Crypto currencies are a scam
By Aleksander Demko, May, 2021.
Technologies are usually tools
As a programmer, I usually have a cold, analytical approach to technology.
I judge something objectively, balancing its pros and cons. Perhaps its slow, but easy to use.
Perhaps its fast but uses a lot of memory. Maybe it doesn't have any real pros but is a useful teaching tool. Technologies are generally all neutral tools that can be applied to
real world problems.
Crypo - aka crypto currencies - however seem to me to be a huge exception to this rule. It's just bad on so many levels and I don't
see why it continues to exist. It has so many cons and no real pros and
I'm motivated to just write them all down.
Note that when I say "crypto currencies" I'm referring to all crypto currencies and currency-like things that use
a fully distributed public ledger with no central controller. Some technologies that are associated with crypto
but aren't really crypto, such as public (but centrally managed) ledgers or immutable databases are excluded
from my critique.
So here goes...
The many downsides of crypto
There are so many cons of crypto that I'm going to group them into themes:
Wasteful of resources
Crypto is very inefficient for what it does. It consumes vast amounts of:
- Electricity, raising prices for everyone and contributing to climate change.
- Hardware resources (CPU, GPC and & ASIC) encouraging scarcity and driving up prices of hardware.
- Developer time. It takes away developers from more useful projects. What's useful? Anything else.
Expensive and not performant
Even with its vast resource consumption, crypto currency networks are terribly inefficient.
For example, they:
- Have very low transaction throughput, meaning the amount of transactions they can handle
Bitcoin for example can only handle 7 transactions per second. Not 7K or 7M, just 7.
This is equivalent to a few groceries stores in a town at most. There are solutions or hacks to move
the operations "off chain" but then you can't really say you're 'just' using Bitcoin anymore.
- High transaction fees. A quick search shows that the average transaction fee that the miners
take are $1.80 USD. This is insane and makes bitcoin useless for small transactions which was one of its selling points.
Confusing and difficult to use
Crypto currencies are incredibly hard to use, something you don't want to happen with money.
- Crypto currencies and how they work are extremely difficult to explain. Most programmers
don't understand how they work and among those that do, they have trouble explaining it to anyone else.
How is the distributed ledger shared, how are wallets authenticated and what do miners do?
I hope you have a few hours to understand this all!
- Normal (non-technical) computer need to be taught about what a private key is, how to keep
both accessible yet secured, backed up yet not overly shared.
- Because of the previous point, there's a cottage industry of vendors selling hardware solutions.
Now non-technical users need to evaluate hardware solutions for compatibility and functionality and guess how
well those companies support their products in the future.
- Absolutely no undos, transfer reversals and ability to correct mistakes. Accidentally sent the
money to the wrong wallet? The wrong amount? Tough - hopefully the recipient will be nice send it back.
Maybe you can go through the courts? This assumes you know who the other person is and
if they're even in your legal jurisdiction.
- Non-existent account recovery stories resulting in all your money disappearing. Forget your
password? Gone. Computer hacked because you installed some iffy software? Gone.
You got hit by a bus and would like your next-of-kin to get the money? Nope, gone.
- All these problems make it useless to use for day to day spending since all the risks are
magnified when you go mobile.
Are you going to keep your wallet on your phone (that you can lose)
or in the cloud (that can be hacked)?
Bitcoin and its proponents, when it started out, made a bunch of claims about its features.
Subsequent crypto currencies made the same claims and even made additional ones. These include:
- Anyone can use it. Like the previous section outlined, its incredibly hard to understand
and use for normal people.
- It's not anonymous. Although there are no names tied to the wallet addresses, eventually
you have to transact with people and when you ado, you reveal your identity. In addition
to that they also see your historical transactions. It's all in the public ledger for all to
see, since the beginning of time.
- It's high fees make it useless as a day-to-day currency.
- Unless you're doing something illegal, you actually want traceability for online transactions.
Since online transactions aren't "in person" you want a record of paying someone in case they don't provide or ship their end of the transaction or outright deny receiving your money.
This 'feature' also makes crypto currencies great for money laundering.
- To solve some of these problems, many users will go to "exchanges." However, once you do
you pretty much give up the unique features of
cryptocurrencies, since now your funds are essentially just numbers in a centrally
managed database, like any bank. Except unlike banks, many exchanges aren't regulated,
are poorly run with poor security standards, assuming they're not just outright scams.
- Their value instability make it useless as a currency. A store doesn't want to change
its prices everyday. Crypto enthusiasts will try to turn this into a positive and say
that crypto is a good investment rather than a currency, but that's just history rewriting.
- As an investment, you're not sure what you're investing in. It's not like stock
that's backed by a company or a country's currency that's backed by that economy.
It's not a commodity that's consumed or used. It's trying to be like gold, a scare
holder of value, except one where anyone can invent or make it.
- Smart contracts and non-fungible tokens (NFTs) are even more nutty ideas that take
the absurdity to a whole new level. Stay away!
From a purely theoretical/computer science experiment point of view, crypto currencies
are kind of interesting.
But it's an experiment that left the lab a long time ago and spread like some kind
of corona virus throughout the world, ripping people off and wasting other resources
as it goes.
Technical and non-technical people alike are losing their shirts in this tulip-like bubble
where they see not a day to day currency (as it was originally sold) but some always-going-up
investment that no one can articulate. Bubbles burst, people!
Smelling easy money, additional hawkers and scammers are issuing their own currencies,
Hoping they'll go up in value. We basically have private individuals & companies issuing
their own "currencies" and people are buying into it. If the word "crypto" wasn't involved,
no one would have given them a second glance. Some aren't even bothering making
a distributed ledger and issuing software and
are just taking (and running off with) the money directly in a standard Ponzi scheme
So to conclude this long ran, I firmly believe there is nothing but bad things coming from crypto currencies. Say far away from it all, I say.