Recently, governments have been all to eager to jump on the cryptocurrency bandwagon. The Central American nation of El Salvador, for example, has made the move to declare Bitcoin to be legal tender in June 2021. Also in the United States, the State of Florida has announced its intention to experiment with Bitcoin as a method of payment in its proposed budget for 2022. But should governments really be this keen on embracing cryptocurrencies?

First of all, making payments using cryptocurrencies undoubtedly has a larger impact on the environment than using traditional fiat currencies. These transactions on the blockchain necessarily need to consume a lot of processing power for them to be secure, while transactions using normal fiat currencies can be performed much more efficiently. This, in result, means that widespread adoption of cryptocurrencies will certainly cause a significant increase in demand for electricity across the globe, which poses environmental challenges. As of right now, it is already hard for renewables to meet the current demand for electricity; thus, encouraging the use of cryptocurrencies will worsen this issue.

Because digital wallets for currencies like Bitcoin, Ethereum and Litecoin are not necessarily connected to a real legal entity in the same way that bank accounts are, they are also often used for illicit activities. Though, the same thing is also true for cash, cryptocurrencies make it much easier for criminals to pay for illegal goods, to collect ransom money, and to conduct a whole host of other illegal activities, as they allow transactions to to occur via the internet across long distances. The issue here is that, by design, there is not really a way to force every crypto-wallet to be associated with some legal entity, as the network behind such currencies is decentralized in nature. While it is possible to make the process of exchanging illegally attained crypto for traditional fiat currencies, like the US Dollar or the Euro, harder, it is important to recognize that more and more businesses are adopting cryptocurrencies as a method of payment. This makes regulatory action targeting cryptocurrency exchange markets increasingly ineffective, as more and more goods can be purchased purely through crypto.

If cryptocurrencies fully replace fiat as what the average consumer uses to conduct transactions, though, governments aren’t only giving up their regulatory grip on electronic money transfers. Because central banks can’t issue cryptocurrencies, the government would be placed under more rigid fiscal constraints than they currently are. Right now, governments of countries like the United States, the United Kingdom, and a select number of other highly developed countries are able to enjoy a very large degree of freedom when it comes to government spending. This is due to the fact that, in theory at least, they can issue an infinite quantity of their own currency (which doesn’t mean that there aren’t any practical constraints, though.) In practice, this freedom is used to respond to economic crises effectively, by spending large amounts of money that governments could neither borrowed nor collected in the form of taxes on such short notice. Should governments be unable to issue the currency used within its own economy, they would need to keep vast reserves of cryptocurrencies, to retain some ability to be able to respond to unforeseen events. The acquisition and maintenance of these currency stockpiles will be at an immense cost to the tax payer, and these will never offer the same degree of safety for the economy than simply allowing the government to issue legal tender. Given that this last point works under the presumption that cryptocurrencies will entirely replace fiat, it is still confusing why any government would voluntarily give up a piece of its most powerful economic tool: the issuing of currency.

At this point, it is worth noting that cryptocurrencies are an interesting concept, no doubt, and they’re likely to become an increasingly important class of assets. That doesn’t change the fact that governments shouldn’t be eager to push cryptocurrencies to be adopted more widely. On a small scale, the drawbacks of cryptocurrencies are fairly limited, but on a large scale, the power inefficiency and anonymity connected with these assets become real challenges. Probably the largest problem for governments will only occur basically at the point where cryptos have replaced fiat as the means through which everybody conducts their everyday business: losing their power to issue currency. This would be detrimental to the government’s ability to respond to crises. In whatever light future historians will see cryptocurrencies, as great innovation or as a weird twenty-first century relic, one thing seems highly likely: they will see the current willingness of governments to champion a currency they themselves cannot regulate, nor issue, as a major blunder.