Long-time cryptocurrency critic and Nobel Prize-winning economist Paul Krugman said in a string of tweets on Wednesday that Bitcoin (BTC) could very well survive indefinitely, but only as a fundamentally useless cult.
Krugman’s harsh words were prompted in response to Wednesday’s market plunge which saw numerous coins lose close to 50% in value, and resulted in close to $1 trillion in value departing the global market cap before a recovery bounce brought some of that sum back.
“I don't write much about Bitcoin because there aren't any fundamentals to discuss,” tweeted Krugman, who wrote about Bitcoin as early as 2013 in his New York Times blog, calling it “evil” at the time.
“BTC isn't a new innovation; it's been around since 2009, and in all that time nobody seems to have found any good legal use for it. It's not a convenient medium of exchange; it's not a stable store of value; it's definitely not a unit of account,” continued Krugman, taking aim at the two use-cases generally attributed to Bitcoin: a means of payment, and a store of value.
While the crypto faithful may be quick to defend Bitcoin against any and all attacks (perceived or real), Krugman’s critique chimes with many figures in the cryptocurrency space who believe Bitcoin’s utility has been hamstrung in recent years by ill-conceived and misguided development decisions.
For example, Bitcoin’s average transaction fee rose to as high as $62.77 in late-April — a single statistic that causes Bitcoin’s attributed reputation as a day-to-day currency to dissipate before our eyes. This is largely because the Bitcoin block size is still limited to 1MB (third-party applications increase this figure somewhat), despite it being capable of much higher transaction throughput.
The block size debate caused a rift in the Bitcoin community in 2017 and saw a big-block faction break away to form Bitcoin Cash (BCH). Bitcoin Cash increased the foundational protocol’s block size to 8MB and then 32MB in pursuit of achieving the vision of peer-to-peer electronic cash laid out by Satoshi Nakamoto in the original whitepaper.
Bitcoin developers’ refusal to raise the block size was followed by a narrative shift in which Bitcoin was rebranded as “digital gold” — a store of value, and not something to be used as a transactional currency. This shift was reasoned as necessary because increasing the block size to include more transactions would mean the blockchain would grow larger and demand more hard drive space from node operators over time.
Opponents of the digital gold vision argue that hard drive space is something growing cheaper by the day, and would not pose an obstacle to would-be miners or node operators. Indeed, since 2015 alone the average cost of hard drive space per gigabyte fell from $0.038, to the current price of $0.021 witnessed at the time of publication. The 400GB Bitcoin blockchain could fit 25 times over onto a consumer hard drive that can presently be purchased for around $200.
And while analysts claim Bitcoin will eventually find price stability at some point in the future, that day has not yet arrived. Recent price volatility is an obvious reminder of this, as is the ever-constant flow of large sums of BTC to centralized exchanges, as whales constantly look to capitalize on market fluctuations.
Krugman said the perceived value of Bitcoin rested on the illusion that it was a technological solution to the impending collapse of the fiat system, something he suggested was a libertarian folly.
“Its value rests on the perception that it's a technologically sophisticated way to protect yourself from the inevitable collapse of fiat money, which is coming one of these days, or maybe one of these centuries,” Krugman said, adding, “Or, as I say, libertarian derp plus technobabble.”
Krugman signed off on a week of drama in the crypto space by extending a barbed olive branch to the Bitcoin crowd. Krugman suggested Bitcoin’s longevity was assured, but only because new members would constantly be recruited to its “cult.”
“But I've given up predicting imminent demise. There always seems to be a new crop of believers. Maybe just think of it as a cult that can survive indefinitely,” he said.