Nouriel Dr. Doom Roubini is just looking from a wrong perspective
Couple of days ago, Cointelegraph published their interview with Nouriel Roubini, a.k.a. Dr. Doom, with the title “99% of cryptocurrencies are worth zero.” Well, we’ve heard this idea many, many times, but with different points of view. All the crypto enthusiasts, talking about 95% of crypto being total garbage, concentrate on the idea that the crypto space needs cleaning up, and this will happen eventually. What Dr. Doom has to say is quite different though. In his opinion, Blockchain with its every cryptocurrency is a big bubble that has already burst and now people are trying to gather the pieces. One could’ve simply not paid attention to his words, but the interesting thing about Nouriel is that he is a well-known economist who predicted the financial crisis of 2008, hence the nickname Dr. Doom. Therefore, his opinions do have some weight and might be interesting to go over them.
His main point, while talking about the crypto space, is that out of all cryptocurrencies that have been issued “81% were a scam, 11% of them have failed or died, and of the remaining 8% that are traded on exchanges the top 10 have lost on average in the last year 95% of their value.”
The numbers actually are correct, and they do seem to be a little scary, but this has its own reasons. When blockchain got mainstream, along with its ICO model that wasn’t regulated by anybody, it obviously attracted a lot of scammers. This is natural and would’ve happened in any unregulated space, especially with so many uneducated ‘investors’ hyped around Bitcoin’s to-the-moon performance. And when Dr. Doom talks about people who say that they can do all the things they’re promising, but no one has built a functional protocol yet, with no failure or bugs or obvious problems, he misses out on the fact that blockchain has been around for not more than a decade, and that cannot be enough time for a system as complex as distributed ledger technology. On top of that, 81% of created coins being scams actually makes the matter even more complicated and hard. They effectively managed to distort faith in crypto, leaving only a few hard-working people, who are actually making progress each and every day.
Now to go beyond the numbers, another key point of his — and probably more serious than the above one — is that in blockchain there is no scalability, no decentralization, and no security whatsoever. He even cites Vitalik Buterin, the founder of Ethereum, who in one of his many papers states that you cannot have all three above listed characteristics, as each one comes with the cost of the other. Well, this may be true for certain blockchains, but it isn’t quite that simple and straightforward: in a recent tweet-battle, Vitalik elaborated the idea of his trillema, stating that it was only addressed to scalable blockchains, and even if this were the case, he never mentioned trillema being unresolvable, all he meant was that it is *hard* to solve:
There were many more accusations that Nouriel made, which are quite interesting and, to be honest, in some parts true too. For example, he mentioned that big companies have tried to adopt Blockchain technology but it turned out to be quite ineffective, because why would a big company want to open up all their transactions, and why would they want to trust “some weirdo” miners in China? He’s right, they shouldn’t. Maybe that’s not what Blockchain’s for, at least for now. It’s for use-cases like Steemit. That’s why it’s still working: it brings value, it has community around, and it’s getting adopted. Of course, there are some issues still to be resolved, but I guess we’ll have to wait and see. All this wrong applications of blockchain technology blind people from seeing its huge potential. Blockchain is tokenizing work. Maybe people have to change those tokens into cash but so what? Blockchain is for smaller-scale ecosystems, workers and internet-users from around the world joining to create real value while being on the internet. A perfect example: people create casual blogs on Steemit platform, and they get digital tokens as a reward, which have a real world value. The interesting and probably the “most mind-blowing feature of cryptocurrency”, as Daniel Jeffries calls it in his blog, is that it can “print money” and distribute it amongst network participants in exchange for their work. Blockchain is for smaller economy. It creates a micro-economic model inside of a bigger, world economy. It is ruled, secured, used and accessed by smaller scales. The whole world isn’t needed to sustain and manage a certain application. In contrary, the whole world being included causes trouble. Everyone will join different blockchain networks, according to their preferences. Blockchain doesn’t have to be a replacement of money, it’s just producing different values by requiring work, which is then converted in tokens, i.e. tokenized, and then exchanged for money, i.e. monetized. People want to skip the last part, but that’s still to come. Blockchain doesn’t have to be here for that, it found its own purpose.
Actually, Nouriel himself claims the same:
“It [Blockchain] is just something for a bunch of self-serving people speaking about decentralization, speaking about freedom speaking about democratization of finance, and there is no democratization of finance, there is no more access to financial services through crypto and blockchain.”
Well, the last part is arguable but the rest sounds quite true, as long as we don’t count self-serving people as scammers, but as clever people trying to gain freedom over money.
As for no existing killer apps, where Dr. Doom is also correct (although I would argue that Steemit is as close as it can get), there is a reason for it too, and a strong one for that matter: successful blockchain enthusiasts spent all this time on fixing Bitcoin’s bugs. Smart contracts, consensus algorithms, scalability issues, all of that needed to be taken care of. And they fixed most part of it, they will figure out the rest too.
Even though this viral video may take all day debating on it, there is another one, where Nouriel and Alex Mashinsky, the founder of Celsius, debate on the usefulness of crypto at BlokShow Americas 2018, August.
Here, once again, Nouriels accusations were quite similar to those he made in the above discussed interview (which gets you thinking), but Mashinskys counterarguments seem quite reasonable and reassuring:
“Behind a dollar there is more than a dollar worth of debt. The problem is that you have 22 trillion dollars — and rising — of debt, and all of us are effectively consuming more than we’re producing. Any economy, any empire in history that consumed more than it produced, has collapsed itself… The beauty of cryptocurrency, the only thing that it’s unique at, is that it has limited supply… The current financial system we live in does not provide equal distribution.”
One could argue on what is more unique about cryptocurrencies, but that’s not the point here. What Mashinski continues to explain is that cryptocurrency isn’t serving governance, but people. He points out, that financial institutions are the real pyramid schemes, who are trying to protect their monopoly, and that’s the reason why those being on top reject blockchain technology:
“All the wealth created went to an average Joe, not the Wall Street f**ks.”
Elaborating on his point, Alex admits that cryptocurrencies (for now) are concentrated, but it’s going to those who do not have anything, rather than to those who already have everything. One could argue that those average Joes lost quite a lot too, but that’s a different matter, caused by unregulated, full-of-scammers market that is natural for an infant industry.
To sum up, Dr. Doom does have good points with strong examples backing it, but he’s viewing the blockchain industry from a different perspective. The use-cases he spends time researching and analyzing do look doubtful, but Blockchain is amazing at many other things, rather than just serving as a digital cash system, or a distributed ledger technology for companies.
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