Crypto Has No Utility Value. Why Should It Eat Up Scarce Resources?

What is utility? Economic theories say forces of demand and supply shape up markets. This demand is backed by consumption, and utility is the satisfaction derived by a consumer on consumption.

Every economic activity has a utility – whether watching a movie, where the utility is entertainment value or buying a cellphone, where utility is connectivity. When one walks into a shop to buy goods or avail services, the act is defined by a utility value.                                                  

But cryptocurrencies have no utility value. 

These blockchain tech-based digital currencies appear to be a revolutionary product, with an increasing number of global organizations embracing it. But central banks have rejected cryptocurrencies as legal tender. China is the latest to ban cryptocurrency transactions in financial institutions, warning investors against speculative crypto trading.

Resources Are Scarce & Their Deployment to Crypto Ecosystem Is Unjustified

Renewables are the talk of the town. World leaders are pledging to combat climate change and replace fossil fuels with renewable energy. While the word renewable is often considered a synonym for clean energy, it is the easy and quick regeneration attribute that sets it apart from non-renewables.

Does this renewable and non-renewable debate have anything to do with cryptocurrencies? 

Consider a few developments in the crypto ecosystem.

• The total market cap of cryptocurrencies has topped US$2 trillion. 
• The S&P Dow Jones recently launched two cryptocurrency indices. 
• Canada became the first country to approve Bitcoin and Ether exchange-traded fund (ETFs) in 2021. 
• Cryptocurrency exchange platform Coinbase outshined oil giant BP in market cap while debuting on NASDAQ in April this year. 

Cryptocurrency's popularity has been skyrocketing. And the world is recklessly deploying resources in this space. All these ETFs, indices and exchange platforms are hoarding resources that are scarce and linked to non-renewables.

Did you know that when developed countries gave US$78.9 billion to developing countries in 2018 under the climate financing in Paris Agreement, it was well short of the US$100 billion goal? 

In contrast, stakeholders' trillions have been parked in the cryptocurrency space. We need to re-evaluate our priorities.

It is not just capital that is disproportionately deployed to the crypto ecosystem. Sustaining crypto activities need human resources. Proponents argue that the digital currency ecosystem has generated new jobs. But is this growth sustainable in the long run? Crypto prices rise and fall on the impulses of a multi-billionaire CEO. Exchanges such as Thodex and Vebitcoin go offline in the wink of an eye, and new digital coins are launched daily.

The world has a shortage of resources, let alone any abundance. Most countries have abandoned fiscal prudence and are running high deficits in the wake of the slowdown brought by the pandemic. From unemployment benefits to subsidizing small businesses to childcare spending, expenditures have exposed countries to seemingly unsustainable debt-to-GDP ratios. Add to this the shortages of almost everything, from semiconductor chips in the US to medical oxygen in India.

© Kalkine Image 2021

Resources are scarce, but the cryptocurrency world unfolds in stark contrast to broader happenings. The total market cap of cryptocurrencies doubled in just three months in 2021.

Consider another crucial aspect concerning resource allocation in the cryptocurrency space. Bitcoin mining consumes more electricity annually than Argentina's total energy consumption. And as we know, non-renewable sources still account for a considerable portion of net energy generated globally.

Digital currencies revolutionizing how the world conducts transactions is still a debatable subject. Proponents and critics can have their own valid set of arguments in this regard. However, no argument can justify excessive resource allocation to the crypto space. 

Had the world economy been undergoing a boom phase, allocating resources to technology with yet-no-utility could be justified. However, both developing and developed economies are reeling from the impact of the pandemic and rising inflationary pressures amid slower-than-expected growth.

Resources deployed in developing and promoting digital currencies could fund climate change goals and provide capital to corporates producing traditional goods and services. It could even possibly reduce the gap between developed and emerging nations. Deploying these resources to the crypto world is anything but reasonable.