Thursday, April 18, 2024

Krugman: Bitcoin is a “pyramid” but it won’t collapse anytime soon


Twelve years after its launch, Bitcoin plays almost no role in normal economic activity, according to your article in NYT Paul Krugman.

According to the Nobel Prize-winning economist, only in cases of illegal activities such as money laundering or the ransom paid by a Colonial Pipeline do we hear that bitcoin is used as a means of payment.

“Twelve years is a century for information technology data,” Krugman said, comparing Bitcoin to the iPad launched in 2010 and the Zoom launched in 2012. “When a technology has grown as big as cryptocurrencies, we expect it to have grown. become part of our day-to-day life or it will have been abandoned as a failure ”, he points out.

He confesses that he has met with numerous proponents of cryptocurrencies and blockchain and has not yet received an answer on what problem this technology solves or what can make other cheaper technologies not.

However, investors continue to pay large sums to buy cryptocurrencies.

Why are people willing to pay so much for something that they do nothing?

The answer, according to Krugman, is that their prices continue to rise, with the result that first-time investors make significant profits and their success attracts new investors.

According to Krugman, the above looks like or is a Ponzi scheme, as essentially any speculative bubble is. But can a Ponzi scheme last that long? According to Krugman, yes, as evidenced by the example of Bernie Madoff who managed to mislead his clients for two whole decades and possibly would have continued longer if the global financial crisis had not occurred.

But a long-term Ponzi scheme also needs a good narrative and, according to him, it is in this area that cryptocurrencies become excellent.

First, crypto advocates are very good at ‘gossip’, using difficult-to-understand terminology to convince themselves and others that they are offering a revolutionary new technology, even though blockchain is quite outdated with information technology data and still it is not. utility.

Second, there is a strong anti-state element, the belief that documentary money, government money issued without any real support like gold, will lose its value.

Does all this mean that cryptocurrencies will soon collapse? Not necessarily, is Krugman’s answer.

As you point out, one fact that makes you not take the collapse of cryptocurrencies for granted is the duration of gold as a high-value asset. Gold has more or less the same problems as bitcoin. Some may treat it like money, but it doesn’t have the characteristics of a useful currency – you can’t really use it to trade.

But the glamor and value of gold stand the test of time, Krugman said. Therefore, it is equally likely that one or two cryptocurrencies will somehow have a similar duration over time.

Governments, on the other hand, are aware that cryptocurrencies are being used for illegal activities and may decide to suppress their use, something they did not do with gold. In addition, the abundance of cryptocurrencies in circulation can prevent some of them from taking on the almost sacred character that gold has for some people.

However, the good news, according to the Nobel Prize-winning economist, is that Bitcoin and other cryptocurrencies do not play any role in the economy. Whatever happens to its value has no impact on anyone who doesn’t play the crypto game.

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Ebenezer Robbins
Ebenezer Robbins
Introvert. Beer guru. Communicator. Travel fanatic. Web advocate. Certified alcohol geek. Tv buff. Subtly charming internet aficionado.

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