Hardly a day passes without news about the expanding reach of cryptocurrency, the digital medium of exchange that operates through a computer network.

Ukraine is receiving cryptocurrency, or crypto, donations as Russia masses troops on its borders.

According to Politico, legislators in Arizona and Wyoming are considering accepting tax payments in Bitcoin and digital currencies.

Earlier this month, San Diego’s Silvergate Capital — a subsidiary of a state-chartered bank — paid $50 million for a Facebook crypto technology unit.

According to The San Diego Union-Tribune, “The bank aims to leverage this technology with its own crypto expertise to launch a … digital currency later this year that could serve up a crypto alternative to Visa and Mastercard with lower transaction fees as well as streamline international remittances.”

Crypto firms are buying ads for the Super Bowl, including a 29-year-old entrepreneur who claims he will give away millions of dollars’ worth of Bitcoin to promote his digital trading platform.


Teens may soon get in on the action. Stack, a Seattle startup, “is building a crypto platform for teenagers and others disenfranchised by the financial system,” according to GeekWire.

And this week the Justice Department arrested two people charged with stealing $3.5 billion in Bitcoin in a 2016 hack. “Today’s arrests, and the Department’s largest financial seizure ever, show that cryptocurrency is not a safe haven for criminals,” Deputy Attorney General Lisa Monaco said.

Crypto isn’t a safe haven for investors, either (Warren Buffett famously called it “rat poison squared”). Bitcoin has fallen 20% since the first of the year and double that during the past three months. Digital currencies are notoriously volatile.

All of which demands a primer for those of us behind on this emerging technology — and raises some uncomfortable questions. Someday, crypto may be as benign as wiring money between banks. Or it may set us up for a catastrophic financial collapse.

Cryptocurrency is defined as a digital form of exchange. A digital ledger (usually using decentralized blockchain technology) keeps track of it, acting as a public database. Decentralization is a key feature, although some digital currency is centralized, with no central bank in charge. Bitcoin, introduced in 2009, was first. Now hundreds of cryptocurrencies are available around the world.


Bitcoin and other cryptocurrencies take a tremendous amount of energy to create, as my colleague Paul Roberts wrote about in 2018. One hot spot was the cheap electricity of the Wenatchee area.

“The commercial miners now pouring into the valley are building sites with tens of thousands of servers and electrical loads of as much as 30 megawatts, or enough to power a neighborhood of 13,000 homes,” he wrote.

As crypto has boomed and busted, one is reminded of the 1980s adage that cocaine is a sign that you have too much money to spend. But the phenomenon has entered a new phase.

Cryptocurrency markets now include nonfungible tokens, or NFTs. They can store more than cash but also artwork, with the proof of ownership stored on a blockchain.

Writing in the Atlantic, Ian Bogost said, “NFTs represent a first step in the securitization of digital assets. They turn digital data into speculative financial instruments. That shift has enormous implications because computers are in everything, and that makes anything a digital asset — your bank records, your Fitbit data, rings of your smart doorbell, a sentiment analysis of your work email, you name it.

“First the internet made it easy for people to conduct their lives online. Then it made it possible to monetize the attention generated by that online life. Now the digital exhaust of all that life online is poised to become an asset class for speculative investment, like stocks and commodities and mortgages.”


Call it part of the securitized internet. It might prove to be a fad, but maybe not. Some say it’s part of the next phase of the internet, or Web 3.0.

The computer scientist Gavin Wood coined the term in a seminal 2014 essay.

He wrote, “On Web 2, we’ll increasingly see sites whose back ends utilize Web 3.0-like components such as Bitcoin, BitTorrent and Namecoin. This trend will continue, and the truly Web 3.0 platform Ethereum will likely be used by sites that wish to provide transactional evidence of their content, such as voting sites and exchanges.”

What could go wrong?

Web 3.0 has plenty of vociferous critics, who liken it to a Ponzi scheme, the tulip speculative bubble of the 17th century, or even “the hyperfinancialization of all human existence,” as Stephen Diehl wrote on his blog. “Is that the world we want to live in?”

The Federal Trade Commission has warned consumers about cryptocurrency scams. The Federal Reserve is beginning to pay more attention to crypto, too, as far as it concerns the central bank. Among the Fed’s concerns: “How might a U.S. (central bank digital currency) affect the Federal Reserve’s ability to effectively implement monetary policy in the pursuit of its maximum-employment and price-stability goals?”

And that doesn’t include the vaster decentralized crypto markets, far from maturity, over which regulators have no control.


There’s the rub.

Those markets are designed to avoid regulation. In the Panic of 2008 with the collapse of subprime loans, the economy came close to a second Great Depression. It took down Washington Mutual, Seattle’s last major banking institution. This was a bubble that sneaked up on regulators who should have known better and was marked by contagion throughout the financial system.

Preventing the worst fell on the Fed as lender of last resort and extraordinary monetary measures to prevent a severe economic contraction from becoming a depression.

What happens when this happens to the cryptocurrency market? It’s not a matter of if, but when. And regulators are playing catch-up.