It is no secret that traditional economists, in general, have been somewhat skeptical of cryptocurrencies – as they could potentially uproot the fiat currency fundamentals that micro- and macroeconomics are based on.
However, in a move that is sure to spark debate, Paul Krugman – who received the 2008 Nobel Prize in Economics for his work on integrating economies of scale into general equilibrium models – has published a New York Times Opinion piece, in which he brands himself a ”crypto skeptic”.
Krugman mainly argues that high transaction costs would be a huge barrier to the viability of cryptocurrencies, noting that the history of money has been moving away from precious metals, to bank notes, credit cards, and other digital methods that make transactions less costly and complicated.
Krugman goes on to suggest that the relatively high cost of doing business associated with cryptocurrencies – which itself is debatable – means that cryptocurrency users are ”effectively celebrating the use of cutting-edge technology to set the monetary system back 300 years”.
Furthermore, Krugman questions the lack of tethering present in cryptocurrencies, adding that ”total collapse is a real possibility”. Cryptocurrency supporters would, in all probability, point to the lack of tethering as a positive trait, and Krugman also seems to be unaware of stablecoins.
Moreover, Krugman cedes that Bitcoin might survive – as the only cryptocurrency – however this would solely be intended for use in ”black market transactions and tax evasion”.
Even so, Krugman suggests that he is nonetheless open to debate on the issue, urging cryptocurrency enthusiasts to prove him wrong and explain their reasoning to him.
”[…] if you want to argue that I’m wrong, please answer the question, what problem does cryptocurrency solve? Don’t just try to shout down the skeptics with a mixture of technobabble and libertarian derp”, Krugman stated in the piece.
It should be noted that although Krugman received the Nobel Prize in Economics, his past track-record has been mixed, to say the least. In 1998, he predicted that the Internet’s effect on the world economy would be no greater than the effect of the fax machine – due to ”Metcalfe’s law”.
Moreover, Krugman has previously also been spectacularly wrong regarding the survival of the Euro, showcasing a lack of understanding for the dynamics of the Eurozone.
He also failed to accurately gauge the effects of Obama’s bank bailout plan, despite actually predicting that subprime mortgages would fail – even if he got the specifics of it wrong.
It remains to be seen whether Krugman’s most recent comments on cryptocurrencies will end up joining the long list of inaccurate predictions attributed to the Nobel Prize winner, however, one thing is certain – they are sure to give rise to some controversy.
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Rasmus Pihl is a writer for Toshi Times by day and an avid follower of the blockchain industry by night. Rasmus holds a Bachelor’s Degree in Marketing from the Gothenburg School of Business, Economics, and Law and runs a Swedish marketing consulting firm. Moreover, when he isn’t writing for Toshi Times, traveling, working or changing the world in some other capacity, Rasmus is more than likely caught up in postgraduate studies.