Is Paul Krugman Right About Bitcoin Being Useless?

In this April 3, 2013 photo, Mike Caldwell, a 35-year-old software engineer, holds a 25 Bitcoin token at his shop in Sandy, Utah. Caldwell mints physical versions of bitcoins, cranking out homemade tokens with codes protected by tamper-proof holographic seals, a retro-futuristic kind of prepaid cash. With up to 70,000 transactions each day over the past month, bitcoins have been propelled from the world of Internet oddities to the cusp of mainstream use, a remarkable breakthrough for a currency which made its online debut only four years ago. (AP Photo/Rick Bowmer)

In the world of bitcoin antagonists, economist and author Paul Krugman has taken a central role. Krugman wrote a blog post titled “Bitcoin is Evil” in late 2013 and since then has penned several other missives outlining why he believes the digital currency leader is useless and worthy of the dustbin of history.

In January of this year, when BTC plummeted in price alongside many other popular digital currencies after attaining record values just weeks prior, Krugman was eager to remind the community about his disdain for the cryptocurrency space and bitcoin in particular. But will Krugman’s argument prove to be a valid one over the long term? Or is bitcoin perhaps destined to thrive, even in spite of periodic value swings?

Bitcoin: The ‘Anti-Social Network’

One of Krugman’s arguments, as pointed out in a report by Coin Telegraph, is that bitcoin and other cryptocurrencies are essentially “anti-social.” Krugman holds that the cryptocurrency does not promote user freedom, in part because it is not state-owned, as traditional currencies are. One counterargument to this assertion is that bitcoin’s peer-to-peer protocol, the foundation of the bitcoin system and network, does, in fact, promote high levels of user freedom. Further, the fact that bitcoin is not state-owned does not necessarily need to be a negative; some supporters of the digital currency would likely argue that this point suggests that bitcoin was designed to dismantle or weaken the global financial and banking systems, when in fact that has never been the purpose of the project.

Question About Third Parties

In his January invective, posted in a series of tweets, Krugman claims that “cryptocurrency lets you make eletronic transactions; but so do bank accounts, debit cards, Paypal, Venmo[,] etc. All these other methods involve trusting a third party; but unless you’re buying drugs, assassinations, etc. that’s not a big deal.” Arguments against this line of thinking typically ask that morals not be brought into the equation and, more importantly, that many people around the world do not have access to these other forms of online payment, as they are both centralized and regulated. In this way, bitcoin may be a more sustainable and more accessible model.

While it is impossible to know how bitcoin and the cryptocurrency space it has helped to lead will develop in the future, it’s likely that cryptocurrency skeptics like Krugman will continue to face their share of opposition from those who support these projects.

Investing in cryptocurrencies and Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns bitcoin and ripple.

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