Currently, there are about 100,000 crypto millionaires. Cryptocurrency wealth, furthermore, has built Fairshake, the largest crypto lobbying group in the U.S. During the recent election, it claims it helped elect 253 pro-crypto candidates.
But is cryptocurrency a good ethical investment? As a business professor who studies technology and its consequences, I’ve identified three ethical harms associated with cryptocurrency that might give investors pause.
The first harm is excessive energy use, most notably by Bitcoin, the first decentralized cryptocurrency.
Bitcoins are created, or “mined,” by tens of thousands of computers in massive data centers, contributing significantly to carbon emissions and environmental degradation. Bitcoin mining, which represents the lion’s share of crypto energy consumption, uses as much as 0.9% of global demand for electricity – similar to the annual energy needs of Australia.
Second, unregulated and anonymous crypto is the payment system of choice for criminals behind fraud, tax evasion, human trafficking and ransomware – the latter costing victims an estimated $1 billion in extorted cryptocurrency payments.
Until about a decade ago, these bad actors generally moved and laundered money through cash and shell companies. But around 2015, many transitioned to cryptocurrency, a much less troublesome form of handling dirty money anonymously.
A bank cannot hold or transfer money anonymously. By law, a bank is passively complicit in money laundering if it isn’t enforcing know-your-customer measures to restrict bad actors, such as money launderers.
In the case of a crypto coin, however, legal and ethical accountability cannot be transferred to a bank – there is no bank. So, who is complicit? Anyone in the crypto ecosystem may be viewed as ethically complicit in enabling illicit activities.
Cryptocurrency’s third problem is its predatory culture. A predatory system, especially without regulatory oversight, takes advantage of small investors. And some cryptos have enriched their founders while taking advantage of investors’ lack of knowledge about the virtual currency.
Some cryptocurrencies, especially the smaller coins and initial coin offerings, have characteristics of Ponzi schemes.
The now-defunct Bitconnect, for example, promised large profits to investors who exchanged their Bitcoins for Bitconnect tokens. New investor money paid out “profits” to the first layer of investors with money from later investors. Ultimately, Satish Kumbhani, the Bitconnect founder, was indicted by a federal grand jury, and as of 2024 his whereabouts are unknown.
To be fair, the crypto community hasn’t ignored the criticism, including calls for more environmental awareness
While cryptocurrency offers exciting opportunities and the potential for high returns, its environmental impact, association with illegal activities and predatory nature all present significant ethical challenges.
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By Erran Carmel / The Conversation
