Lansing's Bitcoin Bet: Why It's Worth The Risk

Lansing, the capital of Michigan, is investing in Bitcoin as the city witnesses a growing presence of the cryptocurrency in the region. Bitcoin ATMs are being set up in the city, and major companies are accepting it as a mode of payment. Bitcoin's value comes from its store of value, payment system, and finite supply. It is a decentralised digital currency that is not regulated by governments and does not require banks. However, Bitcoin is also very volatile and susceptible to market manipulation.

Bitcoin's volatility

Bitcoin is a very volatile asset. Its value can fluctuate by hundreds of dollars in a single day, which can be off-putting for traditional investors. For example, in 2022, its price crashed by over 75% from its all-time high.

Volatility is a measure of how much the price of a financial asset varies over time. In the case of Bitcoin, its volatility is measured by how much its price fluctuates relative to the average price over a given period.

The cryptocurrency industry thrives on speculation. Crypto investors bet on Bitcoin's price going up or down to make a profit. This causes a sudden increase or decrease in Bitcoin's price, which leads to volatility.

Volatility means that an asset is risky to hold. The more volatile an asset, the more people will want to limit their exposure to it. However, volatility can also be "good" as it can lead to positive returns. Bitcoin has historically exhibited high volatility but has also seen disproportionate positive returns.

Overall, while Bitcoin is a volatile asset, its volatility has been declining, and it is less volatile than some other investments.

Bitcoin's efficiency as a payment method

Bitcoin is a decentralized digital currency that is reshaping how we think about payments. There are no banks or boundaries, just pure electronic transactions over the Internet. It is safe, with blockchain technology ensuring security and transparency.

Efficiency as a Payment Method

Bitcoin is efficient as a payment method in several ways. Firstly, it offers global market access, breaking down geographical barriers and allowing businesses to tap into a worldwide customer base. Secondly, it generally has lower transaction fees compared to traditional banking, resulting in potential cost savings for businesses, especially those with a high volume of transactions. Thirdly, Bitcoin transactions are fast and secure due to blockchain technology, providing enhanced security and tamper-proof records for merchants.

Additionally, Bitcoin transactions are relatively simple and similar to using an app for sending or receiving money. Users can acquire Bitcoin on cryptocurrency exchanges or apps and then use a crypto wallet to send and receive payments. The wallet holds the private keys needed to access and transact with the cryptocurrency.

Another advantage is the potential for reduced fees compared to traditional financial services. Cryptocurrency's peer-to-peer nature eliminates the need for third-party involvement, resulting in lower costs for all parties. Furthermore, Bitcoin can be used to make or receive payments anywhere with an Internet connection, providing financial access to those without quick access to banks or loans.

However, it is important to consider the challenges associated with Bitcoin. The regulatory landscape around cryptocurrencies is still evolving, creating uncertainties for businesses. Additionally, Bitcoin's price volatility can be a concern for businesses seeking price stability, as its value can fluctuate significantly over time.

To address the volatility issue, innovations like 0xProcessing's Volatility Risk Control System promptly convert incoming cryptocurrencies into stablecoins, safeguarding businesses from unpredictable swings in crypto value. This enhances Bitcoin's stability and appeal as a payment option.

In conclusion, Bitcoin's efficiency as a payment method lies in its ability to facilitate fast, secure, and low-cost transactions globally. It offers enhanced security, reduced fees, and access to a worldwide customer base. However, businesses adopting Bitcoin should stay updated with the evolving regulatory landscape and manage the challenges posed by price volatility.

Bitcoin's environmental impact

Bitcoins Environmental Impact

Bitcoin, the most renowned and popular cryptocurrency, has a concerning impact on climate, water, and land. The cryptocurrency sector provides valuable opportunities and benefits, but it also has major, overlooked environmental impacts.

Energy Consumption

Bitcoin's electricity consumption is highly correlated with its price. A 400% increase in Bitcoin’s price from 2021 to 2022 triggered a 140% increase in the energy consumption of the worldwide Bitcoin mining network. During the 2020–2021 period, the global Bitcoin mining network consumed 173.42 Terawatt hours of electricity. This means that if Bitcoin were a country, its energy consumption would have ranked 27th in the world, ahead of a country like Pakistan, with a population of over 230 million people.

Carbon Footprint

The resulting carbon footprint was equivalent to that of burning 84 billion pounds of coal or operating 190 natural gas-fired power plants. To offset this footprint, 3.9 billion trees should be planted, covering an area almost equal to the area of the Netherlands, Switzerland, or Denmark or 7% of the Amazon rainforest.

Water Footprint

During the 2020-2021 period, Bitcoin's water footprint was similar to the amount of water required to fill over 660,000 Olympic-sized swimming pools, enough to meet the current domestic water needs of more than 300 million people in rural sub-Saharan Africa.

Land Footprint

The land footprint of worldwide Bitcoin mining activities during the 2020-2021 period was 1.4 times the area of Los Angeles.

Energy Sources

Bitcoin mining heavily relies on fossil energy sources, with coal accounting for 45% of Bitcoin's energy supply mix, followed by natural gas (21%). Hydropower, a renewable energy source with significant water and environmental impacts, is the most important renewable source of energy of the Bitcoin mining network, satisfying 16% of its electricity demand. Nuclear energy has a considerable share of 9% in Bitcoin’s energy supply mix, whereas renewables such as solar and wind only provide 2% and 5% of the total electricity used by Bitcoin.

Country-Level Impacts

China, by a large margin, has been the biggest Bitcoin mining nation. To offset the carbon emissions from China's coal-intensive Bitcoin mining operations in 2021–2022, about 2 billion trees should be planted, covering an area equivalent to the sum of Portugal and Ireland or 45,000 times the area of Central Park in New York City. Aside from China, the world’s top 10 Bitcoin mining nations in 2020–2021 included the United States, Kazakhstan, Russia, Malaysia, Canada, Germany, Iran, Ireland, and Singapore.

Recommendations

The UN scientists make a range of recommendations regarding possible interventions by governments to monitor and mitigate the environmental impacts of cryptocurrencies. They also suggest investing in other types of digital currencies that are more efficient in terms of energy use and less harmful to the environment.

Bitcoin's association with criminal activity

Bitcoins Association with Criminal Activity

Bitcoin has been associated with criminal activity, with hackers and other criminals using it for ransoms and online drug deals. In 2013, the U.S. Department of Justice seized approximately $4 million in bitcoin after shutting down the Silk Road, an online black market for selling drugs. In another instance, the Lansing Board of Water & Light was compromised with ransomware, and hackers demanded a $25,000 ransom in bitcoin to unlock its systems.

However, it's important to note that the majority of bitcoin and cryptocurrency usage is not for criminal activity. In 2019, criminal activity represented 2.1% of all cryptocurrency transaction volume, or roughly $21.4 billion worth of transfers. This decreased significantly in 2020, with the criminal share of all cryptocurrency activity falling to just 0.34%, or $10 billion. These numbers are relatively small compared to the estimated 2-5% of global GDP ($1.6 to $4 trillion) connected with money laundering and illicit activity through traditional methods.

The perception of bitcoin as a tool for criminal activity may stem from its decentralised nature and the anonymity it provides to users. Criminals can exploit the decentralised nature of bitcoin to move large sums of money without going through the formal banking system, potentially reducing the risk of detection by law enforcement or traditional financial institutions. Additionally, bitcoin transactions do not require the identification that traditional banks mandate, allowing users to remain anonymous.

However, it's worth noting that the Know-Your-Customer (KYC) policies implemented by most crypto exchanges and the inherent transparency of blockchain technology can aid law enforcement in tracking and identifying criminal activity. All transactions are logged on a publicly accessible ledger, creating a clear trail of evidence that can be used by prosecutors. Crypto exchanges also actively collaborate with law enforcement agencies, sharing expertise and resources to combat criminal activity. For example, Binance, the world's largest crypto exchange by trading volume, has assisted in numerous critical operations that brought down criminal groups, including a cybercriminal ring responsible for over $500 million in illicit activity.

Bitcoin's value

However, critics argue that Bitcoin's value is inflated by hype and that it is essentially a Ponzi scheme. Bitcoin is highly volatile, and its value can fluctuate by hundreds of dollars in a single day, which can scare traditional investors.

Despite these concerns, Bitcoin's value has grown significantly since its creation in 2009. In 2021, it reached an all-time high of $73,794.

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