Blockchain
The Bitcoin Obituary Obituary
According to 99 Bitcoins, a website that tracks crypto obituaries, there have been 466 times someone has declared “game over” for the blockchain. This is almost certainly an underestimate if you look at financial publications, social media and interviews with experts on TV and podcasts. Even during cryptocurrency’s bleakest winter, cryptocurrency promoters seem even more connected to reality than these meteorologists.
There has been a modest increase in bitcoin obits following the collapse of cryptocurrency exchange FTX. Indian columnist Chetan Bhagat, for example, wrote in the Times of India last week that “cryptocurrencies are now dead.” How declarative! Nobel Prize-winning economist Paul Krugman, who has been calling for the end of bitcoin since 2013, recently wrote that the cryptocurrency industry is “heading for oblivion.”
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The Economist took a smarter tack, couching its prediction in one question: How will cryptocurrencies develop? “If everyone stopped using it,” wrote the much-vaunted financial magazine. While his argument is simple (and credulous), it’s worth taking a closer look because it gets to the heart of why cryptocurrencies won’t disappear: diminishing trust.
According to The Economist, decreasing trust in crypto companies will lead to less use of blockchains, thus opening these decentralized platforms to attacks. The untitled article flags 51% attacks as a particular risk, arguing that blockchain security is a direct result of a cryptocurrency’s price.
“The value of on-chain assets and tokens is self-reinforcing… The more people shy away from cryptocurrencies out of fear, the less secure they become,” they write. The more expensive an asset is, the more difficult it will be to accumulate the stake needed to reverse a transaction on a decentralized network.
Astute readers will know that while a 51% attack is an embarrassment for a blockchain (and can diminish trust in the underlying asset), it does not spell the end for the network. Bitcoin Cash, the fork of Bitcoin, for example, has suffered two chain attacks in 2021 and continues to move forward. (After Ghash.io acquired more than 51% of BTC’s hashpower in 2014, no single entity has had such a large stake.)
However, the bigger idea is more important: will people ever get fed up with cryptocurrencies and stop using or building on blockchain? The reason this might seem like an important question to The Economist is the same reason it seems ridiculous to any understanding of cryptocurrencies. Starting with Bitcoin, decentralized networks are attempts to create alternative systems where the key distinction is whether you have to trust someone else to use them.
Blockchains deliver on the promise of trustlessness with varying degrees of success. It’s also true that the industry has largely recreated the problem of centralized institutions by relying heavily on exchanges and corporate on-ramps. But when some like Paul Krugman say that “it has never been clear exactly why anyone other than criminals would want” to send peer-to-peer payments, it seems like a serious failure of imagination.
Cryptocurrency is forward-thinking: its key innovations involve long-term social changes (learning to self-guard assets, reinventing what money is, creating new ways of collective action). And while today we are faced with all the ways in which cryptocurrencies can fail, there are still many timelines in which they can succeed.
Earlier this month, Harvard economist Matthew Ferranti published a paper a research paper looking at situations where it makes sense for central banks to hold bitcoin. Likely the product of months of research, Ferranti’s case study was published at a time when his conclusions would likely never have seemed more ridiculous to his colleagues.
Will bitcoin survive, let alone partially replace so-called risk-free assets like US Treasuries or dollars? Ferranti’s bet is not ideological, but presupposes that even nation-states can use a “sanction-proof” asset like BTC. This case doesn’t need to be resolved for Bitcoin to succeed, but it would validate the idea that money doesn’t have to have a centralized backer.
Cryptocurrencies do not have to replace finance, bitcoin does not have to become the only currency, and decentralized protocols do not have to eliminate companies, but exist as alternatives.
To some extent, though not perfectly, 99 Bitcoin’s “Bitcoin Obituaries” are an attempt to provide data behind a widely shared perception that the media is biased against cryptocurrencies. At a time when trust in the media is at an all-time low, saying that people will lose trust in cryptocurrencies seems particularly out of place: cryptocurrencies have always tried to downplay trust in people.