Sunday, January 28, 2018

A New Directional Attack: The Nouriel Roubini Slam of Bitcoin

In part of a long essay economist Nouriel Roubini writes:
[C]ryptocurrencies in general are based on a false premise. According to its promoters, bitcoin has a steady-state supply of 21 million units, so it cannot be debased like fiat currencies. But that claim is clearly fraudulent, considering that it has already forked off into three branches: bitcoin cash, litecoin, and bitcoin gold. Besides, hundreds of other cryptocurrencies are invented every day, alongside scams known as “initial coin offerings,” which are mostly designed to skirt securities laws. So “stable” cryptos are creating money supply and debasing it at a much faster pace than any major central bank ever has.

As is typical of a financial bubble, investors are buying cryptocurrencies not to use in transactions, but because they expect them to increase in value. Indeed, if someone actually wanted to use bitcoin, they would have a hard time doing so. It is so energy-intensive (and thus environmentally toxic) to produce, and carries such high transaction costs, that even bitcoin conferences do not accept it as a valid form of payment...

Since the invention of money thousands of years ago, there has never been a monetary system with hundreds of different currencies operating alongside one another. The entire point of money is that it allows parties to transact without having to barter. But for money to have value, and to generate economies of scale, only so many currencies can operate at the same time.

In the US, the reason we do not use euros or yen in addition to dollars is obvious: doing so would be pointless, and it would make the economy far less efficient. The idea that hundreds of cryptocurrencies could viably operate together not only contradicts the very concept of money; it is utterly idiotic.


  1. Most of the cryptocurrencies will die, Bitcoin may die. But some of them do a much better job than Bitcoin of hiding the account information in each transaction. With Bitcoin the account number is in the open, with some others everything is encrypted, including the account number, so only parties to the transaction can link them to other transactions for the same account. And other crypto entities aim to solve different problems than acting as money or even a store of value.

    Just because the first pioneers over the seas perish does not mean that the continent will not be settled. And there are lots of problems blockchain can solve. It's a big continent.

  2. Roubini's comments have so many errors it's hard to know where to start. Leaving aside inane swipes like "which are mostly designed to skirt securities laws" (as if securities legislation has any moral or economic justification), the fact that there are forks, and competing crypto-currencies, misses the point. There is currently vigorous competition among crypto-currencies to become THE solution to each particular problem. Eventually one might emerge the winner (e.g., BCH for small payments, ETH for smart contracts, etc.), or none might. If one emerges as a category winner, the fact that its supply is limited will be one of its redeeming features compared with fiat money (and the fact that there were at one time many competitors will be a non-event). There is vigorous competition in many other parts of our economy that Roubini doesn't disparage; one could argue there are too many economists, thereby debasing economic research. Eventually when Austrian economics prevails, all the other economists will fall away and be a non-event ...

    The fact that it is energy-intensive to mine a crypto-currency is a feature, not a bug. It is intended to mimic mining gold, the annual supply of which becomes limited mainly because it consumes real-world resources, and gold miners have to compete for those resources against those pursuing other production activities. This is unlike fiat money, where the cost to produce is almost zero, and hence the ease of debasement.

  3. Mr Roubini didn't mention that the dollar has lost 99% of its purchasing power over the past 100 years.

  4. Does RW predict that in 10 years time none of the digital currencies will have any value whatsoever?

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  6. Roubini is another overpaid establishment economic whore. Why does anyone listen to him? Or the dope Krugman?

  7. Nouriel doesn’t know what inflation is, apparently. Forking is not inflation, since you’re not increasing the supply of the currency, but rather forming another currency. That other currency is not interchangeable with the original - they are entirely different commodities. If you view all crypto currencies as the same currency, then you could argue that it was inflation to fork a currency. But that is not the case. A fork from Bitcoin is not inflation any more than it would be inflation to fiat currencies if I were to pick up some sand and start trying to pay other folks with handfuls of it.

    It never ceases to amaze me what poorly constructed arguments our “public intellectuals” try to float, on a regular basis. These people must either be as incapable of basic logic as they appear to be, or knowingly attempting to mislead.