Should we hop on the bitcoin roller-coaster or play it safe?
Linked to all sorts of dark-web criminality, fraud, pollution – and even the attack on our health service – we ask:
Should we invest in bitcoin – or ban it? That’s a topical question after the virtual currency was yet again in the news for the wrong reasons. Bitcoin continued its roller-coaster ride this week – downwards this time – dropping 30% in hours at one point, and as much as 50% in weeks, an extraordinary fall for any form of asset. It plummeted after China joined a growing list of countries cracking down on the controversial currency, which fuels fraud, money laundering, tax evasion and cybercrime (like the attack on our health service).
Chinese banks were told not to accept cryptocurrencies as payment or offer services and products related to them. Chinese financial agencies warned that recent wild swings in prices ‘seriously violate people’s asset safety’ and are disrupting the ‘normal economic and financial order’.
Eccentric billionaire Elon Musk also added to bitcoin’s woes by saying he wouldn’t accept it as payment for his cars after all.
He added fuel to fire by adding: ‘We are concerned about rapidly increasing use of fossil fuels for bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel.’
Weeks earlier he triggered a surge in bitcoin’s value by buying a billion and a half dollars’ worth of it and saying he would accept payment in the currency for his cars.
Could the head of the world’s biggest electric car company not have worked out previously that mining bitcoins via computers, mainly in coal-burning China, consumes a massive amount of energy?
And why would anyone want to accept a currency that can plummet 30% in value within hours?
Besides the outpourings of mercurial Musk there are other reasons for the decline in bitcoin. Digital currency fuels the Dark Web – an alternative internet where illicit things like guns, drugs, child porn and scam victims’ credit card numbers can be bought only in cryptocurrency.
There seems little other practical use for ‘crypto’ as it is now dubbed. Investors worry that it is becoming too linked to increasingly nefarious forms of criminality.
‘Cryptocurrency has become the preferred tender for cyber criminality… The attackers responsible for the HSE ransomware attack demanded ... bitcoin,’ said cybersecurity expert Graham Day, author of Security In The Digital World.
Taking down a country’s health service inevitably costs lives, elevating such crimes to manslaughter if not murder, another analyst suggested.
‘When they [doctors] can’t access important medical data like information about critical-care patients, the situation becomes a matter of life and death,’ warned Oliver Noble, a cybersecurity expert at NordLocker, a data protection solution.
Last year, a woman died as a result of being transferred to another hospital in Germany following a ransomware attack.
Health institutions are a prime target for cybercriminals for their vulnerability – they invest less than half what financial firms do on cybersecurity – and for their sensitive data.
‘Hackers can get home addresses, social security numbers, and banking information… data that can end up in financial or identity theft scams,’ said Mr Noble.
Other recent targets include oil pipeline system Colonial Pipeline, which pumps out nearly half of all oil for the east coast of the United States. Authorities coughed up $4.4m in bitcoin to hackers. Such acts have spooked investors.
Charlie Munger – partner of fellow investment guru Warren Buffett – said cybercurrencies are ‘useful to kidnappers and extortionists… the whole damn development is disgusting and contrary to the interests of civilisation’.
US treasury secretary Janet Yellen said: ‘I see the promise of these new technologies but… cryptocurrencies have been used to launder the profits of online drug traffickers; they’ve been a tool to finance terrorism…
‘We’re living amidst an explosion of risk related to fraud, money laundering, terrorist financing, and data privacy.’
The cryptocurrency’s shady reputation is likely to get worse, which could lead to it being banned or restricted in more countries.
‘Bitcoin has been under pressure
since the Musk tweet,’ says OANDA senior market analyst Jeffrey Halley
‘But I would argue that the beginning of the end of the Wild West of crypto-mania is now upon us.’
It seems unlikely that Ireland will ban ‘crytpo’ as China did. And, according to Mr Day, this would just ‘push it underground’ anyway.
But we can alleviate the worst aspects of the craze.
To stop crypto being used to avoid tax, UK authorities have introduced special sections to be filled in on tax forms – a measure we could follow. And why do we tax ‘crypto’ at 33% when mainstream investments are taxed at 41%?
‘The authorities must also use progressive investigative techniques,’ said Mr Day, citing as an example ‘digital crumbs’ created in crypto exchanges to help trace the currency.
The EU could even set up its own legitimate and easily traced digital currency as Sweden, a cashless society, already has, Mr Day added.
There’s something else we can do if we don’t want to enrich hospital-attacking criminals and save ourselves a lot of financial stress: don’t invest in crypto.