After the relentless hype about Bitcoin and other cryptocurrencies such as Ethereum, Solana, Dogecoin, and LUNA, we have witnessed their complete meltdown over the last couple of years. The hype was primarily driven by the eye-popping increase in valuations of all major cryptocurrencies. Bitcoin went from around US$ 4,000 to US$ 64,000, a sixteen-fold increase, in twenty months. Other cryptocurrencies had even more ridiculous price increases over the same time—Ethereum rose fifty-fold, Solana 500 times, and LUNA had a 1,000-time increase.
Now, these cryptocurrencies are crashing. Bitcoin has dropped 55%, Ethereum by more than 60%, Solana 85%, and LUNA has gone all the way down to zero.
How does one make sense of these complex and mysterious things whose combined valuations grew to trillions of dollars and are touted as the future of currencies in the digital age? Are they merely highly-speculative Ponzi schemes? Or do they have legitimate use in a world of increasingly widespread digital transactions?
Let us start by examining the justification for cryptocurrencies. In theory, they are supposed to enable electronic payments with no intermediary, i.e., peer-to-peer cash transactions. The problem with transferring money electronically between two parties is how to determine the balances after the transaction. First off, the party sending the money should have the amount required. After the transaction is complete, the amount should also get deducted from the balance of…
