Pr Roubini vitriolic critique against cryptos are turning into a Twitter teenagers fight. While this is highly entertaining, I would like to give my 2 cents and provide some rebuttal to the wrong arguments presented as ultimate refutations. Before starting, I just want to state that I never predicted any financial crisis, did not work for the White House (not even for the cleaning department) and have no academic financial education. I’m just a random citizen who got interested in monetary and financial issues after my savings were frozen for nearly a year after my bank collapsed in the aftermath of the 2008 crisis. I’ll try to remain focused on the facts as of now, although it will be hard to refrain irony here and there given the tone of the original text.

Many points are debated within the crypto community

First, I would like to highlight that many critics made by Roubini are nothing new. Despite what Mr Roubini claims (mainly in his Tweets, in which he completely lost it), blockchain is a space filled with very different people who do not share the same ideology. This is why we see often heated debate within the community, hard forks… Many of his concerns are widely shared, others less. For example :

  • Scams
  • Shady exchanges
  • Tether
  • Scalability issues

Step by step the space is professionalizing, becoming more compliant – although we are still waiting in many juridictions for a clear legal framework, a delay that is normal as authorities have to deal with brand new issues.

Blockchain is still in its infancy

I don’t get why Pr Roubini brandishes those issues to bury once and for all cryptos. What about the natural cycle of technology development and adoption? Bitcoin was created a mere 10 years ago, dApps are way younger as smart contract possibilities emerged a few years later (so when he says that “after 10 years we have no successful dApp beside cryptokitties”, it is not very honest). So we have a brand new technology still in its infancy, with obvious teething issues that any crypto invester with a sane mind reckons, and this is used as arguments to ditch a whole space once and for all. What a shortcut.

So let’s take some historical examples. The first computer was build in 1946, weighted 50 tons. The first commercial computer was born in 1950, only to be used by some scientists. The first « commercial PC » was manufactured in 1964. They provided horrible user experience, were crazy expensive… You get what I mean, market penetration was slow, you don’t come up with a brand new concept and get mass adoption within 10 years. Same can be said for the Internet, mobile phone, etc. Why blockchain would be different ? Those examples are too old ? Let’s talk about electric cars then. Tesla started to work on electric cars in 2004. Fourteen years later electric car adoption is still very low, despite the massive subsidies offered by authorities in Europe, China, etc. Simply because the tech is not mature yet and remains expensive. Mr Roubini does not explain in his 30 pages critique why blockchain is supposed to see mass adoption in a couple of years. Many of his arguments revolve around the actual state of cryptos. Thinking it won’t evolve is idiotic, as idiotic as saying that EV had no future because the autonomy of the first released car had was around a hundred kilometers…. Given this, most of his arguments can be thrown to the bin.

Collection of hyperboles

For an academic such as Mr Roubini, this constant resort to hyperboles should be seen as a proof of arguments weakness. Again, he uses quotes from a fringe of crypto enthusiasts, aka maximalists, to make his point, as they are the gatekeepers of the space. Would Pr Roubini know better about it, he would know that many people and project leaders are moderately cautious about blockchain future, do not share the same vision re decentralization, a term that can be interpreted in different ways (more on that later).

To quote a few :

“…the technology underlying crypto that is now alleged to be the cure of all global problems, including poverty, famines and even diseases.”

“in practice it is nothing better than a glorified spreadsheet or database”

“Paying $55 dollars of transaction costs to buy a $2 coffee cup is obviously never going to lead Bitcoin to become a transaction currency.“

I agree on the very low quality of ICOs, that most projects will disappear. However it should not be a surprise as failure rate of non blockchain startup is very high (from 70 % to 90 %, according to the source). A fact that Mr Roubini forgot to mention among his hyperboles.

“Crypto is not money”

I agree that, right now, no crypto has sufficient adoption to claim to be a currency. But again, let give it some time before making any claim. However, for Bitcoin it is very clear that it aims to become a store of value (Bcash aiming to be a currency). In such scenario scalability is not so important, Bitcoin becomes an asset similar to gold. Furthermore I would argue that because of Murphy law, unless the actual monetary system praised by Mr Roubini is completely overhauled, Bitcoin, as a non inflationnary currency, cannot become money. In other words, why would you spend BTC on coffee if you have debased fiat in your wallet to spend?

« 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 ». The space is so young that it has attracted a lot of players, battling for market shares. We can assume only the best will survive, if they will… And BTW yes there are around 2000 coins around, but only a fraction of them want to fulfill a currency role. The vast majority are utility and dividend tokens. You cannot claim there is not adoption and in the same time that “hundreds are operating”. Most will die, it does not mean the space will die, you just need one very successful one to continue the legacy…

I will finish with that point saying that people are working on atomic swaps. I’m not claiming that this will solve the issue in 6 months. But claiming that cryptos are dead based on where we are and not taking into account potential developments, and in such demeaning terms (“utterly idiotic”) is quite dangerous for Mr Roubini reputation, especially when his reputation seems dear to his heart.

Cryptocurrencies have no intrinsic value

Mr Roubini explains us that fiat is useful because it can be used to pay taxes. Well, I would argue that it is because we MUST pay taxes in fiat. In others words, intrinsic value of fiat is derived of the capacity of a government to tax its population. Without being an anarchist as I believe taxes are necessary, I would prefer that the intrinsic value of my money does not depend on that, especially given the sovereign and household debt levels that we are reaching, with no sign of relief in sight…

In short fiat is imposed upon us. Why not let the people decide, if we believe in free markets? In Venezuela people clearly prefer the useless Bitcoin to the Bolivar. BTC is quite popular in countries such as Turkey or Argentina.

What is supposed to be real money ? To me it’s a currency without counterparty risk, that has real value embedded. To me only gold and Bitcoin satisfy those criterias. Mr Roubini talks several times about gold as an asset that he seems to respect. But he states:

The other argument made by crypto zealots is that other financial activities – such as gold mining or running the traditional financial system – hog a lot of energy. Those apologies are utter nonsense. The mining of gold or the provision of financial services produces value added and output to the economy that is 1000X than the pseudo value added of crypto mining.

This is weird, now Mr Roubini uses the arguments of the hardcore gold bugs. Bitcoin has some intrinsic value because of the sheer quantity of energy required to mine them, and to keep the network running. This is exactly why gold has been considered as money for 5000 years: it is a store of value, a store of work, a store of energy. It’s not because one day someone woke up, found it beautiful and decided it will be money. Gold became money in many civilization around the world because of its physical characteristics and its scarcity. It requires a lot of effort to be mined and minted. It is scarce. Once the gold coin or bullion is minted, it is almost indestructible. Any good produced is somehow a store of energy. But only gold can last, that’s why it became money. Bitcoin offers a digital version, analogies are obvious. I still prefer gold to BTC because the yellow metal is proven, held by central banks. But things might change… The more time passes, the more BTC becomes legitimate.

“Blockchain is most overhyped technology ever, no better than a glorified spreadsheet or database”

In this part of his critique, Mr Roubini claims that blockchain is no better than a database. I will certainly agree that decentralization offers a lot of disadvantages, which means that it is not always beneficial. Again here Mr Roubini refutes outrageous maximalists claims with its own unreasonable counterarguments. It is therefore not a surprise to see him fighting on Twitter, both camps are on the same level of intellectual honesty. Total decentralization as seen by maximalists (“it cannot be shut down because it’s decentralized”) is a myth that cannot be achieved. Smart contracts must be written by someone. Infrastructure must be created around those contracts. Miners must maintain the chain alive. With a ban use case will be close to none. Yes BTC cannot be totally shut down, but its adoption can. People are accountable, they cannot hide behind the code.

So Mr Roubini is mocking (rightfully) this vision, but he uses maximalists definition of decentralization to prove its irrelevance. But what if decentralization is just about offering data and transactions that cannot be tampered, in other words removing any third party risk? If blockchain had been used during the 2000 American presidential elections, there would have been no controversy about the winner. It would have saved the US a major political crisis. Elections are one of the great applications of blockchain. Mr Roubini can use all the rhetorical tricks he wants, such possibility never presented in the past. It would solve the legitimate concerns around electronic vote.

Let’s take another example. I want to trade and I must deposit funds to a third party. What if my funds are on a smart contract that guarantees that I, and only I, can access the fund, hence withdrawing whenever I want. What if a company wants to share monthly some profits with its shareholders? The current Ethereum blockchain allows to deploy easily such solution.

Let’s wrap up this point with a last example. Mr Roubini is familiar with financial crises and finance in general. He knows better than anyone that if I deposit money to my bank, I’m not the legal owner of my money, it becomes a liability owned to me. I discovered this in 2008 after a bank in which I had money in bankrupted in the aftermath of one of the most acute financial crisis of the history – taking by surprise all those respectable financial institutions providing stability – crisis that has been “solved” with unprecedented liquidity injections. So we get back to the counter-party risk. Mr Roubini thinks the next financial crisis will occur around 2020, Blockchain has evident advantages. Maybe if he has money frozen/confiscated during the next financial crisis he predicts (unless he plans to start the bank run), he might see the advantages of this semi-centralization, or semi-decentralization, I let him choose the term that suits him.

Financial crises, central banks and fiat

I will leave Austrians and other economists who criticize CB policies answer on Mr Roubini praise of central banks and fiat. He shares the view of the establishment economists. Others, with respectable credentials too, do not share his opinions. https://fee.org/articles/the-myth-that-central-banks-assure-economic-stability/

And when he presents some facts, they are not the best. For example, read this article about the Tulipmania, a term used and abused to describe the cryptos complex, without having a clue about what happened. https://www.smithsonianmag.com/history/there-never-was-real-tulip-fever-180964915/. 

Talking about respectability of banks paying each year millions of dollars in fines for money laundering, market manipulation from gold to LIBOR (manipulation that costed billions in interest rates to homeowner, far less than “Bitcoin scams”) and other criminal activities is indecent. The truth is fiat is by far the most popular vehicle for fraud. The FED has pumped til recently the markets, widening the gap between the rich and the poor. Mr Roubini, citizens have access to better information now, we are not that stupid. Maybe some people want anarchy. From my side I just want fairness. Is it too much to ask?

Conclusion: Mr Roubini is biaised

I’m not sure why Mr Roubini, who is clearly an intelligent person, went completely full “Khabib Nurmagomedov” on cryptos. I’m not saying that he will be necessarily wrong. But this doom scenario is only one of the many that could unfold. The truth is, nobody really knows. It is foolish to draw definite conclusions now, just because another bubble burst. Each time a Bitcoin bubble burst, the next one is bigger… Again, I’m not saying it will happen again, but I would not dare to call the death of the whole blockchain space, and in such strong terms. If Mr Roubini wanted to provoke, he did a perfect job. About raising the bar of intelligence and honesty, it is a big fail. His tirade could haunt him in the future. Didn’t Bill Gates said in the nineties that “internet has no future”. The future will tell, and it does not lie.