Cryptos Set the Monetary System Back by 300 Years?

Though cryptocurrencies are quite popular today, there are still people that are against digital currencies. You have the likes of Warren Buffet that considered Bitcoin as gambling. You also have the likes of Bill Gates who share the same opinion as Warren Buffet.

Recently, Paul Krugman who is a Nobel Prize-winning economist expressed his sentiments regarding the entire crypto industry. Despite the disruptive technology brought by blockchain, he said that cryptos “set the monetary system back by 300 years”.

He mentioned a number of things that make cryptocurrencies impractical. For instance, he mentioned the transaction cost that these cryptocurrencies carry.  He said that “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 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 also added that “In other words, cryptocurrency enthusiasts are effectively celebrating the use of cutting-edge technology to set the monetary system back 300 years”.

No Underlying Value

Krugman argues that cryptocurrencies also don’t have an underlying value, unlike fiat currencies. He argues that cryptocurrency is a bubble. It is going to collapse once people have lost their faith in digital currencies

He said that “Cryptocurrencies (in comparison to fiat currency) 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, Bitcoin would become worthless”.

There is also no real-life application to cryptocurrencies according to him. He compared assets such as gold and silver saying that aside from holding a “store value” these things have real-life applications used in jewelry and even filling a teeth.

Regulations on Crypto

Regulatory clarity is slowly becoming reality. Despite Krugman’s negative opinion regarding cryptocurrencies, even the European Parliament released a report saying that it’s a bad move for countries to ban cryptocurrencies. In addition to this, countries such as South Korea have opted to adopt the unified G20 crypto regulations.

In the US, the US Securities and Exchange Commission has already considered both Bitcoin and Ethereum not as securities. And for this reason, these assets are not subject to the same rules as stocks and other investment vehicles.

There is also the anticipation to the possible approval of Bitcoin ETF. Though Tyler and Cameron Winklevoss’  Bitcoin ETF application was shut down once again for the second time by the US SEC, there are many other applications that are still waiting for approval.

Is Krugman actually right after all that it’s a bubble and cryptocurrencies don’t have any real-life application? Not to mention it makes use a good amount of energy? Or perhaps, we are seeing people accept cryptocurrencies even more especially this year when regulatory changes have been progressing quite well in different parts of the world?