So is bitcoin a giant bubble that will end in grief? Yes. But it’s a bubble wrapped in techno-mysticism inside a cocoon of libertarian ideology.
In principle, you can use bitcoin to pay for things electronically. But you can use debit cards, PayPal, Venmo, etc. to do that, too — and bitcoin turns out to be a clunky, slow, costly means of payment. In fact, even bitcoin conferences sometimes refuse to accept bitcoins from attendees. There’s really no reason to use bitcoin in transactions — unless you don’t want anyone to see either what you’re buying or what you’re selling, which is why much actual bitcoin use seems to involve drugs, sex and other black-market goods.
So bitcoins aren’t really digital cash. What they are, sort of, is the digital equivalent of $100 bills. Like bitcoins, $100 bills aren’t much use for ordinary transactions: Most shops won’t accept them…
Bitcoin, by contrast, has no intrinsic value at all. Combine that lack of a tether to reality with the very limited extent to which bitcoin is used for anything, and you have an asset whose price is almost purely speculative, and hence incredibly volatile.
When it comes to cryptocurrencies there’s an additional factor: It’s a bubble, but it’s also something of a cult, whose initiates are given to paranoid fantasies about evil governments stealing all their money (as opposed to private hackers, who have stolen a remarkably high proportion of extant cryptocurrency tokens). Journalists who write skeptically about bitcoin tell me that no other subject generates as much hate mail.
Eulogy made by Paul Krugman
