9 ms·

Bubble, Bubble, Fraud and Trouble

56 points by Edmond 9y ago

mortenjorck 9y ago
> Bitcoin, by contrast, has no intrinsic value at all. This comes right after a paragraph describing how the US dollar has no intrinsic value other than the fact that it is the required currency for paying US taxes and that the Federal Reserve stabilizes it through the money supply (Modern Monetary Theory would argue these two points are effectively the same, but I digress). Does this mean fiat currencies have intrinsic value? If so, how is this value more 'intrinsic' than the value a network gives a cryptocurrency? Bitcoin's overextended and struggling network certainly makes it overvalued compared to the well-oiled machine that is the USD. But that's hardly a reason to write off cryptocurrencies in general.
- hcknwscommenter 9y ago
  Do not elide over the word 'required.' It is not a meaningless word. In my opinion it makes all the difference. In comparison, the 'intrinsic value' of the network is not intrinsic at all. Miners and hodlers and users are free to use any other cryptocurrency, or none.
- wz1000 9y ago
  > Does this mean fiat currencies have intrinsic value? If so, how is this value more 'intrinsic' than the value a network gives a cryptocurrency? Because you are required to pay taxes. > although Modern Monetary Theory would argue the two are effectively the same Actually, if I understand correctly, MMT would argue that a central bank has very little control over money supply(other than in the rare case of acting as a "lender of last resort"). Instead, money is created through the act of deficit spending. http://bilbo.economicoutlook.net/blog/?p=1623 http://bilbo.economicoutlook.net/blog/?p=1623 A helpful illustriation by MMT'er Warren Mosler > The question is, “How do you turn litter into money?” > So, I take my business cards out here, and these are twenty dollars a piece, if anybody wants to buy any. No? Any takers? No? Okay. > All right, well if anybody wants to stay after and help clean up the carpet and tidy up the room, I’m going to pay one per hour. Or five per hour, or whatever, one per hour. Anybody want to stay and help? Okay, not a lot of takers. > Then I add one more thing: Look, there’s only one way out of here and there’s a man at the door with a nine millimeter machine gun. Okay? And you can’t get out of here without five of my cards. > Now things have changed. I’ve now turned litter into money. Now, you will buy these, you will work for these things if you want to get out. The man at the door is the tax man and that’s the function of taxes.
  - nordsieck 9y ago
    > money is created through the act of deficit spending A slight quibble: All federal government spending is money creation. All federal government taxation or fees is money destruction. If you ignore debt (not a very MMT thing to do), you could say that net money creation is deficit spending.
  - jrcii 9y ago
    > a central bank has very little control over money supply(other than in the rare case of acting as a "lender of last resort") https://en.wikipedia.org/wiki/Fractional-reserve_banking https://en.wikipedia.org/wiki/Fractional-reserve_banking
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- gooseus 9y ago
  Well, your quote seems to be writing off Bitcoin, not cryptocurrencies in general... but I don't understand this logic that keeps being put out. The most powerful government in the world with long established laws and multiple powerful institutions guarantees USD as "legal tender for all debts, public charges, taxes, and dues."[0] and has been stable for decades, if not centuries. The concept of cryptocurrencies didn't exist 10 years ago and bitcoin hasn't been stable for more than a few years, probably only months and is guaranteed by a computer network controlled primarily by machines running in China[1]. If a solar flare brings down the internet, all cryptocurrencies are immediately worthless, and that's assuming they'll ever be widely accepted for goods and services. So long as the US government is functional USD will be accepted for all goods in services. That is the difference in "intrinsic value", as far as I see it. [0] https://www.law.cornell.edu/uscode/text/31/5103 https://www.law.cornell.edu/uscode/text/31/5103 [1] https://blockchain.info/pools https://blockchain.info/pools
  - cableshaft 9y ago
    If a solar flare brings down the internet (presumably you mean via EMP), the amount of USD wealth that would be lost would be equally if not more catastrophic, because most of it is not kept in physical bills, but in 1's and 0's on computer systems as well. "In fact, economists estimate that only 8 percent of the world's currency exists as physical cash. The rest exists only on a computer hard drive, in electronic bank accounts around the world." https://money.howstuffworks.com/currency6.htm https://money.howstuffworks.com/currency6.htm Edit: Looks like the percentage is a bit higher if you're talking just USD. "All told, anyone looking for all of the U.S. dollars in the world in July 2013 could expect to find approximately $10.5 trillion in existence, using the M2 money supply definition. If you just want to count actual notes and coins, there are about U.S. $1.2 trillion floating around the globe." https://money.howstuffworks.com/how-much-money-is-in-the-world.htm https://money.howstuffworks.com/how-much-money-is-in-the-wor...
    - gooseus 9y ago
      I'm not actually talking about an EMP, I believe it's more of a CME[0]. Coronal mass ejections would have more of an impact on the long lines, so pretty much the core power and networking infrastructure. But yes, this would affect the ability to take out cash from ATMs and banks wouldn't be able to check your account balance, though most have local generators or they would pretty quick, so local credit unions might still be operational. However, anyone with cash on hand would be able to utilize it to make purchases and the local/state/federal government would fly into emergency mode to protect the ability for hard currency to be used. They would also make sure that financial institutions are the first ones back online in order to get the economy flowing again and the Fed would make sure that a dollar was worth the same after the lights came back on as it was before. Laws exist which ensure that manipulation of the currency and even opportunistic price gouging would be punished afterwards. Not so for bitcoin or any other cryptocurrency... no government guarantees it and if the network went down unevenly who knows what sort of manipulations would be attempted on those networks that now had players with over 51%... Since Chinese mining companies control well over 60% of the network, would the remaining miners be able to handle the load? Especially since many miners would just keep rolling in isolation and immediately start publishing simultaneous blocks when they reconnected with each other... If intercontinental infrastructure weren't repaired for many months, would Europe, US and Asia all end up with their own branches of the blockchain? Has the bitcoin community even run a model of what to do in a similar disaster situation? I know that after 9/11 every bank has super rigorous disaster recovery plans and backup mechanisms, so they for sure have hardened backups and power generators at core locations. I mean, this is ridiculous, bitcoin can't even be used to buy something and isn't accepted anywhere useful and probably never will. So if this scenario happened, the first thing that would happen is the price would collapse as everyone waited on Coinbase's doorstep to sell their coins to get cash so they can actually buy something useful. [0] https://sciencing.com/effects-solar-flares-technology-20402.html https://sciencing.com/effects-solar-flares-technology-20402....
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- jdoliner 9y ago
  > US dollar has no intrinsic value other than the fact that it is the required currency for paying US taxes That's extrinsic value. A pretty simple test you can apply to figure this out: would the value still exist if you were all alone on a desert island? Food has intrinsic value, you'd still value food in this case because you still need to eat. Dollars do not, they're no good without another entity to give them to. Same for bitcoin. Mostly the same for gold although there are some uses of gold as a metal. So bitcoin is a bubble, in that it has no intrinsic value, and the same is true of dollars. The important question is which of these bubbles is going to burst first.
XR0CSWV3h3kZWg 9y ago
This article can be summed up as "Bitcoin is analogous to Tulip Mania". How many years does bitcoin have to be around and used for that analogy to stop being the dominant?
Ftuuky 9y ago
"It’s a nifty trick. But what is it good for?" The last time Krugman said this it was about the internet. “The Internet’s impact on the economy has been no greater than the fax machine’s….ten years from now, the phrase “information economy” will sound silly. (1997)”
- otoburb 9y ago
  To be fair, this isn't the first time this quote been dredged up from the past to be used against him as it pertains to Bitcoin.[1] So while it's fun to pile onto Krugman once in a while, since cryptocurrencies are more closely related to monetary and economic concepts, he clearly feels more confident about this particular assertion. Whether he's right remains to be seen. [1] http://www.businessinsider.com/paul-krugman-responds-to-internet-quote-2013-12 http://www.businessinsider.com/paul-krugman-responds-to-inte...
- JKCalhoun 9y ago
  "Information economy" does sound silly. Is Apple part of the "information economy"? Is Google? Is Tesla? I'm asking, I'm not suggesting one way or another. To answer my own questions though Apple would seem to be in the smart phone business (and of course the internet is the reason we have smart phones). And Google would seem to be in the advertising business (among others). Their ads do play on the internet though. So, I don't know — information economy? Internet economy? Internet-related economy?
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- justinzollars 9y ago
  wow. He can't see the future. After working with blockchain smart contracts for 6 months I'm certain he's wrong. Even if it crash's this year cool things will come.
sxates 9y ago
Wouldn't be an article about Bitcoins without "bubble" and "tulip." It's really getting old - you'd think 7 years in there'd be something new to write about.
- acdha 9y ago
  You’d think that 9 years in there’d be plenty of examples of it solving problems for normal people, too. The bubble talk will go away as soon as that changes.
pastyb0t 9y ago
Garbage opinion piece regurgitating fears already known. I mean jesus, he even says that it's about as useless as a $100 bill. Sounds like this guy is just butthurt that he missed the last jump in price. There were other historical spikes. This isn't the first it won't be the last.
eggbrain 9y ago
We've heard about Bitcoin being a bubble and having no intrinsic value the entire duration of its existence -- so much so that Paul making these his main arguments feel like traveling back to ~2013 when it was "bubbling" then. If people use Bitcoin and believe it has value, it _gives_ it value and credibility, in the same way that diamonds have value, even though they are no longer "rare". When people stop using Bitcoin, or stop believing it has value or is worthy of value, any "bubble" state it has will burst. My main question when reading this article was: when a major technological change or shift happened in the past few decades, did people realize at the time the potential, or did they make articles like this saying that the technology was a bubble? All it makes me think of is this famous Newsweek article: http://www.newsweek.com/clifford-stoll-why-web-wont-be-nirvana-185306 http://www.newsweek.com/clifford-stoll-why-web-wont-be-nirva... I'm not saying that Cryptocurrencies will be the next internet (maybe it will be the next big .com crash), but entrepreneurs who become rich will be the ones that at least took the risk to believe (for better or worse).
- JKCalhoun 9y ago
  > If people use Bitcoin and believe it has value, it _gives_ it value and credibility Unless what is driving up the price is speculation. I mean, do most of these new-to-bitcoin users actually "use" Bitcoin? Purchase with it? Or are they holding, waiting to dump?
  - charlesdm 9y ago
    The same can be said about diamonds and art, however. The only difference here is that it's a digital vs a physical asset.
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    - JKCalhoun 9y ago
      You're right, but I don't think we've seen either of those skyrocket like Bitcoin. If one or the other was up 5800% perhaps we might call it a bubble....
ThomPete 9y ago
> Bitcoin, by contrast, has no intrinsic value at all. The idea of intrinsic value should die. It's fundamentally a complete misunderstanding of what value is based on. FIAT currency and Bitcoin have value as long as people believe it has value. Value isn't some objective criteria it's a highly subjective one, what one considers valuable another might not. depending on what we are talking about, you can then add some more solid criteria such as utility, scarcity, trust in the future and so on. Depending on what context value is to be understood in you get various fluctuations in price and then finally you have some exchange between two parties where the price is agreed.
- JumpCrisscross 9y ago
  > FIAT currency and Bitcoin have value as long as people believe it has value This argument precludes any rational discussion of the price of Bitcoin. Bitcoin at $50,000? Correctly priced, because people feel like it! Bitcoin at 50¢? Correctly priced, because people feel like it! Contrast that to national currencies, where fundamental relationships between rates, real GDP and other factors relating to the economy can be measured, forecasted and compared. Two informed people can have a reasonable debate about the price at which one should trade a U.S. dollar for Japanese yen or Canadian dollars. Two informed people cannot have a reasonable debate about the price at which one should trade a U.S. dollar for a Bitcoin. In that sense, it's sort of like gold. Unlike gold, Bitcoin doesn't have millennia of heritage grandfathering in an informal consensus [1]. [1] http://www.mining.com/what-a-roman-centurions-pay-says-about-gold/ http://www.mining.com/what-a-roman-centurions-pay-says-about...
  - cableshaft 9y ago
    > In that sense, it's sort of like gold. Unlike gold, Bitcoin doesn't have millennia of heritage grandfathering in an informal consensus [1]. Yep. Exactly. Bitcoin doesn't have the history of other currencies and assets, by the simple fact that it has only existed for about ten years. Something that can't be changed because we don't have time machines to go back thousands of years and tell everyone how to build computers and create cryptocurrencies. So instead of people saying that Bitcoin is inherently worthless all the time, maybe we can just agree that it's going to take a lot longer than ten years and a lot of swings both up and down in the price before we start creating enough of a "heritage" to come to an informal consensus on how much they are worth. A lot of people come across as "This is something new and I don't want to spend any effort trying to understand it. Worthless! Everyone putting money into it are nothing but tulip heads!" and it'd be more annoying if my paying attention to it and taking small risks with it didn't just help me turn a small amount of USD into a downpayment on a house in 12 months, something I most likely wouldn't have been able to do putting that money literally anywhere else.
MaysonL 9y ago
How many entities have recently stopped taking bitcoin, and how many have started? Are the growing transaction cost and latency going to kill usage?
- XR0CSWV3h3kZWg 9y ago
  Avg tx fee has fallen quite a bit, as well as median. It's still far too high IMO, but it's closer to 5 bucks than 20 like it was a couple months ago.
sf_rob 9y ago
Some of the worse points of this article: 1) "Bitcoin turns out to be a clunky, slow, costly means of payment". This is missing the phrase "right now". There is nothing inherent/unfixable in Bitcoin or competing cryptocurrencies that make them bad for payments in a technical sense (maybe in a exchange rate risk sense but that's not the claim being made). Yes Scaling, Speed, Security, and UX are issues, no those aren't insurmountable. One could easily say "dial up internet is a clunky way to watch videos"; yes and the technology will evolve. 2) No intrinsic values. I'm not sure that you need intrinsic value in a currency, only buy-in, and there are a lot of compelling reasons to buy-in. 3) It's a bubble. Provide your valuation model. I don't claim to know what the correct valuation is, but I'm not making a hard claim of bubble vs no bubble. 4) North Korea is potentially manipulating the market. Time to break out the boogymen! I don't doubt that NK is trying all measures of cyberscams / hacking / etc, but I really doubt that they have the capital or skill to meaningfully effect these high volume markets. Don't get me wrong. There are massive problems and criticisms that can be leveled against Bitcoin et al, but this reads more as an "old man yells at clouds" kind of story.
- epistasis 9y ago
  >There is nothing inherent/unfixable in Bitcoin ... bad for payments in a technical sense I would agree, but the point seems to be more about the current state of Bitcoin. Without technical changes that incorporate lessons from other currencies, Bitcoin is indeed terrible for transactional payments. I only follow this stuff casually (never had any Bitcoin), but it seems that Bitcoin maintainers have heavily resisted changes that would allow Bitcoin to become transactional. And discussions about implementing technical changes leads to some of the more political fighting I've seen on HN. Therefore, Bitcoin may not have technical limitations, but there are political limitations on what is technically possible with Bitcoin.
  - sf_rob 9y ago
    I entirely agree with you, other than your interpretation of what Krugman was getting at. He never brings up this as a political/leadership problem, and the great discussions that this would bring. He also is making a general argument against cryptocurrencies elsewhere, which makes it appear that he thinks that this is a property not a state. If I were to write an article criticizing the cryptocurrency space, I'd talk about politics, regulations/lack there-of, currency risks/lack of cheap risk mitigating instruments, and how bearer instruments are crazy risky. He addresses the issues that I'd expect someone who hasn't observed the space enough to address.
chrischen 9y ago
Serious question, how is Bitcoin fundamentally different from gold? Based on a "tether to reality", gold is massively overvalued if you consider its industrial or practical utility. Furthermore, gold is heavy and thus impractical to use in day to day transactions, just like Bitcoin. There are altcoins, but then there are also alt-metals (granted a lot fewer of them) such as silver, platinum, palladium, etc. The way I see it, bitcoin is just like gold except you can also trade it online.
- pesmhey 9y ago
  One thing that maybe differentiates it in the way you’re defining it: you can really see it. Gold jewelry, trinkets have social significance, and have for quite a long time. Crowns, regal adornments, religious altars, etc. are all ostentatious displays of gold, and whatever power structure exists to show it off. The counterpoint to this Is maybe that all of the US gold is housed in secret? Most nations don’t actually display gold wealth in the ‘traditional’ way? These aren’t rhetorical questions, I’m genuinely curious if I’m seeing this from a sound point-of-view. Nobody’s wearing bitcoin crowns or sitting on bitcoin thrones. Is there an equivalent? Does it even matter?
- dmitrygr 9y ago
  Actually, considering more than 70% of gold being bought is NOT for monetary purposes[1], I'd say it is not overvalued. It is valued exactly at its market value: for jewelry, for industry, for dentistry, etc. [1] https://www.statista.com/statistics/299609/gold-demand-by-industry-sector-share/ https://www.statista.com/statistics/299609/gold-demand-by-in...
- tlb 9y ago
  Gold is pretty light for its value. A gram of gold is worth about $50, whereas a US dollar bill (of any denomination) also weighs 1 gram. So gold is 2.5x denser than $20s. The main flaw with gold as a currency is that it's tempting to shave little bits off each coin so you can melt the shavings into some new coins. Or recast them with 20% lead. Paying in gold coins involved the buyer searching through his pockets for the lightest coins he could foist on the seller, and the seller skeptically hefting and biting them.
bonestamp2 9y ago
I realize this is an op-ed, but a good op-ed will still be based on well researched facts, otherwise the opinion is naive and useless. This reads like Krugman read a shitty blog from some 12 year old who doesn't know how to do independant research and simply copied some terribly uninformed social media arguments. For example, the US Dollar is valuable not because that's the only accepted currency for paying taxes but because it's the only currency that nearly every retailer in the country accepts. > much actual Bitcoin use seems to involve drugs, sex and other black-market goods There's a big difference between bitcoin use in general and bitcoin use on the dark web. You can't cite an article about bitcoin use on the dark web as a source for how all bitcoin is used. That's like saying hot dogs are only sold at baseball stadiums when your source is just about hot dog sales at baseball stadiums. I could go on but I think it's fair to say there is no need -- Krugman has gone full retard.
- philipwhiuk 9y ago
  Why do they accept it though? Because they pay taxes in it. UK retailers mostly don't accept USD even though it's the global reserve currency? Why. Because they'd have to change it back into GBP to pay tax on the profit they just made. > There's a big difference between bitcoin use in general and bitcoin use on the dark web At a time when multiple retailers are switching away from BTC, it seems more reasonable. In any case there's no study saying most of it isn't the dark web stuff. > I could go on but I think it's fair to say there is no need I disagree, most of your points are poor.
- dragonwriter 9y ago
  > For example, the US Dollar is valuable not because that's the only accepted currency for paying taxes but because it's the only currency that nearly every retailer in the country accepts. The former is a significant part of the reason for the latter. > There's a big difference between bitcoin use in general and bitcoin use on the dark web. There's clearly a difference, but if a large share of the non-speculative trade is on the dark web, Krugman’s statement you criticize remains correct. > I could go on but I think it's fair to say there is no need -- Krugman has gone full retard. You have decidedly failed to make that case.
JKCalhoun 9y ago
Maybe I heard it on "Marketplace" recently — but the gist of it was (and I think it was focusing on young South Koreans) people were buying Bitcoin because all other options for getting rich quick seemed out of reach. It was a sobering portrayal of Bitcoin as little better than a desperate lottery or roulette spin for a generation that feels left behind by the growing financial inequity (inequality).

56 points by Edmond 9y ago

> Bitcoin, by contrast, has no intrinsic value at all. This comes right after a paragraph describing how the US dollar has no intrinsic value other than the fact that it is the required currency for paying US taxes and that the Federal Reserve stabilizes it through the money supply (Modern Monetary Theory would argue these two points are effectively the same, but I digress). Does this mean fiat currencies have intrinsic value? If so, how is this value more 'intrinsic' than the value a network gives a cryptocurrency? Bitcoin's overextended and struggling network certainly makes it overvalued compared to the well-oiled machine that is the USD. But that's hardly a reason to write off cryptocurrencies in general.

hcknwscommenter 9y ago
Do not elide over the word 'required.' It is not a meaningless word. In my opinion it makes all the difference. In comparison, the 'intrinsic value' of the network is not intrinsic at all. Miners and hodlers and users are free to use any other cryptocurrency, or none.
wz1000 9y ago
> Does this mean fiat currencies have intrinsic value? If so, how is this value more 'intrinsic' than the value a network gives a cryptocurrency? Because you are required to pay taxes. > although Modern Monetary Theory would argue the two are effectively the same Actually, if I understand correctly, MMT would argue that a central bank has very little control over money supply(other than in the rare case of acting as a "lender of last resort"). Instead, money is created through the act of deficit spending. http://bilbo.economicoutlook.net/blog/?p=1623 http://bilbo.economicoutlook.net/blog/?p=1623 A helpful illustriation by MMT'er Warren Mosler > The question is, “How do you turn litter into money?” > So, I take my business cards out here, and these are twenty dollars a piece, if anybody wants to buy any. No? Any takers? No? Okay. > All right, well if anybody wants to stay after and help clean up the carpet and tidy up the room, I’m going to pay one per hour. Or five per hour, or whatever, one per hour. Anybody want to stay and help? Okay, not a lot of takers. > Then I add one more thing: Look, there’s only one way out of here and there’s a man at the door with a nine millimeter machine gun. Okay? And you can’t get out of here without five of my cards. > Now things have changed. I’ve now turned litter into money. Now, you will buy these, you will work for these things if you want to get out. The man at the door is the tax man and that’s the function of taxes.
- nordsieck 9y ago
  > money is created through the act of deficit spending A slight quibble: All federal government spending is money creation. All federal government taxation or fees is money destruction. If you ignore debt (not a very MMT thing to do), you could say that net money creation is deficit spending.
- jrcii 9y ago
  > a central bank has very little control over money supply(other than in the rare case of acting as a "lender of last resort") https://en.wikipedia.org/wiki/Fractional-reserve_banking https://en.wikipedia.org/wiki/Fractional-reserve_banking
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gooseus 9y ago
Well, your quote seems to be writing off Bitcoin, not cryptocurrencies in general... but I don't understand this logic that keeps being put out. The most powerful government in the world with long established laws and multiple powerful institutions guarantees USD as "legal tender for all debts, public charges, taxes, and dues."[0] and has been stable for decades, if not centuries. The concept of cryptocurrencies didn't exist 10 years ago and bitcoin hasn't been stable for more than a few years, probably only months and is guaranteed by a computer network controlled primarily by machines running in China[1]. If a solar flare brings down the internet, all cryptocurrencies are immediately worthless, and that's assuming they'll ever be widely accepted for goods and services. So long as the US government is functional USD will be accepted for all goods in services. That is the difference in "intrinsic value", as far as I see it. [0] https://www.law.cornell.edu/uscode/text/31/5103 https://www.law.cornell.edu/uscode/text/31/5103 [1] https://blockchain.info/pools https://blockchain.info/pools
- cableshaft 9y ago
  If a solar flare brings down the internet (presumably you mean via EMP), the amount of USD wealth that would be lost would be equally if not more catastrophic, because most of it is not kept in physical bills, but in 1's and 0's on computer systems as well. "In fact, economists estimate that only 8 percent of the world's currency exists as physical cash. The rest exists only on a computer hard drive, in electronic bank accounts around the world." https://money.howstuffworks.com/currency6.htm https://money.howstuffworks.com/currency6.htm Edit: Looks like the percentage is a bit higher if you're talking just USD. "All told, anyone looking for all of the U.S. dollars in the world in July 2013 could expect to find approximately $10.5 trillion in existence, using the M2 money supply definition. If you just want to count actual notes and coins, there are about U.S. $1.2 trillion floating around the globe." https://money.howstuffworks.com/how-much-money-is-in-the-world.htm https://money.howstuffworks.com/how-much-money-is-in-the-wor...
  - gooseus 9y ago
    I'm not actually talking about an EMP, I believe it's more of a CME[0]. Coronal mass ejections would have more of an impact on the long lines, so pretty much the core power and networking infrastructure. But yes, this would affect the ability to take out cash from ATMs and banks wouldn't be able to check your account balance, though most have local generators or they would pretty quick, so local credit unions might still be operational. However, anyone with cash on hand would be able to utilize it to make purchases and the local/state/federal government would fly into emergency mode to protect the ability for hard currency to be used. They would also make sure that financial institutions are the first ones back online in order to get the economy flowing again and the Fed would make sure that a dollar was worth the same after the lights came back on as it was before. Laws exist which ensure that manipulation of the currency and even opportunistic price gouging would be punished afterwards. Not so for bitcoin or any other cryptocurrency... no government guarantees it and if the network went down unevenly who knows what sort of manipulations would be attempted on those networks that now had players with over 51%... Since Chinese mining companies control well over 60% of the network, would the remaining miners be able to handle the load? Especially since many miners would just keep rolling in isolation and immediately start publishing simultaneous blocks when they reconnected with each other... If intercontinental infrastructure weren't repaired for many months, would Europe, US and Asia all end up with their own branches of the blockchain? Has the bitcoin community even run a model of what to do in a similar disaster situation? I know that after 9/11 every bank has super rigorous disaster recovery plans and backup mechanisms, so they for sure have hardened backups and power generators at core locations. I mean, this is ridiculous, bitcoin can't even be used to buy something and isn't accepted anywhere useful and probably never will. So if this scenario happened, the first thing that would happen is the price would collapse as everyone waited on Coinbase's doorstep to sell their coins to get cash so they can actually buy something useful. [0] https://sciencing.com/effects-solar-flares-technology-20402.html https://sciencing.com/effects-solar-flares-technology-20402....
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jdoliner 9y ago
> US dollar has no intrinsic value other than the fact that it is the required currency for paying US taxes That's extrinsic value. A pretty simple test you can apply to figure this out: would the value still exist if you were all alone on a desert island? Food has intrinsic value, you'd still value food in this case because you still need to eat. Dollars do not, they're no good without another entity to give them to. Same for bitcoin. Mostly the same for gold although there are some uses of gold as a metal. So bitcoin is a bubble, in that it has no intrinsic value, and the same is true of dollars. The important question is which of these bubbles is going to burst first.

XR0CSWV3h3kZWg 9y ago

This article can be summed up as "Bitcoin is analogous to Tulip Mania". How many years does bitcoin have to be around and used for that analogy to stop being the dominant?

Ftuuky 9y ago

"It’s a nifty trick. But what is it good for?" The last time Krugman said this it was about the internet. “The Internet’s impact on the economy has been no greater than the fax machine’s….ten years from now, the phrase “information economy” will sound silly. (1997)”

otoburb 9y ago
To be fair, this isn't the first time this quote been dredged up from the past to be used against him as it pertains to Bitcoin.[1] So while it's fun to pile onto Krugman once in a while, since cryptocurrencies are more closely related to monetary and economic concepts, he clearly feels more confident about this particular assertion. Whether he's right remains to be seen. [1] http://www.businessinsider.com/paul-krugman-responds-to-internet-quote-2013-12 http://www.businessinsider.com/paul-krugman-responds-to-inte...
JKCalhoun 9y ago
"Information economy" does sound silly. Is Apple part of the "information economy"? Is Google? Is Tesla? I'm asking, I'm not suggesting one way or another. To answer my own questions though Apple would seem to be in the smart phone business (and of course the internet is the reason we have smart phones). And Google would seem to be in the advertising business (among others). Their ads do play on the internet though. So, I don't know — information economy? Internet economy? Internet-related economy?
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justinzollars 9y ago
wow. He can't see the future. After working with blockchain smart contracts for 6 months I'm certain he's wrong. Even if it crash's this year cool things will come.

sxates 9y ago

Wouldn't be an article about Bitcoins without "bubble" and "tulip." It's really getting old - you'd think 7 years in there'd be something new to write about.

acdha 9y ago
You’d think that 9 years in there’d be plenty of examples of it solving problems for normal people, too. The bubble talk will go away as soon as that changes.

pastyb0t 9y ago

Garbage opinion piece regurgitating fears already known. I mean jesus, he even says that it's about as useless as a $100 bill. Sounds like this guy is just butthurt that he missed the last jump in price. There were other historical spikes. This isn't the first it won't be the last.

eggbrain 9y ago

We've heard about Bitcoin being a bubble and having no intrinsic value the entire duration of its existence -- so much so that Paul making these his main arguments feel like traveling back to ~2013 when it was "bubbling" then. If people use Bitcoin and believe it has value, it _gives_ it value and credibility, in the same way that diamonds have value, even though they are no longer "rare". When people stop using Bitcoin, or stop believing it has value or is worthy of value, any "bubble" state it has will burst. My main question when reading this article was: when a major technological change or shift happened in the past few decades, did people realize at the time the potential, or did they make articles like this saying that the technology was a bubble? All it makes me think of is this famous Newsweek article: http://www.newsweek.com/clifford-stoll-why-web-wont-be-nirvana-185306 http://www.newsweek.com/clifford-stoll-why-web-wont-be-nirva... I'm not saying that Cryptocurrencies will be the next internet (maybe it will be the next big .com crash), but entrepreneurs who become rich will be the ones that at least took the risk to believe (for better or worse).

JKCalhoun 9y ago
> If people use Bitcoin and believe it has value, it _gives_ it value and credibility Unless what is driving up the price is speculation. I mean, do most of these new-to-bitcoin users actually "use" Bitcoin? Purchase with it? Or are they holding, waiting to dump?
- charlesdm 9y ago
  The same can be said about diamonds and art, however. The only difference here is that it's a digital vs a physical asset.
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  - JKCalhoun 9y ago
    You're right, but I don't think we've seen either of those skyrocket like Bitcoin. If one or the other was up 5800% perhaps we might call it a bubble....

ThomPete 9y ago

> Bitcoin, by contrast, has no intrinsic value at all. The idea of intrinsic value should die. It's fundamentally a complete misunderstanding of what value is based on. FIAT currency and Bitcoin have value as long as people believe it has value. Value isn't some objective criteria it's a highly subjective one, what one considers valuable another might not. depending on what we are talking about, you can then add some more solid criteria such as utility, scarcity, trust in the future and so on. Depending on what context value is to be understood in you get various fluctuations in price and then finally you have some exchange between two parties where the price is agreed.

JumpCrisscross 9y ago
> FIAT currency and Bitcoin have value as long as people believe it has value This argument precludes any rational discussion of the price of Bitcoin. Bitcoin at $50,000? Correctly priced, because people feel like it! Bitcoin at 50¢? Correctly priced, because people feel like it! Contrast that to national currencies, where fundamental relationships between rates, real GDP and other factors relating to the economy can be measured, forecasted and compared. Two informed people can have a reasonable debate about the price at which one should trade a U.S. dollar for Japanese yen or Canadian dollars. Two informed people cannot have a reasonable debate about the price at which one should trade a U.S. dollar for a Bitcoin. In that sense, it's sort of like gold. Unlike gold, Bitcoin doesn't have millennia of heritage grandfathering in an informal consensus [1]. [1] http://www.mining.com/what-a-roman-centurions-pay-says-about-gold/ http://www.mining.com/what-a-roman-centurions-pay-says-about...
- cableshaft 9y ago
  > In that sense, it's sort of like gold. Unlike gold, Bitcoin doesn't have millennia of heritage grandfathering in an informal consensus [1]. Yep. Exactly. Bitcoin doesn't have the history of other currencies and assets, by the simple fact that it has only existed for about ten years. Something that can't be changed because we don't have time machines to go back thousands of years and tell everyone how to build computers and create cryptocurrencies. So instead of people saying that Bitcoin is inherently worthless all the time, maybe we can just agree that it's going to take a lot longer than ten years and a lot of swings both up and down in the price before we start creating enough of a "heritage" to come to an informal consensus on how much they are worth. A lot of people come across as "This is something new and I don't want to spend any effort trying to understand it. Worthless! Everyone putting money into it are nothing but tulip heads!" and it'd be more annoying if my paying attention to it and taking small risks with it didn't just help me turn a small amount of USD into a downpayment on a house in 12 months, something I most likely wouldn't have been able to do putting that money literally anywhere else.

MaysonL 9y ago

How many entities have recently stopped taking bitcoin, and how many have started? Are the growing transaction cost and latency going to kill usage?

XR0CSWV3h3kZWg 9y ago
Avg tx fee has fallen quite a bit, as well as median. It's still far too high IMO, but it's closer to 5 bucks than 20 like it was a couple months ago.

sf_rob 9y ago

Some of the worse points of this article: 1) "Bitcoin turns out to be a clunky, slow, costly means of payment". This is missing the phrase "right now". There is nothing inherent/unfixable in Bitcoin or competing cryptocurrencies that make them bad for payments in a technical sense (maybe in a exchange rate risk sense but that's not the claim being made). Yes Scaling, Speed, Security, and UX are issues, no those aren't insurmountable. One could easily say "dial up internet is a clunky way to watch videos"; yes and the technology will evolve. 2) No intrinsic values. I'm not sure that you need intrinsic value in a currency, only buy-in, and there are a lot of compelling reasons to buy-in. 3) It's a bubble. Provide your valuation model. I don't claim to know what the correct valuation is, but I'm not making a hard claim of bubble vs no bubble. 4) North Korea is potentially manipulating the market. Time to break out the boogymen! I don't doubt that NK is trying all measures of cyberscams / hacking / etc, but I really doubt that they have the capital or skill to meaningfully effect these high volume markets. Don't get me wrong. There are massive problems and criticisms that can be leveled against Bitcoin et al, but this reads more as an "old man yells at clouds" kind of story.

epistasis 9y ago
>There is nothing inherent/unfixable in Bitcoin ... bad for payments in a technical sense I would agree, but the point seems to be more about the current state of Bitcoin. Without technical changes that incorporate lessons from other currencies, Bitcoin is indeed terrible for transactional payments. I only follow this stuff casually (never had any Bitcoin), but it seems that Bitcoin maintainers have heavily resisted changes that would allow Bitcoin to become transactional. And discussions about implementing technical changes leads to some of the more political fighting I've seen on HN. Therefore, Bitcoin may not have technical limitations, but there are political limitations on what is technically possible with Bitcoin.
- sf_rob 9y ago
  I entirely agree with you, other than your interpretation of what Krugman was getting at. He never brings up this as a political/leadership problem, and the great discussions that this would bring. He also is making a general argument against cryptocurrencies elsewhere, which makes it appear that he thinks that this is a property not a state. If I were to write an article criticizing the cryptocurrency space, I'd talk about politics, regulations/lack there-of, currency risks/lack of cheap risk mitigating instruments, and how bearer instruments are crazy risky. He addresses the issues that I'd expect someone who hasn't observed the space enough to address.

chrischen 9y ago

Serious question, how is Bitcoin fundamentally different from gold? Based on a "tether to reality", gold is massively overvalued if you consider its industrial or practical utility. Furthermore, gold is heavy and thus impractical to use in day to day transactions, just like Bitcoin. There are altcoins, but then there are also alt-metals (granted a lot fewer of them) such as silver, platinum, palladium, etc. The way I see it, bitcoin is just like gold except you can also trade it online.

pesmhey 9y ago
One thing that maybe differentiates it in the way you’re defining it: you can really see it. Gold jewelry, trinkets have social significance, and have for quite a long time. Crowns, regal adornments, religious altars, etc. are all ostentatious displays of gold, and whatever power structure exists to show it off. The counterpoint to this Is maybe that all of the US gold is housed in secret? Most nations don’t actually display gold wealth in the ‘traditional’ way? These aren’t rhetorical questions, I’m genuinely curious if I’m seeing this from a sound point-of-view. Nobody’s wearing bitcoin crowns or sitting on bitcoin thrones. Is there an equivalent? Does it even matter?
dmitrygr 9y ago
Actually, considering more than 70% of gold being bought is NOT for monetary purposes[1], I'd say it is not overvalued. It is valued exactly at its market value: for jewelry, for industry, for dentistry, etc. [1] https://www.statista.com/statistics/299609/gold-demand-by-industry-sector-share/ https://www.statista.com/statistics/299609/gold-demand-by-in...
tlb 9y ago
Gold is pretty light for its value. A gram of gold is worth about $50, whereas a US dollar bill (of any denomination) also weighs 1 gram. So gold is 2.5x denser than $20s. The main flaw with gold as a currency is that it's tempting to shave little bits off each coin so you can melt the shavings into some new coins. Or recast them with 20% lead. Paying in gold coins involved the buyer searching through his pockets for the lightest coins he could foist on the seller, and the seller skeptically hefting and biting them.

bonestamp2 9y ago

I realize this is an op-ed, but a good op-ed will still be based on well researched facts, otherwise the opinion is naive and useless. This reads like Krugman read a shitty blog from some 12 year old who doesn't know how to do independant research and simply copied some terribly uninformed social media arguments. For example, the US Dollar is valuable not because that's the only accepted currency for paying taxes but because it's the only currency that nearly every retailer in the country accepts. > much actual Bitcoin use seems to involve drugs, sex and other black-market goods There's a big difference between bitcoin use in general and bitcoin use on the dark web. You can't cite an article about bitcoin use on the dark web as a source for how all bitcoin is used. That's like saying hot dogs are only sold at baseball stadiums when your source is just about hot dog sales at baseball stadiums. I could go on but I think it's fair to say there is no need -- Krugman has gone full retard.

philipwhiuk 9y ago
Why do they accept it though? Because they pay taxes in it. UK retailers mostly don't accept USD even though it's the global reserve currency? Why. Because they'd have to change it back into GBP to pay tax on the profit they just made. > There's a big difference between bitcoin use in general and bitcoin use on the dark web At a time when multiple retailers are switching away from BTC, it seems more reasonable. In any case there's no study saying most of it isn't the dark web stuff. > I could go on but I think it's fair to say there is no need I disagree, most of your points are poor.
dragonwriter 9y ago
> For example, the US Dollar is valuable not because that's the only accepted currency for paying taxes but because it's the only currency that nearly every retailer in the country accepts. The former is a significant part of the reason for the latter. > There's a big difference between bitcoin use in general and bitcoin use on the dark web. There's clearly a difference, but if a large share of the non-speculative trade is on the dark web, Krugman’s statement you criticize remains correct. > I could go on but I think it's fair to say there is no need -- Krugman has gone full retard. You have decidedly failed to make that case.

JKCalhoun 9y ago

Maybe I heard it on "Marketplace" recently — but the gist of it was (and I think it was focusing on young South Koreans) people were buying Bitcoin because all other options for getting rich quick seemed out of reach. It was a sobering portrayal of Bitcoin as little better than a desperate lottery or roulette spin for a generation that feels left behind by the growing financial inequity (inequality).