Fiat currencies and cryptocurrencies share similar use cases, but they both come together
Fiat currencies and cryptocurrencies share similar use cases, but both come with drawbacks that critics claim make their use unethical.
Common arguments for why Bitcoin (BTC) is unethical include its environmental impact through high electricity costs resulting from mining, along with potential use by criminal elements, and lack of regulation and user protection.
On the contrary, critics of paper money see it as immoral, because it is not backed by a physical commodity such as gold. This means that there is no limit to what central banks can print, resulting in severe social damage.
Speaking to Cointelegraph, Charles Adams of UK-based hedge fund manager Nickel Digital Asset Management said he believes both currencies have ethical considerations, but overall, Bitcoin is ethically stronger because of its inherent inclusion, transparency and immutability:
“Bitcoin’s blockchain technology provides a decentralized public ledger where all transactions are recorded and anyone can verify them.”
“In addition, it is difficult to overlook that paper currency is also frequently used for money laundering and other crimes. In fact, cash remains the currency of choice for most illicit activities.
Cybersecurity research firm Cybersecurity Ventures estimates that cybercrime losses through the traditional financing system worldwide will reach $10.5 trillion annually by 2025. Cybercrimes are often untraceable, and victims rarely get their money back.
In contrast, Adams says that although Bitcoin transactions are pseudonymous, they are not completely anonymous, and using sophisticated tools and techniques, law enforcement agencies and other online investigators can track down money stolen by criminals.
In early May, an investor lost $71 million worth of Wrapped Bitcoin (WBTC) to a scam targeting his wallet. Cybersecurity companies and online investigators easily tracked the alleged thief's online movements.
By May 12, the funds had been returned, and shortly after, on-chain security firm SlowMist published an analysis of the hacker's possible IP addresses in Hong Kong. The company indicated that the malicious actor intended to steal the money, but changed his mind after attracting the attention of investigators.
Adams believes that while both currencies have their drawbacks, Bitcoin's inherent transparency, immutability and potential for positive social impact make it a promising contender for an alternative global currency.
Fiat often receives criticism because it can lead to economic inequality through hyperinflation. In the 2000s, Zimbabwe's central bank began printing money at a dizzying pace, leading to hyperinflation, during which the currency lost 99.9% of its value.
Critics argue that a gold-linked currency would be more stable than paper money because its supply is limited. According to Bitcoin creator Satoshi Nakamoto's whitepaper, only 21 million are available, which proponents say makes the digital currency a better alternative to fiat currencies.
However, Adams says that rather than trying to eliminate Bitcoin or fiat currencies, a more logical solution is to take a balanced approach that allows the two to coexist.
Related: Boomers hold the key to wealth, even in cryptocurrencies
“Although there are concerns and ethical issues related to the monetary system, it still provides governments with valuable monetary policy tools that, when used appropriately, provide significant benefits to the country and its population,” he said.
“Ultimately, it is a difficult balance to strike between providing people and governments with the freedom and independence to manage their finances when the currency is always inherently tilted in one direction; In other words, monetary freedom comes at the expense of government control.
The currency is not the issue, the people are
Matteo Greco, research analyst at digital asset firm Fineqia, told Cointelegraph that individual currencies are not the problem; People who misuse them are the problem.
“It's difficult to determine what is inherently ethical to some extent, since the ethical use of a tool depends on the individuals behind it,” he said.
“Both fiat currencies and Bitcoin can be used for illicit activities if their owners choose to do so. Anything can be used unethically; “It depends on its application.”
This point is made abundantly clear by Bitcoin miners sourcing the electricity used in mining from renewable energy to reduce ethical concerns and potential negative environmental impacts, Greco says.
Bitcoin mining, which involves computers solving complex mathematical problems and verifying transactions on the blockchain network, consumes a lot of electricity.
According to one analyst, Bitcoin miners in the United States alone spent $2.7 billion on electricity in the first few months of 2024, sometimes more than $20 million per day.
“For skeptics, any energy consumed by Bitcoin mining is a waste of time, but the same argument could apply to other sectors such as social media, which also consume huge amounts of energy,” Greco said.
“Objectively, we can assess how much the grid is using renewable energy and its commitment to improving this metric. He added that the Bitcoin network is leading in this area, as miners look for cheaper renewable energy to boost profitability.
Earlier in 2024, data from Bitcoin ESG Forecast revealed that sustainable energy use in Bitcoin mining rose to a new all-time high of 54.5%, with sustainable mining up 3.6% throughout 2023.
Related: Bitcoin mining is becoming more environmentally friendly
In general, Greco says that the concept of morality is highly perspective-dependent, and that “the distinction between moral and immoral is complex and subjective most of the time.”
Technology like Bitcoin is neutral
Speaking to Cointelegraph, Caroline Buller, CEO of Australian cryptocurrency exchange BTC Markets, said currencies are inherently “neutral technologies” and are neither “good nor bad.”
“It is the moral compass of individuals and the institutions behind them that determine their moral stance,” she said.
According to Bowler, fiat currency has significant ethical problems, but “these stem from the actions of those who control and manipulate it.”
“Central banks can print money at will, leading to inflation that disproportionately affects economically vulnerable groups,” she said.
“The centralized nature of paper-based systems also allows for widespread corruption and misuse of funds.”
However, Buller says both bitcoin and fiat currencies have the potential to be used ethically or unethically, depending on the actors behind them.
Related: The complex relationship of ethics in Web3
A good example of this is Bernie Madoff, who masterminded the largest known Ponzi scheme in history, worth an estimated $64.8 billion. He was eventually sentenced to 150 years in prison.
In modern times, former FTX CEO Sam Bankman Fried — who is often compared to Madoff — has been accused of crimes that cost clients more than $8 billion. He was eventually sentenced to 25 years in prison.
“It is important to focus on promoting a culture of appropriate behavior within the financial system,” Buller said.
She added: “This includes enhancing transparency, accountability and responsibility among individuals, institutions and governments.”
Ultimately, she says, the concept of “ethical currency” is about the appropriate behavior of those using the currency rather than the mechanism itself.
Buller believes that Bitcoin, by its decentralized and transparent nature, provides a unique opportunity to advance these values. However, they are not a silver bullet and should be used responsibly to achieve their potential.
“By holding ourselves and our institutions to higher ethical standards, we can create a financial system that truly serves the needs of all people, whether it runs on bitcoin, fiat money, or a combination of both,” she said.
“The future of finance should be guided by the ethical principles of its users, not just the technology on which it is based.”
Guarantees are a crucial factor
Sergey Shelig, chief product officer at Web3 social platform Nicegram, believes calling fiat currencies and Bitcoin “moral clichés” is a waste of time “since there are many arguments on both sides.”
Speaking to Cointelegraph, Schilig said he believes currency ethics depend on the measures and safeguards implemented by platforms and the institutions that run them.
“For example, the decentralized nature of Bitcoin provides transparency and can prevent fraud, but it also presents challenges in terms of regulation and oversight,” he said.
“Fiat currencies, on the other hand, are controlled by central authorities, which can enforce anti-money laundering measures but are also vulnerable to misuse.”
According to Schilg, a “true ethical currency” would need to minimize harm and maximize benefits to society, and this relates to the policies and practices surrounding the currency rather than the currency itself.
Related: Central bank digital currencies: user privacy problem or currency of the future?
“So far, no currency can be considered completely ethical, as they all carry inherent trade-offs,” he said. “We live in a time of abundant opportunities and the tools needed to realize these opportunities. We should not compare who has a higher moral standard, whatever that means, but rather create mechanisms and products that improve the world, using the full power of both digital and paper markets.
The goal should be to “leverage the strengths of both types of currencies” and build a more equitable and efficient financial ecosystem that is flexible, transparent and beneficial to everyone, Schilig says.
