Blockchain’s Broken Promises

Jan 26, 2018 Nouriel Roubini

Boosters of blockchain technology compare its early days to the early days of the Internet. But whereas the Internet quickly gave rise to email, the World Wide Web, and millions of commercial ventures, blockchain's only application – cryptocurrencies such as Bitcoin – does not even fulfill its stated purpose.

As a currency, Bitcoin should be a serviceable unit of account, means of payments, and a stable store of value. It is none of those things. No one prices anything in Bitcoin. Few retailers accept it. And it is a poor store of value, because its price can fluctuate by 20-30% in a single day.

https://www.project-syndicate.org/commentary/why-bitcoin-is-a-bubble-by-nouriel-roubini-2018-01

Worse, cryptocurrencies in general are based on a false premise. According to its promoters, Bitcoin has a steady-state supply of 21 million units, so it cannot be debased like fiat currencies. But that claim is clearly fraudulent, considering that it has already forked off into three branches: Bitcoin Cash, Litecoin, and Bitcoin Gold. Besides, hundreds of other cryptocurrencies are invented every day, alongside scams known as “initial coin offerings,” which are mostly designed to skirt securities laws. So “stable” cryptos are creating money supply and debasing it at a much faster pace than any major central bank ever has.

As is typical of a financial bubble, investors are buying cryptocurrencies not to use in transactions, but because they expect them to increase in value.

Until now, Bitcoin’s only real use has been to facilitate illegal activities such as drug transactions, tax evasion, avoidance of capital controls, or money laundering. Not surprisingly, G20 member states are now working together to regulate cryptocurrencies ...

Since the invention of money thousands of years ago, there has never been a monetary system with hundreds of different currencies operating alongside one another.

In the US, the reason we do not use euros or yen in addition to dollars is obvious: doing so would be pointless, and it would make the economy far less efficient. The idea that hundreds of cryptocurrencies could viably operate together not only contradicts the very concept of money; it is utterly idiotic.

But so, too, is the idea that even a single cryptocurrency could substitute for fiat money. Cryptocurrencies have no intrinsic value, whereas fiat currencies certainly do, because they can be used to pay taxes. Fiat currencies are also protected from value debasement by central banks committed to price stability; and if a fiat currency loses credibility, as in some weak monetary systems with high inflation, it will be swapped out for more stable foreign fiat currencies or real assets.

As it happens, Bitcoin’s supposed advantage is also its Achilles’s heel, because even if it actually did have a steady-state supply of 21 million units, that would disqualify it as a viable currency. Unless the supply of a currency tracks potential nominal GDP, prices will undergo deflation.

That means if a steady-state supply of Bitcoin really did gradually replace a fiat currency, the price index of all goods and services would continuously fall. By extension, any nominal debt contract denominated in Bitcoin would rise in real value over time, leading to the kind of debt deflation that economist Irving Fisher believed precipitated the Great Depression. At the same time, nominal wages in Bitcoin would increase forever in real terms, regardless of productivity growth, adding further to the likelihood of an economic disaster.

Clearly, Bitcoin and other cryptocurrencies represent the mother of all bubbles, which explains why every human being I met between Thanksgiving and Christmas of 2017 asked me if they should buy them. Scammers, swindlers, charlatans, and carnival barkers (all conflicted insiders) have tapped into clueless retail investors’ FOMO (“fear of missing out”), and taken them for a ride.

As for the underlying blockchain technology, there are still massive obstacles standing in its way, even if it has more potential than cryptocurrencies. Chief among them is that it lacks the kind of basic common and universal protocols that made the Internet universally accessible (TCP-IP, HTML, and so forth).

So, forget about blockchain, Bitcoin, and other cryptocurrencies, and start investing in fintech firms with actual business models, which are slogging away to revolutionize the financial-services industry. You won’t get rich overnight; but you’ll have made the smarter investment.

Nouriel Roubini, a professor at NYU’s Stern School of Business and CEO of Roubini Macro Associates, was Senior Economist for International Affairs in the White House's Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank.

If anybody is still mining or even buying this crap of crypto-bullshit then he will have to pay one day for one or the other or both of these dumb ideas.

Two things are infinite: the universe and human stupidity; and I’m not sure about th’universe!

Albert Einstein

a) so called cryptocurrencies are imploding

and

b) interest rates are exploding

= very toxic.

A CRASH in all asset classes is IMMINENT

WE are only seconds away from the ultimative CRASH !!! I am very, very certain !

Cryptocurrency fiasco and rising interest rates will initiate a shock and therefore we will see further CRASHs in stockmarkets, bondmarkets, real estate markets and commodity markets !!!

This will end horrible. The world economy will crash. I am MORE THAN CERTAIN. Its not anymore a question of "if" but a question of "when". I am more than sure it will happen in until spring 2018. A Crash the world never has seen.