Many years ago I ran hedge funds on Wall Street. After a long hiatus from philanthropic and government work, I finally found my way to blockchain technology and now spend my days writing about decentralized versus centralized finance. Some of my old Wall Street friends still have a lot of money in hedge funds, and in 2018 they teased me and asked me if I was still “doing my crypto stuff.” Even today, some of them still think Bitcoin (BTC) is a Ponzi scheme. One of my best 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 cryptocurrency fake world argument. So I took up the challenge of responding to Paul’s claims.
It’s clear that Krugman doesn’t think much of cryptocurrencies. This was made clear in 2013 with his opening article in the New York Times entitled “Bitcoin is Evil” (he certainly didn’t miss out on it all along).
But actually I can see where it’s coming from, and to be honest, I can think of a lot of areas where cryptocurrencies need improvement. That being said, you repeat the same tired old clichés as “Bitcoin is only good for illegal activities” or “There is no real use for Bitcoin in real life” will no longer work in 2021. I respectfully say that I expected more from a Nobel Prize in Economics.
Krugman begins by comparing Bitcoin’s supposed lack of progress over the past 12 years – since its inception – with other technologies such as Venmo, the iPad or Zoom, which have flourished and become an integral part of our lives.
Let’s start by examining Bitcoin public exposure. What started out as an ultra-high-tech computer program (sorry, Satoshi), grew to 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 among major central and commercial banks, as well as technology companies around the world. Not to mention it has become multiple hearings in the United States Senate (and other parliaments) on its regulation and economic impact.
More interestingly, Krugman completely ignores the fact that this advance has come despite repeated attempts by several governments to combat bitcoin and cryptocurrencies.
In my opinion, the resilience of a government’s sovereignty can be measured by two main factors: its national security and its economy. What could be a better measure of economic resilience than currency? In the past, Krugman has claimed that “fiat money” […] is supported by men with weapons “which could explain why this article ignores the fact that most governments perceive cryptocurrencies as a direct threat to their own currency and are trying to fight it consistently. Some are trying to ban cryptocurrencies while others refrain from creating a clear regulatory framework. This reason alone could explain why cryptocurrencies are still not part of our daily lives.
Some use cases of blockchain technology
Krugman goes on to make the weak argument that he has never heard a straight answer to the simple question: What are cryptocurrencies and / or blockchain used for?
First of all, I am amazed by this oxymoron because cryptocurrency is a blockchain use case and also because Satoshi gave a very clear answer to this question in 2008: Bitcoin is here to replace central banks’ fiat money. I’m sure Krugman had the opportunity to discuss this with the most knowledgeable crypto and blockchain experts.
I admit that it is not easy to find other use cases for blockchain (other than finance) and you may not be convinced of the potential that the perfect transparency and inclusiveness that blockchain offers, in better management of the supply chain, in control of financial and aid funds, in the fight against corruption through cleaner public procurement platforms, in the elimination of captivity by part of the elite, in the fight against the spread of abusive images of minors, and more. However, I cannot understand how Krugman can overlook the impact of cryptocurrencies on people in crumbling economies like Venezuela, or their potential to save billions of dollars in remittance fees from migrants.
Instead, Krugman suggests that cryptocurrencies could simply be the latest Ponzi scheme, spiced with “tech” and “libertarian nonsense,” while adding in the same breath that gold is that too. In fact, Krugman thinks the two are similar: “After all, gold suffers from the same problems as Bitcoin.” In many circles, Bitcoin is referred to as “digital gold”. Interestingly, I can’t think of a better argument that crypto-believers could hope for other than the Krugman quote. He later glorifies the “mystique” of gold and its “semi-holy status” and explains that cryptocurrencies can never get there. Maybe he’s right; However, he does not explain how he came to this interesting conclusion. In essence, this argument is synonymous with the fact that chocolate ice cream tastes better than vanilla ice cream.
Related: Did Bitcoin Prove To Be A Reliable Store Of Value In 2020? Experts react
Bitcoin and Illegal Activities
Finally, I’d like to address the repeated argument by Krugman and others that Bitcoin is closely associated with illegal activity and its Pavlovian conditioning on cryptocurrencies invokes ransomware, drug trafficking, and money laundering.
Yes, Bitcoin and other cryptocurrencies have been and are used by bad actors to fund their illegal activities. But also cash, gold and bank accounts, by the way. In another article, I explain how Bitcoin is really better than fiat money to help law enforcement agencies prevent illegal financial activity.
Let me take the risk and say, most cryptocurrency owners or users are not criminals. They are law abiding citizens wherever they are. The lack of clear regulations exacerbates the problems. Not only does the lack of regulation not block all of the loopholes that malicious actors exploit, but it also prevents most users from having clear instructions on what they can and cannot do, putting everyone in the same cloak as the suspected criminals. In my opinion, regulators should react faster and regulate cryptocurrency markets sooner rather than later. Some work hard to achieve this goal, but most are not doing enough.
Although Krugman and I have different opinions about Bitcoin, Blockchain and their value to the world, we all 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 confronted with the topic, learn about it and form their own opinion.
This is how concepts are created. In reality, the fact that a highly respected economist and Nobel Prize winner wrote an opinion column on Bitcoin in one of the world’s most popular newspapers – twice now – shows the impact cryptocurrencies have on our lives and could have in our future. For us, true believers, the potential impact, and the good that this technology can do in the future, are reason enough to hold on to it.
This article does not provide investment advice or recommendations. All investments and operations involve risk, and readers should do their own research in making a decision.
The views, thoughts, and opinions expressed are those of the author only and do not necessarily reflect the views and opinions of Cointelegraph contrary.