Tuesday, December 29, 2020

Cryptocurrency Is Not Necessarily the Future

Tyler Cowen has a very important column out at Bloomberg on cryptocurrencies.

His conclusion:

Some enthusiasts postulate a world where crypto transactions are not transparent to governments, allowing buyers and sellers to live outside the tax system. Such anonymity is technologically possible, and the current black- and grey-market uses of crypto (for instance, getting funds out of China) are likely to continue.

But if most of your economic life is in the physical world, and if you own wealth within a country, such as real estate and registered equity shares, the idea that you would be able to evade most taxes is a myth. If anything, the trend is for major technology companies to cooperate with tax collection, and at any rate governments can always change from taxing transactions to taxing wealth. Crypto tax evasion is better suited to be a fringe rather than mainstream endeavor.

The recent run-up in crypto values seems to be driven by the possibility that major corporations will start adding them to their balance sheets. If you imagine crypto being treated like gold, and constituting say half of a percent of many balance sheets, that would imply a high price for the major crypto assets. Yet these corporations will want institutionalized, mainstream crypto assets, and they will not mind the notion of more heavily regulated crypto assets and crypto-linked financial institutions.

The more utopian scenarios for crypto, whether proponents realize it or not, rely on the notion that crypto remains simultaneously fringe and mainstream. That will be a hard trick to pull off.

From my perspective, this is the best piece of economic analysis that Tyler has ever done. 

Read the full essay here



  1. The anarchists think it will be a way to evade taxes and regulation. When something goes mainstream, the regulators catch up. Most people don't want to evade the government. They want to comply with the law.

  2. Many people move money around to lower-tax jurisdictions to take advantage of the arbitrage. If crypto makes this easier, then there is some real benefit there.

  3. In 1985 Tyler wrote a great critique of public goods theory. I see that it is still gated (i.e., not a public good):


  4. Not all cryptos are legit and decentralized. If you want a good crypto look at NANO.
    NANO is instant, decentralized, energy efficient, a fixed supply, divisible 30 decimal places, fairly distributed being given away by captcha, no mining, no staking, and all with zero fees. Projects for privacy features are in development, but supposedly it can be made anonymous and private if you want to by simply routing your coins through an exchange.

    Here is a video of people sending Nano around the world for free with no transaction costs :

    And they have a large Reddit community:

  5. It always makes me laugh when I see bitcoin represented as a 1 oz gold coin.