"I've called Bitcoin "an integer with a story", and the story part is what differentiates it from purely speculative bubbles like Beanie Babies. But I think that dynamic is more complicated and subtle than Krugman gives it credit for. There are layers!"
"The bedrock of cryptocurrency belief is the group of people who find it compelling for either a) ideological reasons or b) because they are enchanted with the technology. Those true believers exist and they will talk your ear off."
"The layer around that is kind of the "meme layer"—people who are not directly beguiled by Merkle trees or anarchoderptarianism, but recognize that cryptocurrency is a form of sticking it to the Man, and find it a source of countercultural enjoyment and sometimes giant windfalls."
"Then there is a simply vast number of people who treat Bitcoin as a lottery ticket that can't lose. Their numbers grow as the bubble inflates. And then there's a final layer of savvy financial market types who are like wolves in a henhouse, going to town on easy winnings"
"The important thing about this layered model is that you don't have to be a true believer in *bitcoin* to throw all your money into it. All you have to believe is that people in the next layer down will continue to hold fast to *their* beliefs. That's much easier to believe!"
etc. And then:
"The one area where crypto has been genuinely disruptive and innovative is in the field of ransomware. There's an entire industry around it now that could not exist without an underregulated way of moving large sums of money. That's the niche crypto fills"
When I first heard about Bitcoin, it was being presented as a way to retain the anonymity of payments as the Bush administration kept making noises about making all transactions trackable. That is, Bitcoin was a libertarian approach to keeping big brother out of one's purchases. This seemed a reasonable thing, as we had had a fight against the Clipper chip in the 1990s, and increasing NSA and law enforcement attempts to capture all the data exhaust of life. Even now, face recognition is being reconsidered, although if you have given a sample of spit for DNA analysis it is too late to get it back.
However, at the time, the issue of scaling the blockchain was not considered, not the deflationary effect of limiting the maximum number of coins which would mimic gold but with even tighter constraints. Bitcoin's trustless blockchain is so large that making transactions is very slow unless they are bundled in some way. But the real problem is the cost of mining and the incentive to continue to do so. I shudder at the thought that the entire planetary energy supply could be used to mine that last coin.
I don't know who Krugman talks to, but I find it hard to believe he has yet to find anyone who can give him a good explanation of the value of Bitcoin - or at least the underlying blockchain.
However, I do agree with him that Bitcoin has become mainly used for criminal activity (e.g. the Colonial Pipeline ransom was paid in Bitcoin), that early Bitcoin purchasers are effectively going to make a killing if they sell at the right time to the detriment of everyone else (tulips), and unless Bitcoin becomes a readily useful form of anonymous money, the Bitcoin exchanges needed to convert Bitcoin back into fiat currency will be even run by criminals (if they aren't already).
As anyone can and does create their own cryptocurrency, isn't this like private banks/companies printing their own notes/script that can only be used where it is accepted? I don't see much value in that.
Bad link: https://braddelong.substack.com/interview-inflation-concerns-in-the-0b5 has a > appended
Maciej Cegłowski is excellent on Bitcoin:
"I've called Bitcoin "an integer with a story", and the story part is what differentiates it from purely speculative bubbles like Beanie Babies. But I think that dynamic is more complicated and subtle than Krugman gives it credit for. There are layers!"
"The bedrock of cryptocurrency belief is the group of people who find it compelling for either a) ideological reasons or b) because they are enchanted with the technology. Those true believers exist and they will talk your ear off."
"The layer around that is kind of the "meme layer"—people who are not directly beguiled by Merkle trees or anarchoderptarianism, but recognize that cryptocurrency is a form of sticking it to the Man, and find it a source of countercultural enjoyment and sometimes giant windfalls."
"Then there is a simply vast number of people who treat Bitcoin as a lottery ticket that can't lose. Their numbers grow as the bubble inflates. And then there's a final layer of savvy financial market types who are like wolves in a henhouse, going to town on easy winnings"
"The important thing about this layered model is that you don't have to be a true believer in *bitcoin* to throw all your money into it. All you have to believe is that people in the next layer down will continue to hold fast to *their* beliefs. That's much easier to believe!"
etc. And then:
"The one area where crypto has been genuinely disruptive and innovative is in the field of ransomware. There's an entire industry around it now that could not exist without an underregulated way of moving large sums of money. That's the niche crypto fills"
Re: Krugman and Bitcoin.
When I first heard about Bitcoin, it was being presented as a way to retain the anonymity of payments as the Bush administration kept making noises about making all transactions trackable. That is, Bitcoin was a libertarian approach to keeping big brother out of one's purchases. This seemed a reasonable thing, as we had had a fight against the Clipper chip in the 1990s, and increasing NSA and law enforcement attempts to capture all the data exhaust of life. Even now, face recognition is being reconsidered, although if you have given a sample of spit for DNA analysis it is too late to get it back.
However, at the time, the issue of scaling the blockchain was not considered, not the deflationary effect of limiting the maximum number of coins which would mimic gold but with even tighter constraints. Bitcoin's trustless blockchain is so large that making transactions is very slow unless they are bundled in some way. But the real problem is the cost of mining and the incentive to continue to do so. I shudder at the thought that the entire planetary energy supply could be used to mine that last coin.
I don't know who Krugman talks to, but I find it hard to believe he has yet to find anyone who can give him a good explanation of the value of Bitcoin - or at least the underlying blockchain.
However, I do agree with him that Bitcoin has become mainly used for criminal activity (e.g. the Colonial Pipeline ransom was paid in Bitcoin), that early Bitcoin purchasers are effectively going to make a killing if they sell at the right time to the detriment of everyone else (tulips), and unless Bitcoin becomes a readily useful form of anonymous money, the Bitcoin exchanges needed to convert Bitcoin back into fiat currency will be even run by criminals (if they aren't already).
As anyone can and does create their own cryptocurrency, isn't this like private banks/companies printing their own notes/script that can only be used where it is accepted? I don't see much value in that.