The Silicon Valley firm Nvidia recently got in trouble with the SEC for not disclosing that a good bit of its profits in 2018 were due to sales of their graphics processing units to cryptominers. Cryptominers verify cryptocurrency transactions in operations that take a vast amount of computing power, real electrical power, and cooling. One estimate quoted in a recent Associated Press story says that cryptominers making Bitcoin, only one of several types of cryptocurrency, use up 0.2 percent of the world’s electrical supply.
The reason the SEC fined Nvidia US$5.5 million was that cryptocurrency, and presumably the cryptomining that goes along with it, is notoriously volatile. In the SEC’s judgment, Nvidia should have told its investors that a lot of their 2018 profits came from the up-and-down business of cryptomining.
For a firm with $26 billion in revenue, $5.5 million is chump change, and most of the damage to Nvidia was already done once the press releases came out. But the SEC’s action bespeaks a larger prevalent attitude that government institutions, at least in the U. S., have toward cryptocurrency. If a company can get in trouble merely for selling their products to cryptominers and not telling their investors about it, the SEC must be really down on cryptocurrency.
And this is not a surprise. Whoever came up with the idea of Bitcoin in 2008 clearly wanted to leave governments and their meddling with currency behind. In a sense, cryptocurrency is a libertarian’s dream: nobody controls it and nobody can do Federal-Reserve-type manipulations to it or attempt to tie it to any particular conventional currency. A unit of cryptocurrency is worth exactly what people will pay for it — no more and no less.
In retrospect (Monday-morning quarterbacks are always right), it was almost foreordained that the few lucky people who bought bitcoins and other cryptocurrencies as they were issued ended up making fantastic profits, at least on paper (or bits). But after the first cryptocurrency-rush days, the crypto market turned into something resembling the futures market for hog bellies, but without the inconvenience of having to keep a lot of smelly hog bellies around.
And unlike hog bellies, cryptocurrency uses a lot of energy, much of which is generated with fossil fuels that increase the globe’s burden of carbon dioxide. That bothers some people more than others, but it is a definite downside to cryptocurrency compared to more conventional media of exchange.
Another factor that gives cryptocurrency a somewhat shady reputation is that it has proved very popular with international criminals. An untraceable, serial-number-free virtual currency is just what the drug dealers and online extortionists like to use, and many of these types will not accept any other kind of money. (I’m told this — I’ve never tried to pay a drug dealer myself, either with cryptocurrency or cash.)
So with those counts against it, one shouldn’t be too surprised that although cryptocurrency has been accepted in certain circles and by at least one government as legal tender (El Salvador), its progress is slow.
While some may view the advance of cryptocurrency as progress, in some ways it marks a return to a system that prevailed in the early and mid-19th century in the US. While the US government (and the Confederacy during the Civil War) issued its own currency, many private banks chartered by state governments also issued their own currency. In a given locality, you might have businesses trading in three or four different kinds of money, and so someone would have to keep an exchange chart stating what their comparative worths were.
And volatility was also an inevitable consequence of that system. Private banks could flood the market with bills or even go broke, rendering the currency they issued worthless. In a time before the telegraph had penetrated to most parts of the US, a store might take in payment a bunch of bills issued by the Pawtucket State Bank of North Carolina, only to learn a few days later that the bank had ceased to exist.
Of course, all paper money back then was exchangeable at some rate with gold, which was the main medium of monetary exchange between governments. There are stories of one company loading a ton or so of gold bullion onto a ship at Port A bound for Port B, and another company loading a ton of gold onto a ship in Port B bound for Port A. Besides being downright silly, such mechanical exchanges were prone to the hazards of ocean travel. If one of your ships went down with your gold bullion, you were out of luck.
That can’t happen with bitcoin, but it can certainly “sink” metaphorically, and has numerous times, wiping out value just as effectively as if it was a pile of gold bars going down to Davy Jones’s locker. As long as cryptocurrency developers insist on staying independent of government control, it seems like volatility will be part of the game. And that means only people who like to take lots of risks anyway (e. g. drug dealers and online shakedown artists) will accept the risk of volatility for the anonymity and other advantages cryptocurrency has for their business models, if we can call them that.
Three years ago, Facebook launched its own version of cryptocurrency, then called Libra. Originally, they tried to tie it to a basket of currencies, but regulators nixed that idea. Then it was rebranded as Diem, and tied to the dollar, but reportedly the Federal Reserve pressured the bank involved to cut its ties with the organisation, thus dooming it. If a substantial outfit like Facebook can’t launch a modified cryptocurrency that has some promise to maintain a stable value, it looks like nobody else will try any time soon.
So for the foreseeable future, all five minutes of it, cryptocurrency looks like it will remain a fringe enterprise, enjoyed by a few rich risk-takers, disappointing others who buy it at the wrong time, and having a core constituency of users whose characters are dubious, to say the least.