“Crypto Skeptics”
Like in all new things there are always those in favor and those against it, and that’s the case of cryptocurrency. Whether it is because your old fashion, not good with computers or think it’s a scam, cryptocurrency is making a place in the financial market.
For this blog, I have taken two very different economists one Keynesian and the other Austrian economics. Both known within their world and very opinionated about cryptocurrency.
Regarding cryptocurrency the economist Paul Krugman says "Set against this history, the enthusiasm for cryptocurrencies seems very odd, because it goes exactly in the opposite of the long-run trend. 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."
Krugman adds,"Cryptocurrencies, by contrast, have no backstop, no tether to reality. 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."
Davinci Jeremie, owner and senior developer at Davinci Codes SPA, regarding Paul Krugman’s allegations, “Bitcoin is a frictionless currency when compared to SWIFT, Federal Reserve Wire Network or the Clearing House Interbank Payments System. Those systems often delay or lose the money. I believe banks also force people to prove they are not a criminal at every transfer. Cryptocurrency unit requires providing a complete history of past transactions this is done to ensure that no one is defrauding the system. However, this is not a requirement as most bitcoin wallets just trust the network. Bitcoin is better because it is not money created by the click of a mouse, easy money creation allows governments and central banks to rob the public savings such as Venezuela. Bitcoin must be mined — created through resource-intensive computations that ensure the inflation rate steadily decreases to zero and secures and verifies each transaction”.
On an interview given to Coin Desk Peter Schiff, also a well-known economist states that’s, "This is a speculative frenzy. Right now, this is a bubble. It's a cult. When you're in it, obviously you need more people to believe in it, because the price can only go up if other people buy in. In that sense it's a natural Ponzi scheme – a lot of it is just plain greed." He also adds, "I think it will have the opposite effect. People are going to lose money. This could really backfire, giving libertarian ideals a bad name by making fiat look good. The downside can be really spectacular."
According to Davinci, “Bitcoins and crypto are mostly speculative, the word cult conjures up people being forced to do something they really don't want to do but get talked into it, "investment advisors?". I recall Peter Schiff asking one of his customers not to sell a stock he recommended. Peter stated in 2011 and 2013 bitcoin was in a bubble like the tulip bubble. The only thing the tulip bubble and “Bitcoin bubble” have in common is price went up fast and came back down. Where they differ is at the top of the tulip bubble you could buy a home for one tulip bulb however never again in the last 400 years has the price returned to that level. Contrast that with bitcoin’s 2013 “bubble” at the top you could buy 1oz of gold, however, today you can buy 5oz of gold. Finally, let's add one word to Peter's statement just to see if makes any sense. "When you're in “stocks”, obviously you need more people to believe in it because the price can only go up if other people buy in. In that sense it's a natural Ponzi scheme – a lot of it is just plain greed." If I buy a stock, the only way it can go up is if many other people want to buy the same stock, thus it is not a Ponzi scheme.
Davinci adds, “I am surprised that people who are considered intelligent and have done well for themselves are unable to see the potential of Bitcoin because it is much like when electricity was invented for homes. A long time ago electricity in your home did not make sense, there were very few power stations, hardly any devices existed to take advantage of it, it was difficult to install and potentially dangerous. Bitcoin is the same today, very few exchanges, hardly any stores accept it, its difficult to install and use and potentially financially dangerous. Although I am surprised, I understand why some people are unable to see bitcoin's huge potential to revolutionize global finance based on this quote”
"I know that most men not only those considered clever, but even those who are very clever and capable of understanding most difficult scientific, mathematical, or philosophic, problems can seldom discern even the simplest and most obvious truth if it be such as obliges them to admit the falsity of conclusions they have formed, perhaps with much difficulty conclusions of which they are proud, which they have taught to others, and on which they have built their lives." - Leo Tolstoy, author, War, and Peace
Whether you believe in cryptocurrency or not the truth is that banks have had the financial power for all this time and why not have another option. I think It's a good and legitimated initiative to give people a differentchoice and let them chose whether they want to stick with the old or be a part of the new financial system.
Hope you enjoyed it, comment if you like