first. The investors who wanted to enjoy the benefits of financial segregation in society opposed cryptocurrencies harshly. On the other hand, a considerable amount of academics also came forward to water down the exaggerated claims made by cryptocurrency maximalists. Cryptocurrencies indeed hold a considerable amount of potential.
However, every intellectual need to keep an eye on both positives and negatives connected to a certain product, and the same applies to cryptocurrencies. By looking at both merits and demerits of cryptocurrencies, investors can make informed decisions and generate a better investment portfolio. Cryptocurrencies are the most interesting invention of the 21st century, but like every other mortal creation, they are not perfect. However, the crypto industry will become mature with the arrival of financial giants in the sector. As of now, many famous companies have entered the crypto circle as their customers are interested in crypto-related services.
Crypto’s Biggest Critics
Often regarded as the fintech innovation of the century, it would seem that the moguls of the sector are going to issue favorable remarks about cryptocurrencies. However, it seems that some of the most influential and well-known investors and tech giants have rejected the idea of cryptocurrencies. Some of the surprising cryptocurrency critics are listed as under:
- Warren Buffet
- Bill Gates
- Peter Schiff
- Paul Krugman
- Charlie Munger
Warren Buffet
Warren Buffet has managed to get his name listed among the richest people on the planet and he is known as a veteran investor. However, Buffet has bogged down on the cryptocurrency sector by comparing it with the Tulip mania that took over Europe in the 1600s. Buffet has claimed that cryptocurrencies are inherently valueless, and they do not have a lot of real-life use cases.
Financial experts claim that Buffet’s antagonism towards cryptocurrencies is related to the clash of the digital currency market with his investment plans. Furthermore, Buffet has been known to invest in assets that are undervalued and comprehendible.
Bill Gates
The founder of Microsoft, who is known around the world for introducing the world with a universal operating system like Windows, is not a big fan of cryptocurrencies. His criticisms of blockchains are based on environmental concerns.
Speaking to a journalist at Times Magazine, Gates claimed digital currencies use more electricity for a single transaction that is greater than any other technology. A recent study conducted by the University of Cambridge reports that digital currency mining takes up as much energy as can power the entire Netherlands for a year.
Peter Schiff
Peter Schiff is known as the biggest gold mogul in the world. He has used Twitter to rain down on the parade of cryptocurrency community members several times. Schiff, who is the CEO and CSO at Euro Pacific Capital, claimed that cryptocurrencies are an unreliable asset class. His criticisms have also targeted fiat currencies and USD in the same manner. Schiff claims that he can agree to place his bets only on cryptocurrencies that are backed by gold. He also often makes claims that the Bitcoin bubble is about to burst before the inevitable fall of the US dollar.
Paul Krugman
Paul Krugman is a Nobel Prize-winning Economist and a regular contributor to the New York Times. He has taken up an issue with Bitcoin on several accounts. Krugman also targets Bitcoin’s massive energy consumption and claims that it makes cryptocurrencies costly investment options.
He also criticizes the lack of government control over the cryptocurrency markets and claims that only the presence of centralized monetary authority can grant real value to any currency like fiat. Furthermore, Krugman claims that Bitcoin has not been able to take its place in the real world as a replacement for fiat currencies for 12 years. He also blames cryptocurrencies for playing an important role in illegal financial activities.
Charlie Munger
Charlie Munger is the Vice-chairperson of Berkshire Hathaway Holding Company and is considered the right arm of Warren Buffet. He has reiterated his skepticism towards cryptocurrencies on several occasions. Munger called cryptocurrencies massively stupid at one point. He has also claimed that cryptocurrencies have intensified the political power struggle between China and the United States. On another occasion, Munger claimed cryptocurrencies to be beyond contempt, expressing his visible opposition towards the nascent sector.
Merits and Demerits of Cryptocurrencies
Here is a list of the topmost important points for making a case for cryptocurrency promotion. In addition to the top critical reviews about digital assets:
Advantages of Cryptocurrencies
- Inflation Prevention
- Data Privacy
- Decentralized
- Fiat Alternative
- Financial Inclusion
- Portfolio Diversification
- Financial Evolution
Inflation Prevention
Cryptocurrencies like Bitcoin are often touted as deflationary assets. All fiat currencies in the world have suffered from a steady decline in their value over time on account of the consistently increasing pressure of inflation. Since governments enjoy a monopoly over monetary systems, they can print new money or make changes in the interest rates at their discretion.
Meanwhile, most cryptocurrencies have a fixed supply when they are introduced. Furthermore, currencies also use mechanisms like halving or burning addresses to maintain their demand over time and control the impact of inflationary forces. Just like gold, Bitcoin can also be used as an inflation hedge due to its extraordinary qualities such as limited supply. People can hold their investments in crypto to counter inflation.
Data Privacy
Cryptocurrencies by definition stand for a type of transaction record or currency that is encrypted. Therefore, a considerable amount of cryptocurrencies can provide data privacy and control to their users. With traditional financial channels that are facilitated by banks, the users have no control over their transaction history data and personal information. Therefore, people want those financial channels which are more private and secure than traditional systems.
Decentralized
Decentralization is a novel concept that allows a program to keep running without the presence of a centralized authority. Blockchain has given rise to DeFi or decentralized financial services that remove the presence of financial regulatory authority from their monetary operations. However, blockchains need more upgrades to become truly decentralized; they are still a step forward in comparison to the centralized and wholly dependent financial systems. Decentralization makes thing more secure and private and helps people achieve their goals.
Fiat Alternative
By controlling the money, a government can maintain its power in a region. Under such circumstances, any people like independent journalists, an artist, an economist, or revolutionary politicians are unable to express their concerns that go against the state.
Cryptocurrencies provide a viable financial alternative to fiat that grants financial and political freedom to the masses and discourage tyrannical regimes. Some countries, El Salvador, adopt Bitcoin to tackle weak economies. Following El Salvador, many other developing countries consider adopting Bitcoin as legal tender.
Financial Inclusion
There is a massive population of the world that is still unable to get access to financial and banking services as a result of the destructive economic policies. Cryptocurrencies are a way for the masses to gain access to easier and less conditional financial services and take part in an investment that can elevate their standard of living.
Portfolio Diversification
A lot of investors have started to use cryptocurrencies as a mode of investment option despite the skepticism found in the traditional financial sector. The main reason for this promotion is that cryptocurrencies’ value is driven by different forces than the stock market.
Therefore, brokers and asset managers are trying to use cryptocurrencies as a portfolio diversifier. It is worth noting that, at present, cryptocurrencies are not completely independent from the main financial markets. However, the $3 trillion crypto market can become a standalone investment market in the future.
Financial Evolution
With the advent and conquest of the internet in the everyday lives of human beings around the world, the next logical step in technological evolution is the monetary systems. When Bitcoin was first introduced in 2009, a considerable number of developers were trying to create a viable and decentralized monetary system; however, Bitcoin was the first to use blockchain.
Blockchains and cryptocurrencies are aimed at eventually changing and transforming the fintech infrastructure into a faster, more efficient, secure, and more evolved network than before. Cryptocurrency proponents have supported the idea of Bitcoin and other blockchain networks keeping in view that it will pave the way for future innovations and take the world one step forward on the evolutionary ladder.
Cryptocurrencies provide a different financial channel that was unknown to people in the past. Blockchain technology has paved the way for financial evolution.
Disadvantages of Cryptocurrencies
- Scalability
- Volatility
- Hacks
- Regulations
- Speculation
- Financial Crimes
Scalability
Scalability is the quality of a computer program to adapt to its increasing user base. For a blockchain network, scalability defines its ability to handle several transactions per second. Bitcoin, which was presented as a global fiat currency replacement, can process seven transactions per second. In comparison, the VISA network can process 47 thousand transactions per second.
Many cryptocurrency skeptics slam blockchain networks for their lack of scalability and immutable ecosystem, which is a hindrance to their greater adoption as a global network for exchange.
Volatility
The price volatility has been a subject of taunt and ridicule for cryptocurrency investors. The biggest proponents of traditional finance claim that cryptocurrency investment should be reserved for an exclusive class that has a suitable risk appetite on account of its massive volatility.
Meanwhile, cryptocurrency proponents argue that the higher profit returns of digital assets are a result of its bigger risk factor. Cryptocurrencies get criticism due to their volatile nature. Some cryptocurrencies are more volatile than others due to low trading volume. Sometimes, whales manipulate the prices of cryptocurrencies for their own benefits. However, Bitcoin is not controlled by whales.
Hacks
A blockchain network like Ethereum was hacked in 2015. Bitcoin exchange called Mt. Gox was also subject to a massive hack attack. Over the years, reports of cryptocurrency hacks and exploits keep making the news. Since cryptocurrencies are wholly online entities, they are always vulnerable to the threat of hacks. There are also many reported cases where some of the biggest blockchain enterprises sustained massive losses on account of a hack attack. However, with a professional technical audit, such security threats can be mitigated and averted fully.
Regulations
For individuals, regulatory clarity in blockchain matter to ensure their financial safety. In case of a contract violation or financial fraud, individuals should be able to depend on law enforcement agencies to reclaim their stolen or lost assets.
On the other hand, financial enterprises need to have clear and well-defined financial regulatory clarity for cryptocurrencies to be able to use as an investment vehicle, portfolio diversifier, or even offer digital currency services to their clients. Therefore, while decentralization is widely celebrated, a lot of cryptocurrency proponents also emphasize the need for a crypto-related regulatory framework.
Speculation
Some cryptocurrencies do not offer any real utility for their investors. Henceforth, these tokens use the power of social media hype and marketing to create an artificial value around them. Cryptocurrency opponents often use market speculation practices as a big reason for their opposition to the growth of the crypto sector. Sooner or later, the cryptocurrencies that are inflating depending on a wave of market speculation are bound to crash and create massive losses for their investors.
Financial Crimes
Cryptocurrencies have received massive criticism for centralized government regulators for playing an important role in facilitating financial crimes. Using privacy-based digital currencies like Monero, hackers can transfer funds, and in some cases, cryptocurrencies are also linked with terrorist financing.
On the other hand, white-collar criminals are using cryptocurrencies for embezzling funds and evading taxes. There are also cases where the cryptocurrency exchanges were operating under false pretexts and ended up running away with the investments of their clients.
Conclusion
Cryptocurrencies perfectly fit the adage that it is important to take a look at both sides of a coin before making any decision. Anyone who is connected to the tech or financial industry would agree that it is not ideal to focus on only the positive or negative aspects of digital assets. It is important to keep an eye on both merits and demerits that digital currency to make the most of its features.
Investors around the world issue statements about digital assets based on their interests and conditions. In the same manner, every cryptocurrency investor needs to look at their financial circumstances to ascertain whether cryptocurrencies are good or bad for them at any given time or based on their circumstances and portfolio. It is apparent that cryptocurrencies can play an important role in creating new avenues in the development and growth of the fintech sector.