Is it ethical to invest in cryptocurrency?

OPINION: As someone who’s seen many investment fads, I think most retail investors will lose money from crypto currencies.

It is gambling, not investing. And, like gambling, only a few insiders will win.

Simplicity has recently become an indirect investor in a local crypto currency exchange called Easy Crypto, via an Icehouse Ventures fund we are invested in.

We insist our suppliers have an approach to ethical investing consistent with ours, but this is a good example of how different groups can reach different conclusions. Another KiwiSaver manager has invested directly.

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Easy Crypto is a local success story, professionally run by people who passionately believe in the power of crypto to change the world.

And because it facilitates the buying and selling of crypto, investing in it is legitimising the industry. You might not invest in drugs directly, but if you own shops that sell them, you’re invested in the drug trade.

So is crypto unethical? It is debatable. We have four areas of concern.

The first is how bad it is for the environment.

Cryptocurrencies show no evidence of allowing the unbanked greater financial inclusion, says Simplicity KiwiSaver chief executive Sam Stubbs.

Chris McGrath/Getty Images

Cryptocurrencies show no evidence of allowing the unbanked greater financial inclusion, says Simplicity KiwiSaver chief executive Sam Stubbs.

No one knows for sure how much power is used to create (or mine) crypto. Estimates range from the amount of power used by Finland each year, to that used by Brazil.

An authoritative source, the University of Cambridge Bitcoin Electricity Consumption Index, calculates total consumption at over 80 GwH, or the equivalent of 23 coal fired power stations.

That is a huge amount of power for relatively few crypto users and miners.

And the more people that mine crypto, the more power is required. It currently costs between USD $7-11,000 of electricity to mine one bitcoin. But because they sell for much more, there is every incentive to carry on mining and pay the power costs.

Because cryptocurrencies require so much coal to be burnt to ‘mine’ them, they are contributing to global carbon emissions. One estimate says crypto mining has the annual equivalent power requirements of a large country.

Charlie Riedel/AP

Because cryptocurrencies require so much coal to be burnt to ‘mine’ them, they are contributing to global carbon emissions. One estimate says crypto mining has the annual equivalent power requirements of a large country.

But is it the planet that really pays? The Cambridge study says 39 per cent of crypto uses at least some coal fired electricity, with the combined carbon footprint of London. Some crypto operators claim they only use renewable energy, although these claims have been challenged. But even if it’s true, it ignores the obvious consequence – the renewable power they use is unavailable to others, which forces the burning of more fossil fuels.

And an over-looked consequence of all the computing power required to mine crypto is the e-waste. The ever-increasing computing power required means hardware usually needs replacing every 18 months. It is too rarely re-used, or re-cycled. Credit to Icehouse Ventures and others who have backed local recycling company Mint Innovation, which extracts precious metals from e-waste.

The second concern is it exploits the poor.

In spite of assertions that crypto banks the unbanked, there is very little evidence to substantiate this. Quite the opposite in fact. Like gambling, it can hook them into yet another get rich quick scheme.

I have travelled enough in the developing nations to know that crypto features nowhere in daily transactions and cannot be used for essential financial services.

Fourteen years after the internet and mobile phones were invented, they were a viable way for the third world to access useful financial services. In contrast, 14 years after crypto was invented, almost no one is using it to transact anything useful.

E-waste recycling around the world is patchy at best.

SUPPLIED

E-waste recycling around the world is patchy at best.

Instead, crypto offers the poor the allure of getting rich quick by investing their hard-won savings.

And if crypto is just another form of gambling, and ethical investors won’t invest in gambling, how is investing in crypto ethical?

Another virtue signal from crypto investors is that it is building a better financial infrastructure. This is a very dubious claim, and arguably virtue signalling. Better infrastructure is provided by the internet and blockchain, neither of which are exclusive to or because of, crypto.

Do cryptocurrencies offer better financial future for the poorest people in the poorest countries? Simplicity KiwiSaver chief executive Sam Stubbs says there’s no evidence to support this claim.

Getty Images

Do cryptocurrencies offer better financial future for the poorest people in the poorest countries? Simplicity KiwiSaver chief executive Sam Stubbs says there’s no evidence to support this claim.

The third concern is it harbours illegal activity.

The crypto world was designed to operate outside regulation and the law. So it’s a natural place to hide and launder the proceeds of crime. Some negate this by saying how little illegal money there is in crypto. But due to its untraceable nature, this is a dubious assertion.

Simple logic says the un-traceable and un-taxable nature of crypto means it is highly likely to be a magnet for criminals.

Simplicity's Sam Stubbs says crypto was designed in ways that help criminals launder money.

LAWRENCE SMITH/Stuff

Simplicity’s Sam Stubbs says crypto was designed in ways that help criminals launder money.

And defenders say because criminals also use cash for laundering, crypto is no worse. But two wrongs don’t make a right, and at least cash used for crime is traceable. Crypto simply isn’t, and was designed to be that way.

And if taxes are the price of civil society, anything designed to hide wealth and avoid tax is, ipso facto, ethically questionable.

The fourth concern is how crypto thrives on ignorance and greed I first became concerned about the ethics of crypto when, on the same day, two Uber drivers told me they were ‘in’ crypto, and asked me which one to buy. Neither had any real idea what they were investing in. They both used get rich quick, FOMO-fuelled language.

Photos of the firearms, cash and gold organised crime gang individuals had possession over.

NZ Police/Supplied

Photos of the firearms, cash and gold organised crime gang individuals had possession over.

And the marketing used by the crypto industry is hardly re-assuring. Many use language very similar to pay day lenders.

At best, crypto is ethically questionable. At worst, it could be environmentally toxic, exploitative, fostering criminal activity and thriving on ignorance and greed. Ethical investors take note.

And when it comes to the motivation of greed, I will leave the last word to the world’s best investor, Warren Buffett.

“Be fearful when others are greedy, and greedy when others are fearful”.


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