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, and now I spend my days writing about decentralized finance 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 if I was still “doing my crypto thing.” Even today, some of them still think Bitcoin (BTC) is a Ponzi scheme. One of my best friends from my last 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 about the fake world of cryptos. So I took up the challenge of answering Paul’s claims.
It’s clear that Krugman doesn’t think much of cryptocurrencies. That was made clear in 2013 with his first article in the New York Times titled “Bitcoin is Evil” (I hope it wasn’t tight all along).
But actually I can see where it’s coming from, and to be honest, I can think of so many aspects where cryptocurrencies need improvement. Nevertheless, in 2021 it will no longer be enough to repeat the same old, tired clichés like “Bitcoin is only good for illegal activities” or “There is no real use for Bitcoin in real life” is something that a Nobel laureate in economics hopes to achieve.
The progress made
Krugman begins by comparing Bitcoin’s so-called 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 important parts of our lives.
Well, let’s start by examining Bitcoin public exposure. What started out as ultra-niche software (sorry, Satoshi) grew to a $ 1 trillion asset class (at its peak) – faster than any other asset – as the chart below shows – and has become one of the hottest Research topics in leading companies developed in central and commercial banks, as well as in technology companies around the world. Not to mention, it has become the subject of several US Senate (and other parliamentary) hearings 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 important 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 guns, ”which could explain why in this article he ignores the fact that most governments perceive cryptocurrencies as a direct threat to their own currency and are trying to combat it. Some are trying to ban crypto while others refrain from creating a clear regulatory framework. This reason alone could explain why cryptocurrencies have not yet become part of our everyday lives.
Connected: Authorities are trying to close the gap in non-hosted wallets
Some use cases of blockchain technology
Krugman goes on to make the feeble argument that he has never heard a straight answer to the simple question: What are cryptocurrency and / or blockchain good for?
Firstly, this oxymoron confuses me 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 bank fiat money. I’m sure Krugman had the opportunity to discuss this with the most knowledgeable, smartest blockchain and crypto experts.
I admit that other use cases for blockchain (other than finance) are not easy to find, and it may be that he was not convinced of the potential that perfect transparency and inclusion through blockchain could have for better supply chain management, control of Financial and Relief Funds, Fighting Corruption through Cleaner Public Procurement Platforms, Eliminating Captivity by Elites, Combating the Spread of Abusive Images of Minors, and more. However, I can’t understand how Krugman can overlook the impact of cryptocurrencies on the people living in crumbling economies like Venezuela, or their potential to save billions of dollars in remittance fees from migrants.
Instead, Krugman suggests that cryptocurrencies are possibly just the latest Ponzi scheme, spiced with “technobabble” and “libertarian derp”, while adding in the same breath that gold is too. In fact, Krugman sees the two in a similar way: “After all, gold suffers from the same problems as Bitcoin.” In many circles, Bitcoin is referred to as “digital gold”. Funnily enough, I can’t think of a better argument that crypto-believers could hope for other than Krugman’s quote. He later glorified the “mystique” and “semi-holy status” of gold, claiming that cryptocurrencies may never achieve this. 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.
Connected: Has Bitcoin Proven to be a Reliable Store of Value in 2020? Experts answer
Bitcoin and Illegal Activities
Finally, I’d like to address the repeated argument by Krugman and others that Bitcoin is closely linked to 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 actually better than fiat for helping law enforcement agencies prevent illegal financial activity.
Allow me to jump in and say, most cryptocurrency owners or users are not criminals. They are law abiding citizens no matter where in the world they are. It is the lack of clear regulations that make the problems worse. The lack of regulation not only does not close all 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 box as suspected criminals. In my opinion, regulators need to react faster and regulate the crypto markets sooner rather than later. Some work hard to achieve this goal, but most are not doing enough.
While Krugman and I have different views on 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 independently of different opinions, the more people are confronted with the matter, learn about it and form their own opinion.
This is how concepts are created. In fact, the fact that such a highly respected Nobel Prize winner and economist wrote an opinion column on Bitcoin in one of the world’s most popular newspapers proves – twice already – the impact that cryptocurrencies can have on our lives and our future. For us true believers, the potential impact and good that this technology can do in the future is reason enough to hold on to it.
This article does not provide investment advice or recommendations. Every step of investing and trading involves risk, and readers should do their own research when making a decision.
The views, thoughts, and opinions expressed herein are those of the author alone and do not necessarily reflect the views and opinions of Cointelegraph.
Netta Korin is a co-founder of Orbs and the Hexa Foundation. Prior to Orbs, Netta served as Senior Advisor to General Mordechai Hod on Special Projects in the Israel Defense Ministry and Senior Advisor to Deputy Minister for Diplomacy Michael Oren in the Prime Minister’s Office. Netta began her career on Wall Street as an investment banker and later became a hedge fund manager. She has extensive philanthropy experience and has served on multiple boards in Israel and America for over 15 years, and has held high-level positions on executive committees.