Bitcoin is ‘useless’? Really?

The Economist goes all in on declaring crypto a ‘casino’ but admits there may be some hope for blockchains

“Show me the money” tops the latest screed in The Economist about how bitcoin and other cryptocurrencies are “useless.” Well, thank goodness that’s been clarified! Just one thing, though. When Cuba Gooding Jr.’s Rod Tidwell asks Tom Cruise’s Jerry Maguire to show him the money, it’s pretty early in the movie. Maguire is just setting off his own and Tidwell is still an over-cautious, me-first player who has yet to have his epiphany.

Whether bitcoin winds up with Renee Zellweger in our story, of course, remains to be seen but it might be wise to consider the possibility that crypto really does find true love, financial success, and holds onto its moral compass along the way.

Bitcoin is not the USD, but that doesn’t mean it’s not money

In fairness to The Economist, their polemic against bitcoin is in two parts. First, they trash bitcoin and cryptocurrencies because they’re still not especially good as “money.”

Economists define a currency as something that can be at once a medium of exchange, a store of value, and a unit of account. Lack of adoption and loads of volatility mean that cryptocurrencies satisfy none of those criteria.

Don’t tell this to folks in Venezuela, of course. Indeed, just yesterday AirTM raised $7M to help build its system for converting any type of money into any other. The system doesn’t require crypto, but one of the conversion options is to move into digital tokens like bitcoin. And given the hyperinflation there, it should come as no surprise that Venezuelans are indeed adopting bitcoin in record amounts.

So while the dream of a global medium of exchange remains distant, there are regional exceptions to the rule. But that barely scratches the surface of bitcoin’s progress as currency. The continued interest in creating a bitcoin exchange-traded fund (ETF) isn’t merely some desire to get the government to place a stamp of approval on crypto. The motivation is that institutions and individuals might want to move significant assets into bitcoin but can’t today because of the lack of formal custodial solutions that meet the requirements of pension funds and 401Ks. Given the time horizons of these investments — and the clear interest in investing in crytpo — it’s odd to argue that bitcoin is neither store of value nor unit of account.

Indeed, even as bitcoin sits two thirds below its all-time highs, the total “market cap” of the currency is $118 billion. Perhaps that’s not storing value in a sense that meets the standards of The Economist, but the HODLers would most certainly disagree. And that’s not an academic point either. Some people consider their home a store of value, but in most mid-size American cities home values rarely exceed overall inflation. Others consider fine art to serve that function. And while the value of a Monet tends to trend only upwards, the ability to convert it into something useful remains rather limited. This is no small point in times of political unrest. (See Nazis and art thefts for an example.) Bitcoin isn’t yet in the same class as those assets, but its performance is competitive with the checkered history of a precious metal like silver.

A day in the life of blockchain

In the meantime, while The Economist trashes bitcoin as a currency, they acknowledge however grudgingly that: “Just because blockchains have been overhyped does not mean they are useless.”

And if we just look over today’s news, we can see that one person’s “not useless” is another’s “incredibly useful.” The news that the world’s second most populous nation is considering a digital rupee contains enough intrigue for a much longer post. But consider that driving the move is (1) India’s general desire to crackdown on cash to combat the underground economy (2) the notion embedded in the news items that a digital currency could empower a new era of smart contracts, perhaps with less corruption in business dealings (3) the mere fact that printing and maintaining currency is expensive, and this might be cheaper.

What all this adds up to is a fairly strong acknowledgment that blockchain is, indeed, useful. But India is not alone. Consider more news, just from the last day or so:

  • California is working to both update laws to reflect the realities of blockchain while also considering how it could benefit the way the state itself does business. California itself is the world’s 5th largest economy.
  • The OECD is meeting next week to explore the value and challenges of “distributed ledgers,” aka blockchains. Among the topics? Promoting inclusiveness; sustainability and “green growth”; strengthening governance; privacy and cybersecurity; and potential global economic impact. If those topics don’t point out the implications and import of blockchain, well, you may be The Economist.
  • Cloud-computing giant VMWare announced that they’ve created a new way to solve an old, critical computing problem using blockchain. This might seem arcane, and Nobel winner Paul Krugman once argued that the only thing blockchains and bitcoin were good for is solving this problem. But the need for distributed computing platforms to forge a consensus is not merely some concern of computer scientists; it’s the concern of everyone who relies on accessible, distributed data in an increasingly global economy. In other ones, it affects all of us.

These examples literally come from less than 48 hours worth of headlines. They’re but a small representation of the amount of intellectual energy that’s going into harnessing blockchains and cryptocurrency to make them useful, to channel them as forces of good, to understand the incredible implications they can have for so many parts of the world. But hey, bitcoin still can’t buy lunch in Bangalore. So it’s useless, right?

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