The cryptocurrency market has witnessed an unprecedented rise following the announcement of Donald Trump’s victory in the U.S. elections, with the price of Bitcoin reaching a record high of $87,500. This marks a significant shift occurring for the first time in the history of digital currencies and reflects the nature of the upcoming phase due to Trump’s endorsement of digital assets during his campaign. This momentum is further buoyed by Elon Musk, a prominent figure in the new U.S. administration and a strong supporter of these currencies. This approach contrasts sharply with the previous climate, where there was a movement to demonize cryptocurrencies, viewing them as a means for money laundering.
Digital currencies are seen as the natural evolution of money, eliminating the necessity for it to exist in paper form. Thus, the digital transformation in currency issuance is viewed as a normal transition. Although there are currently around 14,000 cryptocurrencies in the market, with 9,000 of them being active, they lack acceptance, as they do not fulfill all the functions of money and are not issued by a central authority.
Unstable Investments:
Cryptocurrencies are characterized by their scarcity and the decentralization of transactions, eliminating the need for a third party or intermediary. However, they are not suitable as a secure investment option or a substitute for traditional money, due to several considerations, including their instability and exposure to sharp value fluctuations. This makes their use as a medium of exchange impractical, and they do not serve as a reliable store of value or a trusted “currency reserve,” primarily because of their significant volatility. Furthermore, they are built on the concept of a “Ponzi scheme,” meaning that older investors in units like Bitcoin reap substantial returns from new investors entering the market.
When compared to cryptocurrencies, investing in gold, for instance, proves to be more stable and reliable, as it carries significantly lower levels of risk and volatility. Therefore, investments in cryptocurrencies cannot be classified as safe. While the severe fluctuations in these currencies reflect the magnitude and limits of the risks associated with investing in them, they also suggest the potential for significant profits over short time periods, acknowledging that risks are correlated with returns.
Cryptocurrencies could acquire characteristics of money if issued by central banks or under their supervision, enhancing their transparency and stability. This is a direction that China and other countries are beginning to pursue, with the International Monetary Fund (IMF) also supporting policy makers in evaluating the need for digital currency issuance. In this context, Nafeh stated that any proposed digital currency should be issued based on a different reserve, grounded in energy rather than the dollar.
If central bank-backed digital currencies come to fruition, this could undermine traditional cryptocurrencies, confining their use to speculation and illegal transactions associated with countries under sanctions, such as Russia and Iran, which utilize them in trade exchanges.
The Need for Digital Energy Currencies:
Currently, the energy consumed in mining cryptocurrencies is largely wasted, despite claims from some miners that they have developed mechanisms to convert energy consumption in the mining process into artificial intelligence products during periods when cryptocurrency prices are low.
Overall, energy consumption presents major challenges for cryptocurrencies, as the energy used in mining may equal that of several countries, and it is consumed in large quantities without yielding tangible benefits. This results in wasted energy, posing both an environmental and economic challenge that necessitates the exploration of more sustainable alternatives.
In this regard, experts recommend the development of “digital energy currencies” based on units of energy, such as the British thermal unit (BTU), serving as the foundation for digital currencies. Rather than relying on fluctuations in the energy market, energy currencies would be directly linked to the energy consumed. In this case, the currency based on energy units would enjoy widespread acceptance and stability in international markets, enhancing its tradability and storability.
Ultimately, it can be said that those who can generate environmentally friendly energy efficiently and effectively will possess broader economic and political influence. This underscores the importance of controlling energy resources in shaping global power dynamics, indicating that the world is transitioning from reliance on traditional currencies to digital currencies, which will continue to gain significant and increasing importance in an economy moving towards digitization.
