Before you read any further, go ahead and watch the very short clip above.
Now, if that resonates with you: please do not invest in cryptocurrency before you convince yourself the ideas there are weak at best. If you invest while being easily swayed by these arguments, then you will likely only contribute to market volatility and eventually panic-sell – losing money in the process.
If you don’t find this convincing… but your Grandfather, like mine, forwarded you this clip – then please send him here. He needs to step outside of his comfort zone and understand just how lackluster these arguments really are.
Ok, Grandpa. This is all wrong.
While I don’t think Bitcoin, specifically, is the ultimate distributed ledger tech on the block – the criticisms put forward in the video are completely underwhelming. They are exactly the kind of surface-level, hand-waving banter that contribute nothing to either side of the argument that the world truly needs to be having right now.
I know you probably respect Mr. Stiglitz’s pedigree. He may be intelligent, but he isn’t infallible. Just a decade ago he was praising the Venezuelan President Hugo Chavez’s economic policies – the same policies that led to rampant inflation and starving people. Sometimes, even smart people get things wrong.
Let’s look at where he went wrong this time:
On of the main functions of government is to create currency.
Simple enough to fix this statement. Just change “is” to “has been”.
In fact, currency creation has been trending towards higher levels of organization for quite some time. From tribal issuance, to state issuance, then to country issuance – oh, and there is even the Euro “experiment”. Moreover, central banks within those larger social organizations are still relatively new themselves. Where is the convincing argument that monetary innovation should suddenly stop at the specific level of organization that Stiglitz is most familiar with?
Why should governments alone do this? He never touched on the “why”. Maybe that’s because it’s exceedingly difficult to muster up much of an argument in support of that idea.
Let’s not forget that Bitcoin maximalists have largely abandoned the concept of Bitcoin as a “currency” altogether – and, instead, now largely refer to it as a “store of value”. Would a simple shift in the conception of this brand new technology make Stiglitz’s statement irrelevant? If so, then the tech actually isn’t being attacked – the labeling is. If not, then – when did the memo go out that government should be the sole issuer of precious metals?
Bitcoin is successful only because of its potential for circumvention, uh, lack of oversight…
Bitcoin’s distributed ledger is literally broadcast to anyone connected to the internet that cares enough to receive it. If there is a “lack of oversight” – it is not due to the technology, but to the “overseers” Mr. Stiglitz has in mind. The fact that anyone can look at any and every transaction at any time from anywhere in the world with an internet connection, seems to rather obviously undermine the idea that Bitcoin is only successful because the government isn’t yet looking (never mind the fact that they are verifiably looking).
It’s nice that he admits Bitcoin is “successful,” but even that is a basically empty statement. By which metric? Considering that question would probably have revealed some of the utility of Bitcoin, which Stiglitz clearly wished to avoid.
It doesn’t serve any socially useful function.
This is borderline ignorant at best and an outright lie at worst. Even just theoretically: having a censorship-resistant, globally-accepted asset would grant an unparalleled piece of mind. Even if Bitcoin falls short in practice – it’s closer to the mark than any non-crypto asset.
Being able to send money around the world with real-time market-based fees that are often lower than many alternatives is useful. Having a place to park value when banking is not available is also useful. The list goes on…
We oughta just go back to, to what we always have had.
What? Wait. Why? Is he somehow promoting the equivalent of a return to… shared-line telephones or the horse and buggy of yesteryear? This sounds like he’s advocating technological regression if we pull it out of context. That’s not his aim. In fact, he immediately says:
Let’s move away from paper into the 21st century of a digital economy.
He doesn’t pretend not to recognize the need for digital money. He’s embracing it, actually. The only thing he’s rejecting is the first “successful” attempt at implementation. Curious.
So, digital currency is actually desirable. We should embrace the concept of digital money while simultaneously reverting to what we “always have had”. Presumably, this could only mean that government-backed cryptocurrencies should be the aim.
So, just by virtue of transferring custodianship of a technology into the hands of bureaucrats it suddenly inherits some “socially useful function”. Would this function be… maintenance of the social order, perhaps? He leaves us guessing.
…they could close [Bitcoin] down at any moment. And then, it collapses.
This final statement reveals a complete lack of appreciation for how difficult it would be to shut down a decentralized, distributed network that millions of individuals are committed to protecting. It is non-trivial in a way Stiglitz either doesn’t properly comprehend or completely wishes to ignore.
However, this statement does well to highlight a potential problem with a government-controlled cryptocurrency. That governments absolutely could make collapse on their whims. Which is precisely why so many people get so excited about the possibility of something outside of government reach.
People don’t want to be scared of government confiscation or mismanagement. That is one of the primary reasons why Bitcoin is promising – because it provides an alternative… where the government isn’t the only game in town. Thankfully, there are now several alternatives – not just Bitcoin.
A Closing Word on Tulips
Tulips did not, could not make any such promises.
Tulips did not have the potential to reorganize the world’s power structures. They did not strip governments of any power. Tulips did not empower individuals on a global scale. They could not promise to eliminate middle-men in markets or to make banks less relevant. Tulips never held the promise to transform the world in the way that cryptocurrencies do.
Statements comparing the two are as myopic as their proponents.
We’re Moving Forward, Not Backward
It doesn’t take a noble prize to see the writing on the wall, one just needs to explore these ideas a little more thoroughly.