Blogs & Articles: The Four Worst Ways To Attack Bitcoin đ 1 year ago
- Category: Blogs & Articles | Bitcoin Magazine: Bitcoin News, Articles, Charts, and Guides
- Author(s): Joakim Book
- Published: 31st January 2023 13:00
In his latest book, Nouriel Roubini demonstrates the worst ways to try and attack Bitcoin.
This is an opinion editorial by Joakim Book, a research fellow at the American Institute for Economic Research and contributor to Bitcoin Magazine, HumanProgress.org and the Mises Institute.
Finding fault with Bitcoin and Bitcoiners is easy. Every schmuck, stick, know-it-all pundit, wiseass and establishment elite has a handful of complaints readily available. Bitcoin uses too much electricity; its fixed money supply schedule makes interventions from a benevolent central bank impossible; it doesnât have enough inflation for a growing economy; it is used by pesky criminals; and its mean, technobabbling users hurt my brittle feelings.
The objections get tiresome about as quickly as they get recycled.
One fantastic example is the doomspeaker economist Nouriel Roubini, known for his bombastic and bearish declarations â frequently nicknamed âDr. Doomâ by the financial press. In his own mind, he is merely ârealistic,â which every madman would say about himself when queried. In his latest book, âMegathreats: The Ten Trends That Imperil Our Future, And How To Survive Them,â he insists that most people overlook something about this infamous nickname:
âThose who label me Dr. Doom fail to see that I examine the upside with as much rigor as the downside. Optimists and pessimists both call me contrarian. If I could choose my nickname, Dr. Realist sounds right.âÂ
The Bitcoin obituaries site 99bitcoins.com lists our beloved economist hater 12 times, but Googling finds plenty more Bitcoin denouncements from this outspoken character â in every outlet thatâll have him, it seems, from Twitter to the Financial Times.
To Roubini, bitcoin was a bubble in 2013, a âPonzi gameâ and ânot a currencyâ in 2014, a âgigantic speculative bubbleâ in 2017, almost all transactions were fake in 2019 and, most tastefully, in 2020 a little bit of everything:
What his new book does so well is outline the worldâs many macroeconomic troubles. For five mesmerizing chapters, he describes the debt problems, the demographic impossibility that is the bankrupt Ponzi (sorry, âpensionâ) schemes of Western nations, the easy money disaster and the boom-bust cycle that it gives rise to. Stagflation in the 2020s did not come as a surprise to him, and he locates the blame precisely where it should be: âWe poured massive amounts of money and fiscal stimulus into a financial and economic system already awash in cash and credit.â With a short-term view and politically-captured central banks, we get disastrously easy money because âthat is what voters want and leveraged markets need to avoid crashing.â
He even comes down on the correct side of the 2022 blunder to use the dollar payment rails to sanction a G8 economy: âThis sort of weaponizing of currency for the pursuit of national security goals is the latest frontier of the mission creep of central banks, starting with the Fedâ (ignoring that the Federal Reserve doesnât make sanction decisions).
As a rule, whatever Bitcoinâs flaws are â as a money, as a protocol, as a usable tool, as a community â it gets better, relatively speaking, when the incumbent monetary system gets worse. Whatever your position on Bitcoin was three, five or 10 years ago, you must look at it more favorably today: the monetary system in place has gotten so much worse, with inflation, anti-money-laundering bureaucracy, clown-world behavior and frozen accounts being just the worst offenders. All is not well in the world of money; that makes Bitcoin a more tempting prospect, all things equal.
So, is Roubini a Bitcoiner now? Has the ultimate Bitcoin bear, diligently at it for a decade, finally come around? Seeing clearly the monetary madness of the world, it wouldnât be the strangest thing for Dr. Doom to at last tone down his criticism of Bitcoin.
Instead, we got Groundhog Day.
The single chapter dedicated to financial instability spends a dozen or so pages on Bitcoin, unbelievably dedicating most of them to âcrypto,â âDeFi,â âstablecoinsâ and central bank digital currencies. Sigh.
Still, even here we had potential: The rise of crypto, explains Roubini, âexposes our collective wilting faith in the ability of governments to back the money they issue.â Hear, hear.
Queen Taylor Called
âUgh, so he calls me up and heâs like âI still love youuuâ, and Iâm like âI just⊠I mean, this is exhausting, you know? Like, we are never getting back together. Like, ever.ââ
âBitcoin philosopher Taylor Swift
If you are to critique Bitcoin â something you certainly, certainly can do â here are some things you should do:
First, get your monetary attributes in order.
There are three â store of value, unit of account, medium of exchange â not five. You canât invent new ones and duplicating previous ones isnât useful. Roubini introduces âsingle numeraire,â which is exactly the same thing as a unit of account, and splits store of value into stable value against âmarket valueâ and against âan index of the price of goods and services.â Try carving out a difference. This is silly word play.
Second, make sure your criticism is levied against Bitcoin, not âcrypto.â
Most people think of bitcoin as merely the first âcryptocurrency,â the most famous among tens of thousands of scammy shitcoins. Itâs not. What holds and happens in the la-la land of vaporware tokens rarely has anything to do with Bitcoin: Sam Bankman-Friedâs shenanigans, Terraâs implosion or the Cryptoqueen scam do in no way detract from Bitcoinâs core, its principles or operations. When Roubini cites âBaconCoin,â quotes LoanSnapâs founder or reports negative comments by DogeCoinâs creator, he does not undermine Bitcoinâs promise.
Bitcoin is a one-off monetary invention, separated from every other money or âcryptoâ by a Great Wall of categories and concepts: it doesnât have a company or founder running it, like every other shitcoin does; it doesnât have counterparty risk nor is it subject to censorship like every other fiat currency. Bitcoin has no CEO and no marketing department; it has the strongest Lindy and the highest hash rate.
Third â and this is a hard one â make sure your points havenât already been debunked, answered and relegated to the dustbin of unimpressive, erroneous jabs at Bitcoin.
Repeating an outdated accusation makes you look stupid, not Bitcoin. Roubini goes for the vast wealth inequality in Bitcoinland, believing it to be âworse than that of North Korea.â Itâs not, and as flawed as these investigations are, UTXO ownership seems to become less and less unequal over time â as youâd expect for an emerging money that gets distributed in use.
Unsurprisingly, it uses too much energy, as much as a small country and therefore âwill blunt urgent climate initiatives to slow down global warming.â It doesnât and it wonât: if anything, Bitcoin unlocks stranded energy, contributes to balancing the grid and miners are more renewable than most major economies.
Fourth, make sure that the property of Bitcoin that youâre attacking isnât worse in the legacy system.
Warren Buffet often makes this error, thinking that hacks, fees or the fact that bitcoin doesnât generate âyieldâ dooms it to failure. Nevermind that paper money doesnât either (unless you count seigniorage to the central bank); nevermind that his ridiculing of bitcoin as a Ponzi applies equally well to apartments or Uncle Samâs pension schemes.
The most absurd accusation arrives with Roubiniâs silly soda shitcoins: If you need Coke coins to buy Coke and Pepsi coins to buy Pepsi, how could you ever establish (relative) value?! How could you ever know what either of them are worth?
Makes you wonder how Americans could ever buy things when theyâre abroad, how pound-based customers (i.e., British residents) can ever acquire anything sold in euros or spend their melting currency on Fifth Avenue. Thereâs a publicly-displayed market price for you to âconvertâ value into the monetary system that youâre familiar with; and thereâs a publicly-traded market that the banks on either side of your and your vendorâs transaction can trade and settle such that international trade works.
Fascinating.
His currency risk examples are illustrative â and disingenuous. Apparently vendors canât âpriceâ goods in bitcoin since âan overnight fall in value might wipe out the [sellerâs] profit margins.â Thatâs true as far as it goes, but holds equally so for any cross-currency transaction in the legacy world: imports or export or any supply chain more complicated than your local currency area. Besides, if you worry about the currency exposure in your sales, there is a liquid market that provides hedges for you. Many stores that accept bitcoin through various third-party solutions instantly exchange them for dollars, thus mitigating the risk.
In the very next sentence, Roubini considers the downside of the opposite risk:
âWere someone to write a mortgage with principal and interest in bitcoin, a spike in the value of bitcoin would cause the real value of the mortgage to skyrocket. If default then likely occurs, the lender loses money, and the borrower loses her house.âÂ
I suppose no American therefore owns property in New Zealand or Mexico, no European has debt contracts in USD-dollars. These are not novel risks, but ordinary financial risks that firms and households deal with already.
Whatâs so fascinating is Roubiniâs lack of symmetry: If margins can get obliterated by an overnight drop, then margins can also be doubled by an equal overnight rise. Symmetric risk. If bitcoinâs exchange rate for dollars falls â which Roubini is so certain it will â a bitcoin-denominated mortgage will wipe out itself by becoming easily repayable with appreciating dollars. This isnât to say that heâs wrong to point out these risks, but that theyâre reduced to what economists call ârisk aversion.â Unhedged bitcoin transactions or debt contracts are bad if households worry about the downside more than the upside â which, in the real world, seems to be true only to some extent.
The honest conclusion isnât Roubini's âbitcoin is incapable of being money,â since many established currencies with volatile values between one another can serve that function, but that an emerging bitcoin economy would have this added, minor layer of business risk.
Itâs like Roubini went out of his way to be up to date on all his other macro worries, only to lay forth criticism of Bitcoin that was outdated by the time he first voiced it in the mid-2010s.
Most devastatingly of all: Can anyone really be taken seriously when they slap a plural âsâ on the uncountable noun âbitcoinâ?
The better you understand the faults of the current way of doing monetary things, the better Bitcoin looks.
When you look at the many macro ills that Bitcoiners are so well attuned to, the pit of your stomach should churn in anxiety. When you look at the debts (public and private) that rampage the system, you should be feeling nauseous. All of this Roubini captures expertly, and much of his writing could even have been featured on these pages. Our beloved economist hater gets the problem, better and more vocally than most. Still, no dice.
Itâs unfathomable that someone so attuned to the worldâs catastrophic macro problems as Roubini cannot see the master-key solution that is Bitcoin.
This is a guest post by Joakim Book. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.