
Bubble, Bubble, Fraud and Trouble - Edmond
https://www.nytimes.com/2018/01/29/opinion/bitcoin-bubble-fraud.html
======
sf_rob
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.

~~~
acdha
> 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

It’s been a decade and Bitcoin has never delivered on that promise despite
heavy marketing pushes and huge amounts of capital. At some point it’s not
reasonable to give the benefit of the doubt until something ships.

~~~
andirk
With less traffic on the network circa a year ago and before, it was plenty
fast and cheap. I think it's in need of an upgrade so it can make bitcoin
great again.

------
ThomPete
> 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
> _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...](http://www.mining.com/what-a-roman-centurions-pay-says-about-gold/)

~~~
cableshaft
> 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.

~~~
JumpCrisscross
> _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_

The history of non-fiat money (like gold) is that of candidates being knocked
off, practically never added to, the list. Over time, new financial
technologies ( _e.g._ better refining, bimetallism, paper money, central
banks, deposit insurance, _et cetera_ ) were demonstrated to be superior to
gold (and its subsequents) in the context of a growing modern economy. People
debated--extensively--each shift. Rational arguments were put forward, tested
(and rejected), refined and, when fruitful, propagated.

Each of gold --> bimetallism, commodity money --> redeemable paper money,
redeemable money --> "backed" money and backed money --> fiat had a rational
argument (and demonstration) for their transition. Those arguments are one
way; they don't work going backwards.

Gold remains as a legacy, a memory of where we came from. It's here, and has
been replaced. (Analogous to old programming languages which remain in light
use because of legacy code. You wouldn't clone their obsolete elements,
justifying said clone with the legacy language's use.) There is no argument
for "neue gold" because the same arguments that worked, cumulatively, over the
centuries as society progressed, against gold work against the new thing. The
comparison to gold is one of false equivalence; hence the fallback to
"whatever we feel it's worth."

~~~
ThomPete
There is only one bitcoin and that bitcoin has a unique history that no other
can have. It doesent need to be neue gold it just need to be bitcoin.

------
mortenjorck
_> 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.

~~~
wz1000
> 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
> 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.

------
Ftuuky
"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
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-
inte...](http://www.businessinsider.com/paul-krugman-responds-to-internet-
quote-2013-12)

------
bonestamp2
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.

~~~
dragonwriter
> 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.

~~~
bonestamp2
> The former is a significant part of the reason for the latter.

Obviously there's a feedback loop where people are paid in a currency and then
people have that currency so retailers accept that currency and then they pay
their employees with that currency, etc. But I don't think anyone has recently
sat down to think about which currency they're going to use on a daily basis
and selected that currency because it's the currency they have to pay their
taxes in once a year. People use it because they have it, businesses accept it
because that's what people have. Why? It's not because of taxes...

It's because nearly every modern country has a central bank or a "pseudo-
central bank" (like the federal reserve) that issues the trade currency for
that country. That central bank issues that currency because they want to
control the economy (as Krugman mentions). It's not because they want to
receive that currency to pay taxes -- accepting it as the payment method for
taxes is a consequence of issuing that currency, not the reason for it.

> but if a large share of the non-speculative trade is on the dark web,
> Krugman’s statement you criticize remains correct.

Well sure, but there's no evidence of that and an article about usage of
bitcoin on the dark web is not a useful source for such an argument -- in
fact, using it in that manner discrets the author entirely.

~~~
dragonwriter
> That central bank issues that currency because they want to control the
> economy (as Krugman mentions).

No, they issue it because that's what the government charters them to do. They
enact particular monetary policy to control the economy, which only works
because the currency is dominant in trade, which it is because the government
systematically favors it (it's true that taxation isn't the whole story here,
though, there's also legal tender status, the government issuing public
benefits in the currency, minimum wage laws and other laws that are keyed off
official currency and which are much harder to comply with if you use some
other currency that floats against it, etc., etc., etc.)

------
sxates
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
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.

------
XR0CSWV3h3kZWg
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?

------
chrischen
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.

~~~
vec
> Serious question, how is Bitcoin fundamentally different from gold?

So there are a handful of assets (gold, silver, jewels; generally stuff you'd
expect to find in your average pulp fantasy treasure chest) that are
essentially ancient speculation bubbles that never popped. They're valuable
because there valuable. The optimist view of Bitcoin is that it's going to be
the newest member of that august club.

The bad news is that most of the list predates money as we understand it. It's
not entirely clear if new gold-class assets even can be created anymore.

The worse news is that the list is getting shorter. Aluminum used to be the
stuff of kings, now we make candy bar wrappers out of it. Indigo, spices,
pearls, turquoise. They all spent centuries as treasures until they weren't.
Diamonds are starting to fall off, although it'll probably take a few decades.

All of these were once extremely scarce and became a lot more common for one
reason or another. And Bitcoin itself is limited, but any idiot can fork off
their own altcoin.

It's possible that in a few hundred years a Bitcoin will be just as much
"treasure" as a bar of gold, but that's still far from a certain thing.

------
eggbrain
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-
nirva...](http://www.newsweek.com/clifford-stoll-why-web-wont-be-
nirvana-185306)

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
> 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
The same can be said about diamonds and art, however. The only difference here
is that it's a digital vs a physical asset.

~~~
JKCalhoun
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....

~~~
charlesdm
I beg to differ: [http://www.dw.com/en/salvator-mundi-da-vinci-painting-
that-s...](http://www.dw.com/en/salvator-mundi-da-vinci-painting-that-sold-
for-450-million-headed-to-louvre-abu-dhabi/a-41685659)

Quantitative easing has inflated asset prices across the board.

------
JKCalhoun
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).

------
MaysonL
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
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.

