While crypto critics and supporters may argue about Bitcoin, they both agree on one thing: It is here to stay.
Many years ago, I ran hedge funds on Wall Street. With a long pause for philanthropic and government work, I eventually found my way to blockchain, and now, I spend my days writing about decentralized finance versus centralized finance. Some of my old Wall Street friends still run a lot of money in hedge funds, and back in 2018, they would tease me and ask if I was still “doing my crypto thing.” Even today, some of them still think that Bitcoin (BTC) is a Ponzi scheme. One of my dearest friends from my past days in finance recently sent me Nobel Prize winner and economist Paul Krugman’s opinion column on Bitcoin in the New York Times, which further reinforces the argument of the fake world of crypto. So, I took up the challenge to answer Paul’s claims.
It is clear that Krugman doesn’t think highly of cryptocurrencies. It was clear in 2013 with his initial piece in the New York Times, titled “Bitcoin is Evil” (I sure hope he has not been short this entire time).
But actually, I can see where he is coming from, and to be honest, I can think of so many aspects in which cryptocurrencies need to improve. Having said that, repeating the same old tired cliches such as “Bitcoin is only good for illegal activities” or “There is no real use for Bitcoin in real life” does not cut it anymore in 2021. Respectfully, I will say that I was hoping for more from a Nobel laureate in economics.
The progress made
Krugman starts off by comparing Bitcoin’s so-called lack of progress during the past 12 years — since its inception — with other technologies, such as Venmo, the iPad or Zoom that have thrived and become major parts of our lives.
Well, let’s begin by examining Bitcoin’s public exposure. What started out as an ultra-niche software (sorry, Satoshi), grew into a $1 trillion asset class (at its peak) as the graph below shows — faster than any other asset — and has become one of the hottest research topics in leading central and commercial banks, as well as in tech companies all around the world. Not to mention, it has become the topic of multiple United States Senate (and other parliamentary) hearings concerning its regulation and economic impact.
What’s even more interesting is that Krugman completely ignores the fact that this progress has occurred despite multiple governments’ repeated attempts to fight Bitcoin and cryptocurrencies.
In my opinion, the resilience of a government’s sovereignty can be measured in two major factors: its national security and its economy. What could be a better metric of economic resilience than a currency? In the past, Krugman has claimed that “fiat money […] is backed by men with guns,” which may explain why in this article he ignores the fact that most governments perceive cryptocurrencies as a direct threat to their own currency, and as a result, they try to combat them. Some try to ban crypto, while others refrain from establishing a clear regulatory framework. This reason alone could explain why cryptocurrencies still have yet to become part of our everyday life.
Some use cases of blockchain technology
Krugman goes on with the weak argument that he has never heard a clear answer for the simple question: What is cryptocurrency and/or blockchain good for?
First, I am puzzled by this oxymoron because cryptocurrency is a use case of blockchain, and also because Satoshi gave a very clear answer in 2008 to this question: Bitcoin is here to replace central bank fiat money. I am sure Krugman has had the chance to discuss this with the most knowledgeable, intelligent blockchain and crypto experts out there.
I will admit that other use cases for blockchain (other than finance) are not easy to come by, and it could have been that he was not convinced by the potential that perfect transparency and inclusion, provided by blockchain, could have on better supply chain management, financial and aid funds control, fighting corruption through cleaner public procurement platforms, eliminating elite capture, fighting the proliferation of minors’ abusive imagery, and more. Yet, I cannot comprehend how Krugman can overlook cryptocurrencies’ impact on the people living under crumbling economies, such as in Venezuela, or their potential to save billions of dollars in migrants’ remittance fees.
Instead, Krugman suggests that cryptocurrencies may just be the most current Ponzi scheme, spiced with “technobabble” and “libertarian derp,” while adding in the same breath that gold is too. In fact, Krugman sees the two as similar: “Gold, after all, suffers from pretty much the same problems as Bitcoin.” In many circles, Bitcoin is referred to as “digital gold.” Funnily enough, I cannot think of a better supporting argument that crypto believers could have hoped for, other than Krugman’s quote. He later glorifies gold’s “mystique” and “semi-sacred status,” claiming that cryptocurrencies may never get to that. Maybe he is right; however, he does not explain how he reached this interesting conclusion. In essence, this argument is the equivalent of knowing for a fact that chocolate ice cream tastes better than vanilla.
Bitcoin and illegal activities
Last but not least, I want to address Krugman and others’ repeated argument that Bitcoin is closely associated with illegal activities, and whose Pavlovian conditioning to cryptocurrencies summons ransomware, drug trafficking and money laundering.
Yes, Bitcoin and other cryptocurrencies have been, and still are, used by bad actors to finance their illegal activities. But by the way, so are cash, gold and bank accounts. In another piece, I explain how Bitcoin actually is better suited than fiat to help law enforcement prevent illegal financial activities.
Allow me to go out on a limb and say: Most owners or users of cryptocurrencies are not criminals. They are law-abiding citizens, wherever on the globe they may be. It is the lack of clear regulations that exacerbates issues. Not only does the lack of regulation fail to block all the legal loopholes that bad actors exploit, but it also prevents most users from having clear guidance as to what they can and cannot do, thus putting everybody in the same bucket as alleged criminals. In my opinion, regulators must react faster and regulate crypto markets sooner rather than later. Some work hard to reach that goal, but most of them are not doing enough.
While Krugman and I hold differing views on Bitcoin, blockchain and their value to the world, we do agree on one thing: They are here to stay. The more these topics are discussed and shared regardless of different opinions, the more people are exposed to the matter, learn about it and form their independent opinions.
This is how concepts evolve. Actually, the fact that such a highly respected Nobel Prize recipient and economist wrote an opinion column about Bitcoin in one of the world’s most popular newspapers — twice already — proves the impact that cryptocurrencies have on our lives, and may have on our future. For us true believers, the potential impact and good that this technology can create in the future is reason enough to hold.