Nouriel Roubini Versus Blockchain: Notes from the Senate Floor

Normally, there is very limited room for drawing legitimate comparisons between a Senate hearing and an Mixed Martial Arts (MMA) fight. Yet the hearing entitled “Exploring the Cryptocurrency and Blockchain Ecosystem,” which took place on October 11, 2018 on the US Senate’s Committee on Banking, Housing & Urban Affairs’ floor, definitely bore quite a few similarities to a hyped sporting event that had made big waves just a few days ago. Two witnesses who were brought to testify on issues and promises of crypto stood by polarising views on the subject matter, albeit they expressed these views with varying intensity.

On the pro-crypto side, there was Peter Van Valkenburgh, Director of Research at Coin Center, a reserved yet very articulate speaker. In the opposite corner, there was Nouriel Roubini. Roubini or “Dr. Doom”, whose reputation is mainly founded on the prediction of the 2008 housing bubble crash, would be the fighter who does trash talking. In the buildup to the hearing, he fired a long series of vehement tweets, bashing blockchain and its supporters, picking local fights and bragging about having debated best crypto gurus and “beating them by a wide margin”.

Into the hearing

Chairman Mike Crapo, a Republican Senator from Idaho, opened the proceedings with a statement that gave a nod to Bitcoin’s unique status as the first ever digital asset, and highlighted how the bulk of the latest news on crypto has been negative, including falling prices and regulatory woes. Ranking member Sherrod Brown of Ohio weighed in to point out that it was almost Bitcoin’s tenth anniversary, yet the space is still rife with fraud and misconduct, while tangible applications are scarce. He mentioned regulatory issues and referenced the famous statement by Jay Clayton, the chairman of the US Securities and Exchange Commission, as well as the recent report by the Attorney General of New York that was anything but complementary to biggest crypto exchanges. Brown implied, however, that blockchain could be potentially useful for improving the lives of the unbanked and underserved.

Roubini’s testimony

In his speech, the New York University professor followed rather closely the rambling argument presented in his 30-page written statement. In addition to a constellation of derogatory terms – it is quite likely that for many senators this became the first encounter with terms like ‘shitcoin’ – Roubini developed several central talking points that he would reiterate dogmatically throughout his testimony and on to the Q&A session. He argued that the whole crypto ‘asset class is imploding’ now, following the steep decline of prices compared to late 2017, and educated senators on the study that identified 80 percent of initial coin offerings (ICOs) in the same year as scams. He added that digital assets are useless as currency, since they are unable to serve as unit of account, means of payment, or store value.

A recurrent theme in Roubini’s account was superiority of centralized payment systems to blockchain-based ones. Several times he brought up the claim that the Bitcoin network’s throughput is only five transactions per second, while Visa can process up to twenty-five thousand transactions per second. Other attacks included assertions that ‘nobody uses it for transactions,’ except for criminals and terrorists, while mining is an ‘environmental disaster.’

Roubini also offered a rather unconventional view of what constitutes the realm of fintech. He claimed that, indeed, there is a revolution in the financial services industry currently going on, yet it has nothing to do with blockchain. Instead, it is allegedly powered by artificial intelligence, big data, and the Internet of Things (IoT), and displays in proliferation of centralized digital payment systems.

Meanwhile, the crypto libertarian dream of total decentralization is ‘utter nonsense.’ In fact, Roubini claims, ‘crypto land’ is subject to the opposite trend: heavy centralization of mining - which is apparently controlled mainly by Chinese and Russian oligopolies, trading at the hands of centralized exchanges that are ‘hacked daily’, and development reserved for a narrow tech elite that arbitrarily changes code and forks coins whenever things go wrong.

Against this background, massive manipulation permeates the ‘crypto land,’ where pump & dump schemes, spoofing, and insider trading call the shots. In Roubini’s view, stable coins exist for the sole reason of manipulation; security tokens break all security laws, and utility tokens pave the way back to the Stone Age, where barter was prevalent. According to Roubini, even the “Flintstones knew better,” as they used clams as a universal currency.

Finally, corporate permissioned ledgers received their fair share of beating: according