For a man who, 20 years ago, claimed, that the internet would impact the economy no more than the fax machine, you’d think that Paul Krugman would know when to say nothing. But the economist and Nobel laureate took aim at cryptocurrency in a New York Times column earlier this year, as reported by Bitcoinist. This weekend, contributing to VentureBeat, Tomer Federman laid out 5 ways Krugman, who says he “doesn’t claim any special expertise in technology,” missed the point.
Bitcoin ≠ Crypto
While it is incorrect to claim Krugman uses the terms “almost interchangeably,” he does seem to misunderstand that there are differences. Bitcoin 00 does not represent the whole of the crypto space, and cryptocurrencies fulfill a wide spectrum of needs.
The 1500 plus cryptocurrencies on the market use different technologies and have different business models. They also address different issues with both fiat money and with other cryptocurrencies that have come before them.
Fiat Has Issues
Transaction costs of crypto are high claims Krugman, although he probably means pre-Lightning Network Bitcoin. But fiat transaction costs are also high, as anyone who has made an international money transfer is aware. Even ‘free’ local transactions are actually not free, as the banks recover costs through other means.
Not all fiat currencies are as stable as the dollar, as the governments which control them are not always stable. And banks — even those in western democracies — prove time and time again that we cannot trust them.
Bitcoin had an insufficiently anticipated surge in price and interest, exposing issues with its scalability. There is no need to revisit that debacle here, as the implementation of solutions is still ongoing.
But referring to the first point… not all cryptocurrencies are Bitcoin, nor do they work the same way. Many cryptocurrencies are far more energy efficient, using algorithms which are streamlined to their particular needs and goals.
Krugman seems to view the reliance on blockchain and advanced cryptography as a negative thing, likening it to “biting a gold coin to be sure it’s the real deal.”
But decentralized systems mean that we don’t have to, as our trust is no longer in a single entity. In many parts of the world, not needing to trust a potentially irresponsible government could be a distinct positive.
A Bitcoin is Not Just for Criminals
Blockchain technologies are the future according to many central banks, blue-chip financial institutions, and forward-thinking figures. We have the power to transform everything.
And yes, that includes crime. But crime wasn’t exactly struggling before the advent of cryptocurrency — and recording your activities in an immutable ledger doesn’t exactly seem like the work of a criminal mastermind.
A Final Word to Krugman
In his column, Krugman delimits crypto and gold by claiming that gold can be used “for jewelry and for things like filling teeth.” He has since realized that as a “real-world” use, this is a bit weak.
Last month Krugman stated that Bitcoin has more utility than “dead” gold, and even “has some chance to be valuable.” So has he changed his opinion on the other points?
Krugman’s column ends by asking, “What problem does cryptocurrency solve?”
Our reply ought to be, “Which cryptocurrency?”
What are your thoughts on Paul Krugman’s New York Times’ column? Don’t hesitate to let us know in the comments below!
Images courtesy of Bitcoinist archives, Shutterstock.