During a spirited debate with ConsenSys founder Joseph Lubin at the Fluidity Summit in New York this week, prominent NYU economist Nouriel Roubini raised some valid and thought-provoking criticisms of bitcoin and cryptocurrencies. But being an establishment figure, this is hardly surprising. Do his arguments actually hold any water?
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Finally… A Sensible Cryptocurrency Skeptic
The Roubini-Lubin discussion, while at times heated, marked a far more intellectually stimulating assessment of the merits of cryptocurrencies than the likes of the outlandish “harvested baby brains” outburst from Berkshire Hathaway’s Charlie Munger. It was also a significantly more purposeful exercise than some of the absurdist antics banks have engaged in when comparing bitcoin to infectious diseases to describe its pattern of public acceptance.
Nouriel Roubini has a sharp mind and is widely noted for his prediction, two years in advance, of the U.S. housing market crash and the Great Recession that followed. He is not the only person who claims to have predicted the recession, but certainly one of the few who predicted it before it happened.
Some Peripheral Concerns
Roubini revealed himself at the Fluidity Summit to be a serious bitcoin and cryptocurrency skeptic. Three of his concerns will be left aside as they pertain to concomitant issues to the central question of “cryptocurrencies as legitimate currencies”.
Firstly, he accused cryptocurrencies of being too confusing to use. This relates to the way digital assets are currently “banked”, (i.e. by individuals), and to the fact that they are not government-guaranteed like fiat savings held at bank accounts. It is an observation of the relationship between states and cryptocurrencies.
He also referred to the Satis Group research that found 81 percent of ICOs to be scams, and only eight percent to have successfully found their way onto exchanges. This speaks to a fundraising technique that uses – but does not speak to the nature of – cryptocurrencies, and is an attack on ICOs and the level of criminality and incompetence accompanying many of them, rather than one on cryptocurrencies themselves.
He also spoke of the environmental impact of cryptocurrency mining. That is an externality relating to the manner in which many – but not all – coins are created rather than their merits or otherwise as currencies. It is also akin to the argument that fiat currencies are environmentally destructive because printing presses contribute to deforestation through their use of paper and are probably intensive consumers of electricity. (It is recognized that the polymer used in banknotes in a number of countries in the world is recyclable).
These issues are worthy of discussion but reside outside the scope of the present article.
Roubinomics & The Problem with Crypto
Roubini argued that cryptocurrencies fail to qualify as currencies insofar as they do not provide a unit of account (common measure of value) that goods or services are priced in, are not an effective means of payment, and are not a useful store of value.
On his first point, Roubini’s argument is entirely correct. The vast majority of goods and services worldwide are not priced in any cryptocurrency. Yet this is merely a product of regulation and history. 19 of the 28 member states of the European Union (along with four microstates within the physical EU, a further two that unilaterally adopted the currency, and some overseas territories) replaced their local currencies with euros.
In so doing, goods and services ceased to be priced in the currencies they had traditionally been priced