Paul Krugman: Cryptocurrency set the monetary system back by 300 years
August 2, 2018 11:05 am,
Paul Krugman, Nobel Prize-winner economist has given a two-fold explanation outlining his skepticism regarding cryptocurrency. He says that cryptocurrencies, despite its cutting-edge technology, has “set the monetary system back by 300 years”.
It was seen in an article in The New York Times titled “Transaction Tethers and Costs: Why I’m a Crypto Skeptic”, Krugman, a vocal critic of the digital currency, has highlighted the transactional cost it carries. According to him, the basic nature of a bitcoin transaction, which involves furnishing the complete history of past transactions, goes against the long-running trend which has continually moved toward frictionless transactions.
“Cryptocurrency enthusiasts are effectively celebrating the use of cutting-edge technology which is a very old technology which had set the monetary system back to 300 years,” Paul Krugman said. “It was set against this history, the enthusiasm for cryptocurrency seems very old and very odd, because it goes in the opposite of the long run trend. Instead of having frictionless transactions, we involve high costs of doing business, because transferring other cryptocurrency or Bitcoin unit requires providing a complete history of past transactions. Instead of money created just by a click of a mouse, now we have money that must be mined created through resource-intensive computations,” Paul Krugman added.
In the second issue with cryptocurrency in the absence of tethering, Krugman argues that cryptocurrency, unlike fiat currencies, does not have an underlying value. According to him, the value of cryptocurrency is merely a bubble which will burst once people lose faith in it.
In a comparison of cryptocurrency with fiat currency have seen no tether, no backstop to reality. Its value depends entirely on self-fulfilling expectations which means that total collapse is a real possibility. If speculators had a collective moment of doubt, and suddenly fearing that cryptocurrencies and Bitcoins were worthless, well, Bitcoins would become worthless. said Paul Krugman. He further added and explained that even with gold and silver, in addition to holding a store value they have real-world applications as it can be used for things like jewelry and filling teeth. According to him, tethering is one of cryptocurrencies greatest weaknesses.