The Canary in the Cryptocurrency Mine

The world’s largest financial disaster could be imminent.

Since the launch of Bitcoin in 2009, the only stable positive trend regarding cryptocurrencies has been their popularity in the media. As bitcoin grew, other coins jumped on the bandwagon, opening a Pandora’s box of what could either be the world’s leading banking technology or the largest financial catastrophe of all time.

In my opinion, the risk of high scale investment into crypto could potentially send the world into an economic depression far worse than ever before. How we regulate and invest in cryptocurrency now will decide its fate.

And when currency trading comes to mind, it typically conjures images of well-dressed businessmen moving millions of dollars worth of holdings from the Euro to the Yen. With the exception of some third world countries, many currencies tend to be the most stable investment available, which also means there is little room for profits or losses. Currencies exist for the sole purpose of enabling transactions between people, and this requires a high degree of stability.

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Volatility is the worst possible trait of a currency, and it almost exclusively leads to the detriment of the nation. Venezuela, for example, experienced inflation of over 454%, resulting in chaos throughout the country. Rapid increases in value can also be considered detrimental, though, because it can blindside the country’s export business now that their currency is more powerful abroad.

As nations are considering adopting cryptocurrencies in place of their fiat currency, it is easy to be skeptical when Bitcoin has lost almost half its value overnight in the past. If this happened to a fiat currency, it could potentially lead to widespread riots and even revolution.

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In Venezuela, the paper notes are worth more as material for handbags

Historically, caged canaries have been used as an alarm system in mines, for when toxic gases reach a dangerous level they perish. When it comes to cryptocurrencies, however, I believe Ripple’s XRP is the equivalent of the canary. Instead of announcing the presence of toxic gas, however, XRP is merely amplifying the greediness typically associated with investing in cryptocurrency. Despite the original purpose of Bitcoin to be a decentralized, unregulated currency, hordes of people have mistakenly classified it as a “get-rich-quick” scheme. This has lead to dangerous investments made in hopes of volatility, in complete opposition to the improvement of the platform.

In late December of 2017, XRP increased in value by over 300%. This increase made Ripple’s founder one of the richest men in the world, but at the same time, it further opened the floodgates to these dangerous investments. Weeks later, the bubble burst and the coin returned to less than a dollar in value. Get-rich-quick schemes usually don’t have a large effect on the economy as a whole, but if multiple nations are taking the bait the world may be at severe risk.

Further governmental regulation is not the answer. I believe that regulating cryptocurrency as a security is not an effective solution. Rather, I think crypto communities should reject the notion that they are simply a get-rich-quick scheme, and instead focus on building the infrastructure that will take them to the forefront of financial technology. As it stands, Bitcoin and other currencies are setting themselves up for failure, and the world doesn’t even have enough energy to effectively support the coin for decades to come.

Cryptocurrency has the potential to be the world’s leading financial technology, but the risk of failure may simply become too high.

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Mining foreman R. Thornburg shows a small cage with a canary used for testing carbon monoxide gas in 1928.(George McCaa, U.S. Bureau of Mines), Smithsonian Magazine

Written by

Journalist, entrepreneur and student - Boston College, University of Otago. Buddhist. Expert adventurer and consultant for conducting business in Asia.

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