Cryptocurrencies and the underlying blockchain technology have received a lot of mainstream attention in recent years, and with that, have come a lot of different narratives about their use and value. These stories range from the utopian vision of a decentralized financial system free of government and bank control to the dystopian nightmare of anonymous hackers stealing people’s life savings with a few lines of code.
In this article, we will look at some of the historical narratives that have developed around cryptocurrencies, as well as the technical details of how these narratives have been shaped by the unique features of blockchain technology.
Bitcoin (cryptocurrency) is dark
One early narrative surrounding cryptocurrencies was the idea that they could be used as a means of subverting government control and censorship. This narrative was fueled in part by the early use of cryptocurrencies like Bitcoin on the dark web, where they were used to facilitate the purchase of illegal goods and services. This narrative persisted for several years and has been fueled in part by high-profile hacks and scams, as well as the association of cryptocurrencies with the dark web.
In the media, cryptocurrency is frequently portrayed as a tool of the criminal underworld. The anonymity and decentralized nature of cryptocurrencies made them appealing for illegal activities because they allowed transactions to be conducted without leaving a traceable trail. Bitcoin, in particular, was appealing for this purpose due to its decentralized nature, which made tracing transactions difficult for law enforcement. The use of Bitcoin on the dark web was facilitated by the use of “mixers,” which were designed to obscure the source and destination of transactions.
In the wake of the 2008 financial crisis, there was disillusionment with traditional financial institutions, and cryptocurrencies were viewed as a way to regain control of one’s own financial affairs. This narrative was particularly appealing in countries with oppressive regimes, where cryptocurrencies could be used to bypass capital controls and other forms of government surveillance.
As cryptocurrencies became more mainstream and began to be used for legitimate purposes, a new narrative emerged. This narrative portrayed cryptocurrencies as a revolutionary technology that had the potential to disrupt traditional financial systems and challenge the dominance of central banks, and fundamentally change the way we interact with each other and the world around us.
Proponents of this narrative argued that cryptocurrencies could enable peer-to-peer transactions without the need for intermediaries such as banks and credit card companies, and could provide a more secure and transparent way of conducting financial transactions.
The decentralized nature of cryptocurrencies made them resistant to censorship and fraud, as there was no central authority that could manipulate or interfere with transactions. The use of cryptographic techniques, such as digital signatures and hash functions, also provided a high level of security for transactions.
Another key feature of cryptocurrencies that contributed to this narrative was their use of distributed ledger technology (DLT). DLT refers to the decentralized database that is used to record and verify transactions on a blockchain network.
In the case of Bitcoin and other proof-of-work (PoW) cryptocurrencies, the distributed ledger is maintained through a process called mining, in which network participants compete to solve complex mathematical puzzles in order to validate transactions and add them to the blockchain. This process, which requires a significant amount of computational power, serves to ensure the integrity and security of the distributed ledger.
Cryptocurrency as a new asset class
As cryptocurrencies gained in popularity and market capitalization, a third narrative emerged. This narrative focused on the investment potential of cryptocurrencies and portrayed them as a new asset class that could provide significant returns for investors. The idea was that they are a speculative bubble.
This narrative was fueled in part by the spectacular price increases of cryptocurrencies like Bitcoin in 2017, which attracted the attention of mainstream investors and media. The use of initial coin offerings (ICOs) as a means of fundraising also contributed to this narrative, as it provided a new way for startups to raise capital and attracted the attention of investors looking for the next big thing.
One narrative that has gained traction in recent years is that of cryptocurrencies as a tool for financial inclusion. This narrative highlights the potential of cryptocurrencies to provide access to financial services for individuals and communities that may be underserved or excluded by traditional financial institutions. For example, cryptocurrencies can enable individuals in developing countries to participate in the global economy and access financial services, even if they do not have access to traditional banking infrastructure.
It is important to recognize that these narratives are not mutually exclusive and those cryptocurrencies can have multiple use cases and implications. For example, a cryptocurrency like Bitcoin could be used as a tool for financial inclusion in developing countries, while also serving as a speculative investment for mainstream investors. The complexity of the narratives around cryptocurrencies reflects the complexity of the technology itself and the many ways in which it can be used and applied.
Cryptocurrency and the environment
Another narrative that has emerged is that of cryptocurrencies as a way to reduce the environmental impact of traditional financial systems. Cryptocurrencies can be more energy-efficient than traditional financial systems, which often rely on energy-intensive processes such as mining and proof-of-work.
One way in which cryptocurrencies can be more energy-efficient is through the use of proof-of-stake (PoS) consensus algorithms. Unlike PoW algorithms, which require miners to solve complex mathematical puzzles in order to validate transactions, PoS algorithms rely on validators to stake their own cryptocurrency as collateral in order to validate transactions. This process consumes significantly less energy than PoW mining and can make it more cost-effective and energy-efficient to maintain a blockchain network.
In addition to PoS algorithms, there are also other technologies and approaches that can help to reduce the energy consumption of cryptocurrencies. For example, the use of off-chain transactions, which take place outside of the main blockchain, can reduce the number of transactions that need to be recorded on-chain, thereby reducing the energy consumption of the network. The use of sharding, which divides the blockchain into smaller pieces called “shards,” can also increase the scalability and energy efficiency of the network.
By reducing the energy consumption of financial transactions, cryptocurrencies could reduce their carbon footprint and contribute to a more sustainable future.
Conclusion
Overall, the narratives surrounding cryptocurrencies have evolved over time and have been shaped by a variety of factors, including the socio-political context, the actions of key players in the industry, and the media attention they receive.
From their early association with illegal activities to their current status as a legitimate asset class, the narrative around cryptocurrencies has been shaped by a variety of factors, including their use cases, their potential to disrupt traditional financial systems, and their investment potential. As technology continues to evolve and mature, it is likely that new narratives will emerge, further adding to the complexity and diversity of the narrative around cryptocurrencies.
Understanding these narratives is important in order to gain a nuanced understanding of the role that cryptocurrencies play in society and their potential impacts on the future.
