It’s been the year of cryptocurrency. Investopedia calls Bitcoin the word of the year. It was certainly the word of countless holiday gatherings and dinners. It’s even showing up in public opinion polls, with 41% of North Americans claiming to be familiar with blockchain technology. It took nearly 10 years but the deed is done. The innovation has become part of our lives.
So let us look back, at a time when Paul Krugman finally went full Krugman and proclaimed that “Bitcoin is evil.” It bugs me in particular that the title of his blog at the New York Times is “the Conscience of a Liberal.” The idea of liberalism is to let things be free of imposition, to not skew social results, to permit freedom to shape its own destiny.
Proposed, Not Imposed
In that sense, Bitcoin is the ultimate liberal technology. It was proposed in a white paper in 2008. The system opened for business in January 2009. Fully ten months went by before Bitcoin obtained a posted price at all, even though it was initially conceived of as an alternative monetary source in times of failing official institutions.
The point is that no one imposed Bitcoin on anyone. It was introduced as pure technology, a possible workable solution to a problem and invitation for people to try it. If it worked, then great. If not, no loss. In this sense it came to the world in a form no different from horseshoes, the cotton gin, steel, or indoor heating. It’s an invitation to try a new way.
Krugman, however, presumes that he knows for sure that this is the wrong way. He doubts that there is any intrinsic value to a digital money, unlike, say gold, which has a price because it is valued for its luster, he says. This strikes me as odd because Krugman is also a famous enemy of gold too! In any case, the existence of a price of Bitcoin and gold trace to the same source: the scarcity of a useful thing. Bitcoin finds its use value in payment-system services that are provided by the underlying technology called the Blockchain.
Still, Krugman saves his real complaint for the end of his column. He quotes Charlie Stross: “BitCoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind—to damage states' ability to collect tax and monitor their citizens financial transactions.”
Whether and to the extent that Bitcoin has a “libertarian political agenda” doesn’t actually matter. Does anyone really care about the politics of the man who invented corn flakes or the smart phone? Technologies don’t carry with them political agendas. They only succeed to the extent that they solve human problems. If you want to call the freedom to choose new and better things over old and unworkable things a “political agenda,” fine.
The Cartel Must Live
The real agenda here concerns Krugman’s attachment to the idea of a money monopoly held by government. Here is the imposition. Here are the politics. Here is the weapon. The entire notion of central banking is premised on the preservation of a unitary money and banking system controlled from the top down, by intellectuals, bureaucrats, and politicians. Only this way can the system be used as a tool for macroeconomic management. All money must come from the state and flow through the state-regulated payment and credit system. Anything that threatens that monopoly – going around it, over it, or under it – poses an existential threat to the whole model of central banking.
In other words, cryptocurrency does not need to displace national money to achieve something economically transformative. It need only become a viable rival to the state monopoly. That alone ruins the hope for a controlled cartel of money, banking, and payment systems. And this is precisely why Krugman is so worried. But he should stop worrying and learn to love crypto: nothing can stop a good idea whose time has come.
An additional claim in this piece needs to be addressed, namely that the dollar obtains its value from “the fact that you can use them to pay your taxes to the U.S. government.” This is just a mistake. There is nothing about requiring a certain monetary tool for taxes that can cause it to have value. There are many cases of hyperinflation (Reichsmark, Zimbabwean dollar, the Continental) in which the requirement of taxes did nothing to protect the value of the money. It fell to zero in any case.
Regardless, Krugman has never had much optimism concerning technology. This is a person who famously wrote in 1998 that the Internet was merely a fad, with no more economic importance than the fax machine.
Money for Hate?
A more substantial and challenging attack on Bitcoin comes from the Washington Post, which documents how Bitcoin has been a boon to far-right extremists. Whereas PayPal and regular banking systems have excluded neo-Nazi groups from their systems (as is their right!), Bitcoin has no central manager. It is a democratic technology that cannot be censored. Realizing this, some bad actors have seized on it as a source of funding.
This sounds grim until you consider that the same path is open to anyone who is working against such groups. That the technology is open to everyone is the beauty of it and a major improvement over existing systems, which exclude billions of people from access to money, capital, and payment systems. In practice, this has doomed people to poverty for purely technological reasons. A major promise of cryptocurrency is that it will unleash talents all over the world.
The alt-right is a problem, no doubt, but they cannot be felled through financial exclusion and segregation. Bad ideologies can only be defeated by better ideas. In the meantime, to say that people with bad views should not have access to monetary systems is like saying they shouldn’t have shoes or food or houses. It’s just wrong.
Everyone as a matter of human dignity, regardless of political bent, should have access to the tools of exchange. Existing state-based systems exclude not only bad political actors but multitudes of creative, talented, and aspirational people who want to be part of the great project of building civilization.
Nobody should celebrate a system of money and finance in which government controls the on-ramps and off-ramps based on political loyalties. That’s proven to be a very dangerous system. What we need is a censor-proof technology that can make prosperity possible for ever larger swaths of humanity. That’s not “evil”; it’s gloriously good.