Decentralization: Is it Built on a Lie?
Lesson time 20:13 min
Professor Paul Krugman shares the reasons behind his skepticism of cryptocurrency and blockchains, including what he sees as their misleading and unreliable value.
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Topics include: The Evolution of Money • Unreliable Value • Environmental Impact • Not Everything Belongs on the Blockchain • Regulation Exists for a Reason • Hyperinflation Isn’t That Common • Where Is the Adoption? • The Danger of Mass Marketing
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[MUSIC PLAYING] - Trust is a fundamental story in crypto. But I'm afraid that the story that seems to drive the crypto is the wrong kind of mistrust. I actually, I've read the original Satoshi Nakamoto paper. And it was worried. It seemed very much focused on the notion that banks would impound your money or that they would fail to follow through on transactions, which I won't say it never happens, but almost never happens. That is a very, very rare occurrence. In fact, banks are-- banks in the modern world are pretty trustworthy institutions. They may not be lovable. There are bad things that happen. But they're actually quite rare. And banks are pretty trustworthy. And, surprisingly, governments are relatively trustworthy as well. And so we have crypto is largely about trying to make a system that doesn't require trustworthy institutions, which is kind of odd because our institutions are, at least the monetary financial institutions are pretty trustworthy in the 21st century. And crypto is an attempt to use something different, which is a code, a key that is using techniques ultimately related to cryptography to then validate my ownership of those funds. So it's an attempt to run an abstract economy without the trust in institutions. That is how we actually run our abstract economy most of the time. I've actually been in many, many crypto discussions. And the question always is, what problem is this solving? And I still haven't gotten an answer that I find persuasive. Once upon a time, there were coins, gold and silver coins. You didn't necessarily know how much gold was in a gold coin. The whole point of stamping it was that that was the king's guarantee that it contained the specified amount of gold. But people did try to shape it. But you could test. It was easy to check. You bite it. You weigh it. The trouble with gold coins is that they're awkward. At some point, people invented banks. And what a bank would do is it would hold or it would take your gold coins and it would issue you with pieces of paper, notes that could be exchanged for the gold coin. But for the most part, people would actually do their business with the pieces of paper, which were a lot easier to deal with. This was the first step. And what happened to money really consistently right up to the crypto stuff was a process of abstraction and dematerialization and reduction in the cost of doing business. So a lot easier to do your business with pieces of paper than carrying around a clanking sack of coins. Also, the money could be put to work. You could lend them out. You could make investments, which from the point of view of the economy meant that it didn't need all of those gold coins. You could free up the gold to buy other stuff. You could spend less resources mining money. So it becomes abstract. People started paying their bills largely by check rather than by handing over cash. Then credit cards, debit cards, now...
About the Instructor
Since Bitcoin’s launch in 2009, crypto has offered the hope of a stronger, more democratic financial system. And it’s raised plenty of questions as it continues to evolve. Now experts and skeptics at the center of the conversation are sharing a straightforward look at how this ecosystem is changing. Learn the basics, dive deep into the world of blockchain and Web3, and get the breakdown on what you need to know now.
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Chris Dixon, Changpeng “CZ” Zhao, Emilie Choi, and Paul Krugman
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