A visual representation of the digital cryptocurrency Bitcoin

Economics

Невыполненные обещания блокчейна

Jan 26, 2018 Nouriel Roubini

НЬЮ-ЙОРК – Сфера финансовых услуг претерпевает революцию. Но локомотивом этой революции служат не переоцененные возможности блокчейна, такие как биткоин. Это революция искусственного интеллекта, больших данных и Интернета вещей.

Тысячи видов традиционного бизнеса, пользуясь такими технологиями, подорвали роль каждого вида финансового посредничества. Десятки систем онлайн-платежей – PayPal, Alipay, WeChat Pay, Venmo и другие – миллионы пользователей используют ежедневно. А финансовые организации принимают взвешенные решения, связанные с выдачей кредитов, за секунды, а не недели благодаря обилию данных в Интернете о компаниях и частных лицах. Со временем эти информационные инновации кредитного бизнеса могут даже свести на нет циклы взлетов и падений, вызванных кредитной системой.

Подобным образом страховой андеррайтинг, оценка и обработка исков, а также мониторинг случаев мошенничества стали осуществляться быстрее и точнее. А деятельность, требующую активного участия человека, все чаще выполняют роботы-консультанты, работающие не хуже, а даже лучше высокооплачиваемых и конфликтующих консультантов-людей.

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Nouriel Roubini

Writing for PS since 2007
181 Commentaries

Nouriel Roubini, Professor Emeritus of Economics at New York University’s Stern School of Business, is Chief Economist at Atlas Capital Team, CEO of Roubini Macro Associates, Co-Founder of TheBoomBust.com, and author of MegaThreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them (Little, Brown and Company, 2022). He is a former senior economist for international affairs in the White House’s Council of Economic Advisers during the Clinton Administration and has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank. His website is NourielRoubini.com, and he is the host of NourielToday.com.

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0 Comments on this paragraph, 74 Comments on this article

Riya Kaif Jul 14, 2021

While the blockchains themselves are secure, the applications running on the blockchain may not be. These applications interact with the blockchain through smart contracts, but just like any other software, bugs in the code can lead to security vulnerabilities. For this, we need to involve the auditors who conduct security audits on the smart contract. <a href=”https://immunebytes.com/”>Smart Contract Audit</a> helps you find hidden exploits and eventually reduce the risk and provide you an extra layer of security. Bug-free code is nice to have in other types of software, in blockchain applications, it is essential.
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Joseph R Aug 10, 2018

Yeah, I can agreed with this man always we used to believe that our money have to be controlled by our government that is why we all have centre banks for our government money, so what is still confusing some guys even this ROUBINI it is one(how to price Crypto's ?) and it is still a problem too. So to my own conclusion as i understand it, World bank need to take action on this new system of payment so that our world keep moving with advanced technologies.
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Paul D Mar 6, 2018

I agree with the view on cryptocurrencies and their utilization. The implementation of Blockchain is hindered by the current flawed designs and premises to operate in the real world with working markets.
https://www.linkedin.com/pulse/thinking-outside-block-overcoming-herd-mentality-blocking-dowding
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Jose Saavedra Feb 25, 2018

The author seems to refer to the Gartner study of 2016, however for the 2017 the blockchain remained at the peak of inflated expectation. See https://www.gartner.com/smarterwithgartner/top-trends-in-the-gartner-hype-cycle-for-emerging-technologies-2017/
It is well known that a disruptive technology passes through 4 phases, passing from the previous one to the valley of disillusionment that serves to decant what is and what is not the technology in question, then blockchain will follow a slope of the lighting in which it clarifies if blockchain was what was really wanted and the technology ends with a plateau of productivity in which blockchain will become useful. Clearly the author has not given blockchain the due delay and Roubini's approach is immediatist and lack of vision.
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lwhite11 Feb 8, 2018

"More fundamentally, its promise of decentralized transactions with no intermediary authority amounts to an untested, Utopian pipedream." The author seems unaware that millions of BTC transactions have been made and continue to be made each month. So many that blockchain congestion has become a problem. http://hashingit.com/analysis/33-7-transactions-per-second
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lwhite11 Feb 8, 2018

Only *unanticipated* deflation causes the debt-deflation problem that Irving Fisher pointed to during the Great Depression. Anticipated deflation is built into a lower nominal interest rate, so long as it doesn't exceed the real interest rate. So it isn't a steady-state problem as the author seems to suggest here.
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lwhite11 Feb 8, 2018

"hundreds of other cryptocurrencies are invented every day ... So “stable” cryptos are creating money supply and debasing it at a much faster pace than any major central bank ever has." The author is very confused. Launching of new cryptocurrencies does not debase Bitcoin or other established cryptos, any more than hyperissue of Zimbabwe dollars debases the US dollar. A useless new crypto simply has a low exchange value against BTC, much like Z$ against US$.
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lwhite11 Feb 8, 2018

"No one prices anything in Bitcoin." Untrue. Cryptocurrency exchanges price other cryptocurrencies (Ether, Ripple, etc.) in BTC.
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Henry Rech Feb 4, 2018

It has been fascinating to observe the swelling crescendo of commentary from both opponents and proponents of Bitcoin as the cryptocurrency wave breaks, collapses and diffuses into a foamy ruffle. It is reminiscent of the behaviour in crazy markets where buyers climb over sellers, prices rise parabolically, volumes surge - the buyers' fervour complemented by sellers' relief. These features have all been noted in the cryptocurrency markets. Only when the tsunami recedes is the devastation evident.

Bitcoin will be remembered as BITCHCOIN.
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Tayeb D Feb 2, 2018

"Whereas the Internet quickly gave rise to email, the World Wide Web, and millions of viable commercial ventures used by billions of people, cryptocurrencies such as Bitcoin do not even fulfill their own stated purpose."
Development on the Internet started in 1967 as the Arpanet. The theoretical framework for the Interned was established in the 1950s with the research on queuing theory and packet switching. The World Wide Web was created in 1990s. So it took 25 years at least for the research on the Internet to produce viable applications. The research on the block-chain and crypto-coins is moving fast and applications are being created daily, it will take a decide or more for these applications to mature. Since the blockchain will face strong resistance from the status-quo profiteers it could take longer.

The current financial system is broken beyond repair and an alternative is urgently needed. That alternative could be the block-chain, bitcoin and ethereum or it could be something else. We need to find a better alternative to the current system. A financial system should finance human endeavors and not serve solely for the enrichment of the top 0.01% of the population and the destruction of the earth. We have the printing of trillions of yens, euros and dollars that remain idle in bank computers earning negative interest rates and the world is in desperate need for money to finance viable renewable energy projects to save the earth, something is definitely deeply flawed in the current financial system.

At least block-chain projects like WePower are trying to solve this problem instead of jumping on a falling market to proclaim one self as a predictor of the bursting of a bubble.
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george sos Feb 1, 2018

Lots of hate from bitcoin prospectors/people who think money grows out of thin air,or that they found the magicians recipe for making gold or something..
I too have my reservations for the productiveness of block-chain and how it will change global economy,and minimize the wealth gap and poverty by "democratizing" currency creation and ownership .
And you have to keep in mind that Roubini is not talking to you/me ,he has in mind the investors ,those with real money ...
The rest abt evading taxation and the rest is a characteristic of the rich (most of them are "forced" by the competition to follow this practice,-that's their excuse)
So anyways,remember he is addressing investors ,not the average working poor..
And for people with real hard earned money (even if it is lots of money)are not stupid,and dont want to risk more than they need to .
And what he says is that at the moment it looks as if investing on cryptos /blockchain evolution is not a good bet.
Not for the long term investor.
Only for the grab and run kind,which usually end up in tears for everyone except themselves(like the last global econ.crisis),as society then picks up the bill...
Capitalism,bitcoined or not ,is the same old jungle.
Big apes do anything to survive,only to starve to death after consuming thoughtlessly the resources without a care for the future and others...
So we should all be thankful to mr.Roubini that instead of trying to make a profit for himself by playing into this bubble/bit madness , he openly expresses his (justified for many) concerns..
Thankfully we re not yet at the point that religious-techno-fanaticism bans demands blind obedience and keeping away from doubting the promises made by the gods of the all making/all knowing/all living replacements for human society...
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AtomCollectorRecords AtomCollectorRecords Jan 31, 2018

Have you actually looked at some of the amazing applications being built on blockchain technology??? Steemit and Musicoin for example? This article is wrtten with a lack of knowledge.
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Henry Rech Jan 31, 2018

Having been professionally involved with and having followed financial markets for over 40 years, it is apparent that when the daily newspapers feature front page articles about a booming market or the booming market is a lead item in the nightly TV news, then the top is not far away. This was happening last year. The ensuing collapse is not far away and more severe than could be anticipated given the boom psychology. The collapse itself is of course noteworthy, look at Bitcoin, however, the disasters that accompany the collapse are intentionally concealed for as long as possible and it maybe many months (even years) before the full extent of them emerge, but emerge they will. There is no doubt that people, institutions, etc., have been hurt by the collapse of cryptocurrencies, just how may not be immediately apparent.
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Steve Hurst Jan 30, 2018

phantom market caps

https://www.cnbc.com/2018/01/25/four-triggers-could-cause-a-huge-cryptocurrency-crash--commentary.html
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jarrigunaga Jan 30, 2018

LTC wasn't a fork. Stopped reading there.
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philippe Jan 29, 2018

1. Crypto can indeed be used to pay taxes (Zug in Switzerland already) and that does not begin to give fiat "intrinsic value" anyways
2. Claiming the risk of deflation because of a fixed supply fails to understand the beginning of the model. Deflation is what gives the currency its increased value. It is a measure of the growing community around a fixed token supply. There is no debt in crypto as no central bank can print money (which is what loans are).
3. China has barely cracked down. Exchanges have mostly moved to HK, which is still China.
4. Anonymity is not central to crypto, just a possibility.
5. ICOs make it possible to create community trading/sharing without the need for a central, all powerful, database overlord. ICOs are about overturning the power of facebook, Uber, AirBnB, central banks, insurance companies... effectively displacing any data monopoly leveraging the asymmetry of information.
6. Energy usage is just a growing pain, absolutely not a condition. In fact most performance and energy problems and solved on near term roadmaps. It is precisely because distributed governance is an integral part of what blockchain enables, that such evolution by and for the community is possible.
- Walter T Feb 7, 2018
  
  It would be possible, but simple greed makes it unlikely. Your premise would only work if applied to a local community, not for transactions across the globe. There are too many factions vying for control and profit, as demonstrated by the number of new CC's cropping up. Although I agree that centralized power is problematic, crypto currencies will not completely solve that problem, it may just flatten it some temporarily. Elected governments with central banks are imperfect, I still prefer them over a decentralized power grab based on corporate intellectual abilities
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Janes Weiß Jan 29, 2018

This article, although written by an authority like Roubini, neglects a number of issues and makes no important relativizations. Lets make a couple of comparisons:
1) Dotcom bubble of 1997-2001, ended in billions lost for thousands of investors, yet it did not stop the internet or internet companies from growing. Yet in the long term investors didnt back off, quite the opposite, people investing in Google, Amazon have an amazing decade behind them.
2) Saying BTC or ETH is not viable at this moment,at the early beginnings of crypto-banking and -investment, is like saying there wont be any Netflix because Jeffrey Skilling of Enron failed with his television streaming system back in 1999-2000? Neflix is a giant now, and so will BTC, ETH and its derivatives grow in function as soon as the technology gets better and more stable.
3) There is a sea of differences between different cryptocurrencies. To stack them all together and blast them as useless, pointless and unstable is just wrong. There is a sea of differences. One of the best comparisons was between Bitcoin and Ether, two biggest players, saying Bitcoin is slow, hard to use, not many applications; Ether is fast, easy to use, many applications. To make a general assumption everything is the same, its just too simplified and out of touch with the real deal.

I could go on, but lets just stick on these 3 points: 1. early collapse of internet stock did not prevent businesses or new investment in internet; 2. the technology is new and still not understood correctly; 3. some cryptos will fail, other will thrive.

Its for the first time in millennia we see a system of currency outside the domain of extremely rich individuals or central institutions. Its a revolution indeed, unstable, as any revolution should be.
- John Ellis Feb 1, 2018
  
  Your point number one is a completely fallacious comparison. The dot com bust involved the collapse of numerous businesses that were supposed to have serious business models at the front end. The internet was merely the medium over which the real business model operated. What was at issue was the viability of the business model not the medium via which transactions took place which is why Amazon is still with us. Bitcoin and none of the other cryptos has a viable business model for the reasons Roubini explains. The SEC has now issued subpoenas to two of the key players in this fraud so we'll see what happens. Without wanting to be rude sir I'd say your final paragraph gives a reasonable glimpse at your mindset.
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Weeber Kurt Jan 29, 2018

Maybe I understand the blockchain wrongly but according to my knowledge it has a huge revolutionary potential especially on the financial system.

Isnt it a ledger-transparent , worldwide accessible and cannot be manipulated?
If this is true- it is just a question of time till the sovereign will force the financial industry to use blockchain for accounting.

The logic behind is self explanatory.
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Henry Rech Jan 29, 2018

Given the current permissive regulatory environment, the potential supply of cryptocurrency is infinite. I would imagine anything with a potentially infinite supply has a price potential of zero even though its demand curve may be temporarily founded in a firmly held delusion.
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Jorge Nunez Jan 28, 2018

Anothor person confusing blockchain, bitcoin and cryptocurrencies. In other words an article written with very superficial knowledge on the subject. Not more informative or insightful than articles based on gut feeling.
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Gary Palmero Jan 28, 2018

The dollar may be a fiat currency so what backs it up?

Go into any WalMart or Target (in the US there is apt to be one near you). What can you purchase for $100? That is what backs up the dollar. When productivity improves and there are more goods and services to be purchased, the money supply has to expand to account for the increase. If the money supply remained stable, then serious deflation would set in and the economy would not function efficiently. Ideally, money should not be sought for itself (i.e.hoarded under the mattress) which is why central banks tend to opt for a modest inflation rate in monetary policy.

This just bolster Professor Roubini's argument. Even moreso, in my opinion, BitCoin is a collectible with a curious pedigree.
- Michael Public Jan 29, 2018
  
  A common fallacy. You can use BTC to buy stuff too, even without converting to dollars. I will sell you my car for 10 BTC, if you want...
  
  Value is related to a general trust in its value. People trust the dollar. Some other people trust bitcoin.
  - John Ellis Feb 1, 2018
    
    Why do they trust the dollar or the Euro or Sterling or the Yen? Have you asked yourself that question? And why do you trust Bitcoin since as Roubini points out it's not a store of value, etc. Would you sell your $600,000 home today for roughly 67 Bitcoins?
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fonduke Jan 28, 2018

Cool, thanks for this, keep it coming. Not sure we have fully flushed out this tech either...Newsweek in 1995: Why the Internet will Fail. Get to get back to my fax machine and typewrite too.
https://thenextweb.com/shareables/2010/02/27/newsweek-1995-buy-books-newspapers-straight-intenet-uh/
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john mesrobian Jan 28, 2018

Bitcoin/Crypto's/Blockchain reminds me of the internet bubble, 2000's, when mining companies were becoming internet companies only to go bust. This is a huge bubble and we see the Crypto's will see most of their value wiped out, example we shall see Bitcoin test and break 6000 on its way to zero.

I prefer real and hard money, Physical Gold, which backs hard currencies.

As for the many Crypto currency companies the only one that seems to have merit and a business model is Ripple - fast and secure payment system which Money Gram is testing. the others are worthless.
- toknormal toknormal Jan 31, 2018
  
  Actually you have this 100% the wrong way around. The only point of a blockchain is to facilitate ownership AND possession in the same exchange. For that reason, only the unbacked cryptos have a monetary future. A blockchain token backed by gold for example is about as much use as a chocolate teapot because you can't hold the gold when you hold the token.
  
  Bitcoin, on the other hand is unbacked. It's the end of the line of trust and therefore does not represent a promissory note but a token of value in its own right. Thats all gold was - a physical bitcoin. A token of value. It's use as a monetary far exceeded its deployment in teeth or hi-fi connectors. However it has a light problem with travelling through wires which is why a new type of monetary trustless asset was needed to perform the function that gold did on the physical world. Gold only has a monetary value because it USED to have a monetary function. It is no longer able to perform that function which is why most of it just sits in vaults. Bitcoin and its sibling digital assets now emerging are simply a continuation of its legacy, but one that works on modern trading platforms.
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Angel Gavieiro Jan 28, 2018

While I share the analysis
done by the author on cryptocurrencies, I enterily disagree about the shallow analysis done on the blockchain underlying technology.
The combination of cybersecurity and distributed ledger that the blockchain represents has a vast amount of applications that are under different degrees of development across the world.
In Financial Services for instance it is already in parallel deployment by DTCC to clear the $8tr single name CDS market in the US; in Australia, ASX has already approved the implementation of its update of clearing system for equities to a blockchain solution developed by DAH; in Europe, the first real pilots of Sculdschein private placement loans in blockchain have been executed (ie Daimler €100m 1-yr done in June 2017).
Moreover, blockchain has the potential to reduce the cost base of investment banks in the order of 30-50%, cut sorely needed to restore the low levels of RoE of this industry, hence the huge investment undertaken by banks in this direction under consortia such as R3.
The next 2 years will see the effective deployment of these and many other blockchain solutions, because the savings and efficiency economics are just too large to impede it.
- AtomCollectorRecords AtomCollectorRecords Jan 31, 2018
  
  Totally agree. This is a naive and under investigated article that completely misses the point.
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Jørn Naimak Jan 28, 2018

If people can use cryptocurrencies just to evade taxes they will, and the question isn't so much whether cryptocurrencies are beneficial to our society or not, but rather if governments will have the power to prevent people to using them to evade taxes before they destroy the entire global economic system. Personally I don't think governments have (or will have) the power to prevent people from using cryptocurrencies to evade taxes, and therefore I have more faith in them than in the old national currencies. Also, the old national currencies emerged long before we had anything like Internet, and they are not necessarily very suited for the world we are living in today.

I don't think most people realize how dangerous Internet, cellphones, and cryptocurrencies are. We don't have any historical data about these things, since they have emerged quite recently.
- Matthew Roberts Jan 28, 2018
  
  In the extremely unlikely event that crypto currencies become so widespread that there is a risk that fiat currencies fall out of use, then Governments will simply adjust their tax bases. If they know who you are and where you live they can tax you in Dollars (or whatever). In order to pay those taxes, people will have to revert to using Dollars.
  
  And this nonsense about national currencies being unsuited to the modern world! These 'old' (or fiat) currencies are an absolutely essential part of a modern sovereign state. As long as sovereign countries exist they will have their own fiat currencies (incidentally that is why individual members of the Eurozone cannot be considered sovereign states, but the entire Eurozone can be considered as one giant sovereign state). Suggesting we can do without them is like saying "I'm going to stop using gravity today".
  
  The only thing crypto currencies will destroy is the private wealth of the gulls who invested in this ludicrous bubble. At least tulips had some unique and inherent value. In 5 years' time ownership of 1 Bitcoin will be worth approximately $zero.
  - Jørn Naimak Jan 28, 2018
    
    Extremely unlikely? The market cap of cryptocurrencies has grown exponentially since at least 2013, with a tenfold increase approximately every 2.5 years. Currently the cryptocurrency market cap is at about $588,000,000,000 which makes it as big as the biggest companies. If it continues to grow at the same rate, it will soon be larger than the GDP of Germany, and around 2025 it will be as big as the world domestic product. Yeah sure, lots of things might happen, but I don't think most economists have a very good understanding of blockchain technology underlying cryptocurrencies.
    
    "And this nonsense about national currencies being unsuited to the modern world! These 'old' (or fiat) currencies are an absolutely essential part of a modern sovereign state. "
    
    Yes. You are absolutely right about this. Maybe sovereign states aren't very compatible with Internet and the interconnected world we are living in today. Mostly because governments are incapable of imposing their rules on Internet.
    - Steve Hurst Jan 28, 2018
      
      JN.The minute cryptocurrencies threaten sovereign currencies they will just get squatted. If blockchain tech is useful it will be taken up but thats a different thing. The market cap is just fresh air because most cryptocurrency is not used as money but held speculatively. I havent seen a figure but it has to have a low velocity. Thats completely different from a sovereign currency
      - Michael Public Jan 29, 2018
        
        Correct Steve. So long as the internet requires cables to work governments can and will still exercise veto power. China has made this abundantly clear with the internet being highly, highly regulated that side.
        
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      - Jørn Naimak Jan 28, 2018
        
        Really? Well, they are probably already threatening the weakest currencies in the world, which already are suffering from a lot of inflation. This rate of inflation is increased as more people transfer their money to cryptocurrencies. And it won't necessarily be easy to get them squatted. Some of the most advanced anonymous cryptocurrencies are extremely difficult to control, and they are just developing themselves to become even more difficult to control. The cryptocurrency called Monero is a good example.
        
        Also. It is true that most cryptocurrencies have a low velocity, but there are lots of them, and if there isn't already a high velocity cryptocurrency I believe that such a currency soon will emerge and become popularized.
        
        Steve Hurst Jan 30, 2018
        
        JN. There are several things going on. One is cryptocurrency transactions which are low velocity and small volumes. The second thing is the underlying tech which may be applied to process. The third thing is speculation which is what grabs the most attention. With speculation the outcome is based on what other people think and most of the time speculators are irrational, they do not have structure. Its a big hazard and also why there is such volatility - and if holding your exposure can be massive. When the bulk of major cryptocurrencies is held by a small number of people and not in circulation it is just raw speculation. The biggest problem with cryptocurrency at the moment is converting it to another currency is difficult, FX is a barrier. It has all the hallmarks of an isolated bubble kingdom. Thats got nothing to do with the underlying tech so dont mix the two. Yes, it could break through but the odds against are significant, particularly if it poses a threat to sovereign currency eg sovereign wealth and sovereign debt - particularly for major economies. The fact mainstream banks are playing around the edges of the tech is neither here nor there, currency is their game so it is a monitoring process. At present if you are holding cryptocurrency you are a speculator - whether you intend being or not - simply because almost everybody holding crypto is a speculator as defined by the low velocity and you are at the mercy of that low velocity critical mass which is intrinsically highly unstable.
        
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ramji yahoo mahadevan Jan 28, 2018

Bitocin and Blockchain are good technologies and will improve efficiency, Hence Govts and Central banks should work together with Bitcoin (Govts should not view bitcoin as their competitor).
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John Ellis Jan 28, 2018

Superb explanation of reality as it relates to both crypto currencies and the limitations of block chain technology. The best I've come across that ties it all together for a non techie.
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Kaan Yazgan Jan 28, 2018

I am not sure how 'paying taxes' makes any fiat money have intrinsic value. it seems like a circular and forced justification. How about hyperinflation, when fiat money is worthless the next day, does it still have an intrinsic value since it could be used to pay taxes? OR when, Estonia, State of California etc. start crypto-taxing will we be free of the intrinsic value discussions?
- Michael Public Jan 29, 2018
  
  Only things that animals place value on have intrinsic value. The things we often see as valuable are based on social constructs which change from time to time. During the tulip bubble tulips had real value...while it all lasted...
  - A.B. Jonas Feb 3, 2018
    
    My Stradivari violin has no intrinsic value? Give me yours!
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Nick Ward Jan 28, 2018

Don't throw the baby out with bathwater. Blockchain is being implementes to handle share transactions on the Australian Stock Exchange. Total market capitalisation is $1.5 trillion

https://www.google.com.au/amp/s/amp.smh.com.au/business/banking-and-finance/update-1-australias-asx-selects-blockchain-to-cut-costs-20171206-p4yxhe.html
- Michael Public Jan 29, 2018
  
  'Distributed ledgers' have existed as long as accounting has existed, being hundred of years. The real change was the democratizing of this way of doing things and calling it a currency. In other words, we should not expect miracles from the underlying tech... AI on the other hand... is quietly preparing to change our lives in a massive way.
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Alex Pazaitis Jan 27, 2018

Surely a very sober critique on the cryptocurrency hype, which definitely has the characteristics of a financial bubble (probably more of the tulip-crisis type, rather than the 2001/2007 one, but that's a different discussion). Nevertheless, the analysis vastly ignores some of the fundamental dynamics at play in the development of technological constellations like blockchain: (1) Cryptocurrencies is by no means the only application of blockchains. Bitcoin itself relies more on Proof-of-Work rather than blockchain, while many people confuse the two functions in explaining how it works. (2) Blockchains are not in the same level of diffusion as the internet, because of systemic issues that affect long-term investment. As righteously pointed out, the explosion of the internet relies greatly to common infrastructures and protocols. What is not mentioned is that internet infrastructure (trans-atlantic optical wires), as well as its technological backbone (TCP/IP, the web), have been developed by heavy government-led investment, way before finance came into the 90s frenzy. The current prescriptions fiscal restructuring and austerity has handicapped such strategic investments from the public sector, while there's a "minsky-moment" in the private sector. So, investment on anything branded as blockchain-whatever (but substantially having almost nothing to do with the technology itself) is mainly speculative and short-sighted. (3) With no real policy orientation in guiding long term investment, the financial sector is mainly investing in itself and mostly looking to reduce transaction and intermediary costs, utilising more mature technologies including AI and data analytics. (4) Most importantly, the function of money and its "intrinsic value" (sic) is highly dependent on the policy objectives underpinning the relevant institutions. E.g. it is mentioned that "Fiat currencies are also protected from value debasement by central banks committed to price stability". Price stability, like many things, is a political choice, that favours specific objectives (i.e. stabilising the real value of financial assets). A different policy led by central banks could as easily deem cryptocurrencies as more "intrinsically" valuable than fiat currency (e.g. committing to a certain level of investment, or full employment, rather than price stability). Whether blockchain will fulfil any of it's preached promises, be it democratisation of finance, decentralisation/dis-intermediation, or anything else, comes down to the political objectives that will guide investment and the development of institutions.
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toknormal toknormal Jan 27, 2018

The very fact that Roubini is having to write this nonsense is some measure of Bitcoin's success. I'm sure he wouldn't have predicted having to write it 5 years ago during the 2013 "bubble" when it reached the dizzying exchange rate of 266 dollars to the bitcoin.

Where to begin taking this desperate appraisal apart ? Maybe we should start with the idea that pricing denominations define what is a valuable asset and what isn't which is implicit in Roubini's assertion that "No one prices anything in Bitcoin".

The requirement of having to function as a "unit of account" for monetary media relates to its fungibility, not to its commercial adoption. In other words it needs to be divisible to a sufficient degree for exchange rates to be calculated between either goods or other monetary media. Whether the world decides to price their goods in units of bitcoin, dollars or potato chips however, has no bearing on its viability as a digital asset as long as bitcoin is able to back the value in monetary transactions.

Example: There are now an increasing number of financial services which let you deposit bitcoin in an account and "spend" it on the Visa network. Visa is not money. It's a non-denominational trade clearing facility which requires to be asset backed to work. Further, it matters not what units the trade is denominated in because the value that backs it is the bitcoin that was deposited in such accounts. Bitcoin is therefore highly functional as a monetary token and is being capitalised as such.

Roubini would arrive at a more constructive conclusion if he asked himself...why does bitcoin exist ? The answer to that question lies, not in economics but in simple systems analysis which is probably why it's passed him by.

Any trade, whether monetary or barter, is characterised by two fundamental properties:

• ownership
• posession

The only unit of monetary media in which these two properties of the trade are co-incident was commodity money or so-called "bearer tokens" such as metal coins. Exchange a gold coin for a horse and the trade is both agreed and settled in the same exchange.

Over the duration of the 20th century, the large majority of trade migrated to electronic platforms, leaving behind the concept of "possession" in terms of monetary exchanges. Until 2009, only ownership could be exchanged electronically and even that required a monumentally expensive and widely corrupt system of counterparties known as the "banking system" engaging in a complex sequence of electronic smoke signals to facilitate settlement.

Bitcoin is a revolution. It is the first widely acknowledged and valued electronic bearer token in existence and as such is about as likely to "go to zero" as cast iron blast furnace. Roubini is also inaccurate in his rate of adoption comparison with the web and email. Even by the end of the 1990's - 10 years in - getting companies to adopt email was like pulling teeth in many cases. The world wide web 8 years in was regarded as a "quaint but useful" service for geeks.

Also, contrary to his assertion, the "False promise" of scarcity is actually a feature, not a bug. The fact that blockchains can be forked does not prevent the market from arbitrating over distinct assets and placing them in monetary roles, one of which is a store-of-value reserve which is where bitcoin is increasingly consolidating its presence. The Mona Lisa is also infinitely reproducible but try getting $400 million for your perfectly reproduced laser copy.

Roubini needs to think again if he wants to avoid being on the wrong side of history.
- Michael Public Jan 29, 2018
  
  Sorry about the quad posts. I was clicking post comment and nothing was happening...
  - toknormal toknormal Jan 29, 2018
    
    It's not so much about being first as supporting the market's quest for disambiguity. The cryptographic asset classes are diverse and the more utility oriented ones are not worried so much about "originality" since they are their priority is some kind of service oriented function - such as providing liquidity for trade invoices, escrow services, fast transfers, interoperability or obfuscation.
    
    When it comes to serving as a pure, store of value reserve however, the market simply looks for the least ambiguous, most secure blockchain. That would be bitcoin since age, conservatism, network security in the form of hashrate and ubiquitous familiarity all converge to meet the priorities of the market in this respect.
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- Michael Public Jan 29, 2018
  
  Good post. Although I am not sure the comparison between the Mona Lisa and bitcoin bears out in reality. I am interested to know why anyone investing in BTC should care if is first or not, especially when better versions are being made all the time? Virtually nobody wants a model T Ford anymore.
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- Michael Public Jan 29, 2018
  
  Good post. Although I am not sure the comparison between the Mona Lisa and bitcoin bears out in reality. I am interested to know why anyone investing in BTC should care if is first or not, especially when better versions are being made all the time? Virtually nobody wants a model T Ford anymore.
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- Michael Public Jan 29, 2018
  
  Good post. Although I am not sure the comparison between the Mona Lisa and bitcoin bears out in reality. I am interested to know why anyone investing in BTC should care if is first or not, especially when better versions are being made all the time? Virtually nobody wants a model T Ford anymore.
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- Michael Public Jan 29, 2018
  
  Good post. Although I am not sure the comparison between the Mona Lisa and bitcoin bears out in reality. I am interested to know why anyone investing in BTC should care if is first or not, especially when better versions are being made all the time? Virtually nobody wants a model T Ford anymore.
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- Michael Public Jan 29, 2018
  
  Good post. Although I am not sure the comparison between the Mona Lisa and bitcoin bears out in reality. I am interested to know why anyone investing in BTC should care if is first or not, especially when better versions are being made all the time? Virtually nobody wants a model T Ford anymore.
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Krzysztof Worytkiewicz Jan 27, 2018

Excellent article shedding light on the "economics" of cryptocurrencies. As for the underlying tech, the principles behind the concept of blockchain (distributed database, decentralised agreement and so on) has been known to computer scientists since the 70's, so it is not even new. The only novelty is that in the meantime computer hardware became powerfull enough to accomodate blockchains... IMHO to believe that some obscure entity named Satoshi Nakamoto (who- or whatever it may be) single handedly invented something unknown before in one or two emails amounts to believe in Santa Claus.
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johnker36 Jan 27, 2018

Wow, Roubini here is so wrong it is laughable. So blockchain is a failure because it has been 10 years and not much has come of it? Really Mr. Roubini?? So the fax machine was a failure - invented in 1959 - because it was not in use 10 years later? And the internet is a failure because it existed (on a limited scale of course) in 1969 but was not in use (much at all) by 1979? There are so many examples of blockchain working right now there is not enough space here to tell you all of them. One example: Siacoin - securely store data in the cloud, yes using blockchain technology, for $10 per month. For the same amount of data Amazon is at $115 per month, Google $100 per month. And Ripple is ALREADY conducting backroom bank money transfers. They are accomplishing this for 90% less cost, and faster, than existing banks. There is also another company using blockchain right now to send/receive smart contracts along with send/recieve payments to Mexico. It is working perfectly. Maersk, the huge worldwide shipper, is using blockchain right now to track all their ships and also the cargo. It is working well according the Maersk's project manager. Mr. Roubini - you're 10 years behind the curve.
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Steve Hurst Jan 27, 2018

For cryptocurrencies to work long term as money, control of money - currently defined as sovereign currencies - effectively has to be relinquished, somehow I doubt that will happen. Whether blockchain can be used for process is another question. The bulk of cryptocurrency is reported as held by a very small number of people who are holding onto it, meaning very small volumes are actually in use in terms of transactions. It looks suspiciously like tulip fever
- Michael Public Jan 28, 2018
  
  Those who would build a better society can see the deep potential for blockchain as a fiat currency replacement - unfortunately they make one simple mistake, that the general public feels the same way it. Sixpack Joe is quite content to let 'the government' 'worry about money and stuff' as long as they have a job and football game on the weekend.
  - John Ellis Jan 28, 2018
    
    Not quite sure how a vehicle for rampant speculation, criminal transactions and rampant fraud contributes to building a better society. Roubini has just explained at some length why it is all a mirage. How about some substance rather than quasi religious expressions of hope.
    - toknormal toknormal Jan 29, 2018
      
      Roubini is wrong. "Rampant speculation, criminal transactions and rampant fraud" are far more the domain of the US Dollar than they are of bitcoin. In answer to the question of how it "contributes to building a better society", that is in exactly the same way as better roads, bridges, rail locomotives and hospitals do.
      
      Societies need all kinds of monetary infrastructures that make trade fair and efficient and allow contributors to the economy to store the fruits of their labour. Bitcoin is the invention of the wheel in this regard. It does not require us to pay a 90% premium on monetary liquidity and a further 50% for underwriting that liquidity's value. Ask yourself how 99% of the world's wealth got into 1% of the hands ? Because of an asymmetric financial system that favours the creation of liquidity (takes 10 seconds, facilitated by the few) over the underwriting of its value (takes 25 years, facilitated by the many).
      - John Ellis Feb 1, 2018
        
        Sir, do you have the remotest idea how daft these crypto Marxist rants sound? Probably not.
        
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  - Steve Hurst Jan 28, 2018
    
    Michael. The objective of the Establishment is to keep most of the people subdued and to collect revenues. Anything opposing that mission has its work cut out
    - John Ellis Jan 28, 2018
      
      Yes anarchy is so much more attractive as a form of societal organization.
      - Steve Hurst Jan 28, 2018
        
        John, thats why there is no collective noun for anarchists
        
        Henry Rech Jan 29, 2018
        
        Richard Nixon did suggest "a wild orgasm of anarchists"
        
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James Cartwright Jan 27, 2018

You could have at least done some basic research before writing this article. There are many live applications that use blockchain, including data auditing, assurance, and supply chain monitoring.
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The Litecoin Jan 26, 2018

This is incorrect. Litecoin was forked off of Bitcoin but had its own genesis block. Please amend your article.
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hems hems Jan 26, 2018

It's absolutely wrong ( maybe you just interested in bashing it? ) to say blockchain has only one use "cryptocurrency" as blockchain can be used and is being used as "notary system" by a lot of companies. Surely there are loads of companies leveraging the "hype" to do bad work, but that doesn't change the fact blockchain can be used as "backend" or "database" in a way that it wasn't possible before, if you don't know or don't believe in any of the projects than that's your opinion but perhaps you should dig a bit deeper technically and figure out some of the points you still missing before doing such badly-informed affirmation.
- Michael Public Jan 28, 2018
  
  I suspect he is aware of that but such things do not come into contact with most people on a day to day basis - and it is certainly not used as such around where I live. On the other hand, compare that to every man on the street deep interest in 'buying bitcoin' so 'he can make some money'. Tulips had nothing on bitcoin.
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