OP-ED: What is cryptocurrency and who does it benefit?
Cryptocurrency, created in 2009, was designed to be a system of payments that could not be traced, and as might be expected from the design, the early users were mostly people doing business that they wanted to keep secret (mostly criminal activity, though political activists working under oppressive governments sometimes use it).
Instead of a central bank assuring its value, crypto is decentralized with only a ledger (visible to all) of transactions, though the identity of the entities conducting the transactions are hidden. It was praised by libertarians who have always had an issue with money whose value is determined by the government (fiat currency), because they don’t trust the government. But as it grew, and its value fluctuated, it also became a way to make money by trading it. Those two uses are in conflict, because making money on crypto requires buying low and selling high, which is only possible when the value fluctuates. But currencies work best when they are reliable, and the value is steady (like the U.S. dollar).
If crypto remained a niche subject of interest only to criminals or people gambling on its value, it could be ignored. But one aspect of crypto is that to make more of it, it must be “mined,” which involves computers solving difficult equations (if it were easy, new crypto would flood the market and destroy its value by “printing money”).
But mining crypto requires powerful computers consuming massive amounts of energy; crypto mining uses more energy annually than Finland, and it produces nothing tangible. Since energy production has (sometimes quite large) environmental costs, and crypto produces nothing of value, the growth in crypto hinders our ability to move to a carbon-free future as well as using resources that could be more productively deployed elsewhere. Ethereum changed its mining technique from the “proof of work” model used by Bitcoin, to a much less energy intensive “proof of stake,” so there is the possibility of reducing the environmental damage.
Initially crypto was very decentralized; transferred person to person on a blockchain, printed out the keys to their access (if they lost the key, they lost the currency). “Not your keys, not your coins.” Crypto exchanges (Coinbase, e.g.) rose up and centralized it, but also operated by rules (defeating the primary original purpose). As it became more normalized, the Biden Administration sought to regulate it as a financial product. While this would help prevent fraud, it goes against the libertarian ethos of most crypto enthusiasts; the Trump Administration has ended the Biden regulation efforts.
Initially, President Trump was against cryptocurrency. In 2021, when El Salvador was making cryptocurrency legal tender, Trump said “Bitcoin, it seems like a scam. I don’t like it because it’s another currency competing against the dollar.” But by the time Trump took back the presidency, the “Bitcoin Bros” helped Trump become the first “crypto president.” During the 2024 election, crypto donors spent $130 million on Trump and other pro-crypto candidates. At a Trump crypto fundraiser, it cost $844,600 for VIP access to Trump.
Just prior to the November election, Trump and his sons (along with Steve Witkoff) formed World Liberty Financial, the goal of which is to “make crypto and America great by driving the mass adoption of stablecoins and decentralized finance.” Stablecoins are cryptocurrencies whose value is pegged to a commodity or currency, or by having its supply regulated by an algorithm.
Why would Trump launch WLF just before the election; isn’t being president a full-time job? Critics contend that WLF provides a way for people who want something from Trump to pay him, without anyone being the wiser. An example of this pay to play is Justin Sun who, after Trump won the election, put $30 million into the project. Sun had been under investigation by the Securities and Exchange Commission for a year, but after Trump took office, that investigation was dropped.
Just after his election, Trump (and then Melania) released a meme coin ($Trump and $Melania). This provided another opportunity to give money to the Trumps. A Financial Times analysis in March said the project netted over $350 million.
Now there are reports that Trump will have a private meeting with the top 220 people who bought the most $Trump coins (with the top 25 getting an additional meeting). Just the announcement drove up the price of the coins.
The Trump Administration also proposed creating a Strategic Bitcoin Reserve and a Digital Assets Stockpile, which could help stabilize the currencies held in those pools. This is going against the whole purpose of crypto, which is to have a currency not under government control. But the government buying up crypto to be held in the reserve certainly increases the value of the currencies it purchases, which benefits people who hold those currencies (Bitcoin, Ethereum, XRP, Solana and Cardano), many of whom gave money to help elect Trump. Trump said the stockpiles would include assets already seized in criminal or civil court actions, and only buy more if it didn’t add to the debt, and that the government would not sell bitcoin, but that defeats the purpose of a reserve, which is to steady the market by buying and selling at the appropriate times.
While blockchain technology has uses beyond cryptocurrency, most uses of cryptocurrency do not benefit society. Crypto may be appropriate for zero sum investors who think they’re smarter than the next guy, but these “investments” produce nothing of value to society.
It would be good if crypto mining energy use could be restricted so as to not waste valuable resources. I’m not sure how that could work (other than people refusing to use crypto with a big energy footprint). The government may need to regulate crypto if it becomes popular enough that a crash will affect the rest of the economy (the 2022 crash did not). In the meantime, most people should simply avoid it.
Kent James, of East Washington, has a doctorate in history and policy from Carnegie Mellon University.