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Nobel Prize-winning economist gives damning warning on Bitcoin: ‘It is a cult that can survive indefinitely’

Bitcoin always seems to have a new crop of believers who prop its value up, says Paul Krugman

Vishwam Sankaran
Thursday 20 May 2021 08:21 BST
Nobel Prize-winning economist and New York Times Opinion columnist Paul Krugman attends The New York Times Food For Tomorrow Conference 2015
Nobel Prize-winning economist and New York Times Opinion columnist Paul Krugman attends The New York Times Food For Tomorrow Conference 2015

Nobel Prize-winning economist Paul Krugman, who has been a strong critic of cryptocurrencies in the past, said in a series of tweets on Wednesday that he has given up on predicting the demise of Bitcoin, calling it a “cult that can survive indefinitely.”

The economist, who is also a columnist at the New York Times, has criticised the use of Bitcoin several times in the past, even calling it “evil” in the past.

In his recent tweets he said while Bitcoin has been around since 2009, “nobody seems to have found any good legal use for it”, but accepted that the cryptocurrency has a cult-like following that may keep it afloat.

“It’s not a convenient medium of exchange; it’s not a stable store of value; it’s definitely not a unit of account,” Krugman said of Bitcoin.

“But I’ve given up predicting imminent demise. There always seem to be a new crop of believers. Maybe just think of it as a cult that can survive indefinitely,” the economist said.

Krugman, who won the Nobel Prize in Economic Sciences in 2008 for his work on international trade theory, says he is a sceptic mainly because of two things about cryptocurrencies – “transaction costs and the absence of tethering”.

In a 2018 column entitled “Transaction Costs and Tethers: Why I’m a Crypto Skeptic”, he says compared to fiat currency, crypto tokens cost more to transact in and have no value “backstop”, or reinforcement, like traditional government-backed currencies.

“Instead of near-frictionless transactions, we have high costs of doing business, because transferring a Bitcoin or other cryptocurrency unit requires providing a complete history of past transactions. Instead of money created by the click of a mouse, we have money that must be mined — created through resource-intensive computations,” he wrote in the column.

Back in 2018 he was also of the view that a total collapse of cryptocurrencies was a possibility due to the absence of a backstop.

“Their value depends entirely on self-fulfilling expectations — which means that total collapse is a real possibility. If speculators were to have a collective moment of doubt, suddenly fearing that Bitcoins were worthless, well, Bitcoins would become worthless,” Krugman wrote.

On this point at least his opinions on Bitcoin seem to have since changed – though he is no less dismissive of its other qualities.

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