![]() ![]() ![]() My favorite observation from a commenter on Krugman’s piece: if Bitcoin is so superior to fiat currency … and will eventually supplant it … then why are the Bitcoin people so obsessed by how much of the worthless obsolete currency one Bitcoin will purchase? ![]() The cryptocurrency people seem to have a religious zeal, and to that extent won’t be swayed by any rational argumentation. Recently on another thread, a commenter said something to the effect that data indicates that most cryptocurrency transactions are for legal purchases.Ī few days after I saw that, the question bubbled up for me … yes, but how many of those otherwise legal transactions are in furtherance of tax evasion or money laundering? A simple analysis of what was purchased wouldn’t show that. Krugman asks, “what problem does cryptocurrency solve?” Note: he implicitly concedes their utility for black market transactions and tax evasion, so a more precise formulation of this question might be, what problem relating to lawful economic transactions does cryptocurrency solve?.Cryptocurrencies are only valuable by consensus among some community of users, and without a real-world tether their value is subject to the usual dynamics of “market bubbles.” Gold is uniquely useful in industrial applications and jewelry state currencies are usually the only form in which states will accept payment of taxes. Currencies with relatively stable and durable value are “tethered” to some real-world value.There’s no way to fix the relatively large transaction cost. Block-chain is based on a “proof of work” in which the work must be costly, in order to offer significant assurance. The progression (evolutionary history) of media of economic exchange has been strongly tilted in the direction of decreasing per-transaction costs.For any interested folks who didn’t already see this, Nobel laureate economist Paul Krugman briefly explained why he is skeptical about cryptocurrencies. ![]()
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