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An Apoplectic Economist Wages War On Crypto

The economist, Nouriel Roubini, who goes by the apt nom de guerre Dr. Doom, has made a declaration of open warfare against cryptocurrencies and blockchain, or what he refers to as a “stinking cesspool,” in a scathing 37-page Senate testimony. Hardly striking the tone and tenor of a respected economist or professor at such a venerable institution as NYU, Dr. Doom pulls no punches when he likens cryptocurrencies to the world’s largest bubble, pyramid scheme and criminal thrift and blockchain as the world’s most overhyped technology. Many of these premises are wrong and his more serious message about the immaturity of risk management standards for cryptocurrencies as an asset class are lost in invective. Meanwhile, Peter Van Valkenburgh, Coin Center’s Director of Research, delivered comparatively uncontroversial testimony from the pro-crypto camp.

Roubini’s testimony and ensuing Twitter acrimony, like chum in shark-filled waters, makes for a real page turner. Indeed, Roubini is so fired up, he even challenged crypto’s wunderkind, Vitalik Buterin, to the academic equivalent of a street fight – a gentlemanly debate to be moderated by a fair and balanced person of their choosing. From what well of personal inadequacy does the need for a debate to prove intelligence spring? Indeed, when the otherwise fair crypto chronicler, Laura Shin, offered to host the debate on her popular podcast, Unchained, she was quickly dismissed, by Roubini whose weekend-long tear against anyone and anything remotely related to crypto appears to have the whole community in a frenzy. The testimony, like this type of debate, which is not the first time Roubini jumped into the crypto colosseum armed with a bucket of cold water and bubble-piercing comparisons to the real economy, Gini coefficients and other fun facts, is an equally divided indictment. A more serious conversation could be had about blockchain and cryptocurrencies, if the pseudo-science and false comparisons gave way to real intellectual exploration of a truly new technological phenomenon that does not exist in a vacuum.

For one, the crypto community empowers their critics by being so thin-skinned. Indeed, for a market segment that aims to disrupt the analog, high-friction, low-trust economic order, the need for validation from economists such as Roubini seems odd. Thousands of distasteful and often humorous responses later, mostly on Twitter, how any of this can be taken seriously remains to be seen. Mysteriously, Roubini has found the time to respond to countless messages and attacks, which he often conspiratorially dismisses as right-wing agitprop. Crypto is complex for sure and navigating down the maze requires the suspension of disbelief. However, the entire market, technology and applications for cryptocurrencies, digital tokens and true blockchain deployments is only really in its first phase. For this, wholesale dismissal from an intellectual heavyweight is as wrong as a Senate platform from which to deliver such a rabid message, even though it is befitting of our politically tribal times.

While Bitcoin and its underlying ledger, blockchain, will have a tenth anniversary soon, the technology and its manifold applications beyond investing and economics, the twin source of Roubini’s ire, have only come out of beta this year. Market adoption for such a profoundly transformative technology takes not only time, but as demonstrated in 37-pages of impassioned testimony, a lot of education. Leading scholars have likened blockchain to that other foundational technology, the internet. But like the pioneering days of the internet, which produced a massive technology bubble and market correction, the technology needs to fade to the background before it changes the world. Thereafter, the charlatanic, greed-driven Lamborghinis, which Roubini railed against, run out of fuel, as do the arguments that the technology and the concept of high-trust digital tokenization will be short lived. Adherents and critics would do well in remembering that the internet created a world of low-friction communication, while blockchain is creating a world of low-friction value transfer. Opponents and opposing systems always age out when it comes to market disruption. Look at the plight of the internal combustion engine, which is being phased out by viable electric competition, as well as “switched on” countries that are marking specific dates when these vehicles will be banned. 100 years ago, this would have been inconceivable. Today, it is not only the norm, it is the only path to saving the automotive industry. An automotive traditionalist would be positively apoplectic about this prospect, for which none of the ire would change the long-term reality.

The era of blockchain billionaires will not be heralded by speculation, asset hoarding or market manipulation, which are many of the issues Roubini is enraged about. Rather, it will be heralded like Jeff Bezos’ Amazon, or the advent of social networks and other socially driven market trends, by leaders who capture the brightline strategy. Broadly speaking, a new generation of humanity, born with a smart phone in their hands, are profoundly distrusting of the opacity, asymmetry, high-friction and low-trust that reigns in the world where Dr. Doom called the occasional bubble bursting (including most famously the 2008 financial crisis). For this, he may not be wrong that the price collapse of cryptocurrencies is but another bubble bursting. However, a $6,500 floor for bitcoin (six-fold its January 2017 price) can hardly be characterized as bottom. The advent of less temperamental economists, such as David Swensen, who manages Yale’s $30 billion endowment (second only to Harvard’s in academia), entering the cryptocurrency and blockchain market suggests that many institutional investors are getting off the sidelines. Once the regulatory hurdles and treatment are cleared, the analog economies’ ravenous quest for yield will invariably point to cryptocurrencies and high-quality, high-yield blockchain projects, much like the flood of capital that boosted the internet age and gave rise to tech titans before it. Of which, like any 1,000 flowers blooming phase, there are only a handful.

These pioneers are neither seeking market approval nor validation, they are working in stealth mode, like any self-respecting startup, or in collaborative multi-disciplinary teams to deploy blockchain technology, cryptocurrencies and tokenization in meaningful, world-changing ways. These cases have inspired not only the largest companies in the world to explore and deploy blockchain, even forming industry consortia to do so, they have prompted a wholesale rethink across sectors. From energy, land registration, micropayments, ledgering and settlements, viable blockchain solutions are on the rise. Or, on to identity, e-voting and supply chain provenance, blockchain is not only cutting across industries, it is cutting across traditionally siloed and asymmetrical functions that have left billions of people on the sidelines and trillions in value stranded. In this bet, it would be reasonable to short irascible criticism and go long on people’s desire for a high-trust, low-friction world. Blockchain and the right amount of leadership will undoubtedly be a part of the solution.

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