Cryptocurrencies, crime and pollution

The emerging crypto ecosystem remains largely unregulated in most parts of the world, posing some serious risks for traders and of course the planet at large. Although the asset class had a pretty good year in 2021, there are many things investors should keep in mind.

Obviously, digital currency is a volatile world. For example, just this week, top coins like Bitcoin and ETH, as well as the popular meme token DOGE, have fallen significantly (~10%). The decline came shortly after the release of Federal Reserve (Fed) meeting minutes, showing that monetary policy aimed at containing the COVID-19 crisis may end soon. And when the central bank announced that it would accelerate this contraction, the crypto market was devastated.

But every investor knows only too well that where there is risk, there is also opportunity for return. Not every trader is afraid of market volatility.

After bitcoin rallied to an all-time high near $69,000 in November 2021, traders saw its potential and used it as a hedge against ongoing inflation concerns. Even as the leading cryptocurrency experiences its ups and downs (including some pretty nasty drops over the past year), traders keep hope alive as more businesses start accepting these coins as options. Several retailers have long accepted cryptocurrencies, and in 2021 companies like AMC Theaters and WeWork are also beginning to join.

In 2022, many companies are even planning to pay employees for comprehensive benefits packages.

So it’s not surprising that those who are passionate and curious about it don’t give up for fear of the first loss. But it is important to understand that volatility is not the only risk traders face.

Scammers around the world pocketed a record $14 billion in crypto in 2021. The amount of stolen crypto is up 516% or $3.2 billion compared to 2020, followed report annual Crypto Crimes by blockchain analytics firm Chainalysis.

Overall, crypto crime losses increased by 79% compared to 2020. Of the stolen funds, 72% were taken by decentralized finance platforms.

DeFi is an emerging area of ​​the market that aims to remove intermediaries (like banks) from financial transactions. Instead, DeFi uses programming code called smart contracts on a public blockchain that runs when certain conditions are met.

As reported by Chainalysis, transaction volume on DeFi will explode by 912% in 2021. But hackers can exploit loopholes and holes in code to get coins. With the flood of trading platforms in app stores and the growing hype surrounding promising potential returns, people are afraid to put their money in unsafe places. Many people seem to fear the potential loss of opportunity more than the loss caused by crime. Chainalysis explained in its report:

“DeFi is one of the most exciting areas of the broader crypto ecosystem and offers tremendous opportunities for both crypto entrepreneurs and users. But DeFi is unlikely to reach its full potential as the very decentralization that makes it so dynamic also allows fraud and theft to become widespread.”

However, the good news is that the evolution of crypto crime has lagged relatively behind that of legitimate crypto trading. According to the report, transactions with illegal addresses accounted for a record low of just 0.15% of the total transaction volume of $15.8 trillion last year (75% decrease from 2020 and almost 96% from 2019). In fact, total trading volume has grown by more than 550% through 2021.

The Chainalysis report reads:

“Actually, it was only a 79% increase, which is almost an order of magnitude below overall acceptance and perhaps the biggest surprise. Criminals are getting smaller and smaller in the crypto ecosystem.”

The decrease in crime is largely due to the inherently transparent nature of blockchain technologies and the innovation of trading platforms. As with all investments and transactions, it is up to the investor to determine and, if necessary, to accept the level of risk.

However, those who decide to enter this potentially lucrative space should also be aware of the carbon footprint of cryptocurrencies.

The House Oversight and Investigations Subcommittee is reportedly planning the first congressional hearing on Bitcoin’s environmental impact. More specifically, they will look at the carbon footprint of cryptocurrency mining as part of the PoW model. The PoW model is a consensus mechanism that records cryptocurrency transactions. A list of witnesses due to testify by the end of the month has also been released.

This is just another step in mitigating the chaos that the crypto craze can create. In October 2021, 70 activist groups came together to write a Letter to Congress, imploring the United States to take action to limit the impact of cryptocurrencies on climate change.

Finally, the growth of crypto mining in the United States has made the country the largest contributor to Bitcoin’s global hashrate Data by the Cambridge Center for Alternative Finance, particularly after China stepped up its repression.

Whether you’re a die-hard fan or a skeptic, it’s important to consider the full history of cryptocurrencies, as well as the price that both people and the planet are paying. As cryptocurrencies become more popular, this information becomes more transparent and understandable for the average retail investor.

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