The decline of the bullshit made up money world of cryptocurrency combined with Elon Musk showing to be the racist South African white moron that he always was means these are the salad days for me. Every day, a new laugh. Every day, more evidence that the rich are stupid. Unfortunately, every day more evidence that the not rich want to be suckers of the rich. This is from a couple of weeks ago now, but Krugman asks the key question–wait, why the hell do we even have this nonsense made up money anyway?
The question we should ask is why institutions like FTX or Terra, the so-called stablecoin issuer that collapsed in May, were created in the first place.
After all, the 2008 white paper that started the cryptocurrency movement, published under the pseudonym Satoshi Nakamoto, was titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” That is, the whole idea was that electronic tokens whose validity was established with techniques borrowed from cryptography would make it possible for people to bypass financial institutions. If you wanted to transfer funds to someone else, you could simply send them a number — a key — with no need to trust Citigroup or Santander to record the transaction.
It has never been clear exactly why anyone other than criminals would want to do this. Although crypto advocates often talk about the 2008 financial crisis as a motivation for their work, that crisis never impaired the payments system — the ability of individuals to transfer funds via banks. Still, the idea of a monetary system that wouldn’t require trust in financial institutions was interesting, and arguably worth trying.
After 14 years, however, cryptocurrencies have made almost no inroads into the traditional role of money. They’re too awkward to use for ordinary transactions. Their values are too unstable. In fact, relatively few investors can even be bothered to hold their crypto keys themselves — too much risk of losing them by, say, putting them on a hard drive that ends up in a landfill.
Instead, cryptocurrencies are largely purchased through exchanges like Coinbase and, yes, FTX, which take your money and hold crypto tokens in your name.
These exchanges are — wait for it — financial institutions, whose ability to attract investors depends on — wait for it again — those investors’ trust. In other words, the crypto ecosystem has basically evolved into exactly what it was supposed to replace: a system of financial intermediaries whose ability to operate depends on their perceived trustworthiness.
In which case, what is the point? Why should an industry that at best has simply reinvented conventional banking have any fundamental value?
Good question! Unskew the banks! DISRUPTION! The entire thing is literal nonsense from stem to stern. And yet, this is a nation of nonsense and so we just let it rip.