The Bitcoin Obituary Obituary

And why one Harvard economist thinks bitcoin could end up on central bank balance sheets.

AccessTimeIconNov 28, 2022 at 6:26 p.m. UTC
Updated Nov 28, 2022 at 8:05 p.m. UTC
AccessTimeIconNov 28, 2022 at 6:26 p.m. UTCUpdated Nov 28, 2022 at 8:05 p.m. UTCLayer 2
AccessTimeIconNov 28, 2022 at 6:26 p.m. UTCUpdated Nov 28, 2022 at 8:05 p.m. UTCLayer 2

According to 99 Bitcoins, a website that tracks crypto obituaries, there have been 466 times someone has declared “game over” for blockchain. That’s almost certainly an undercount, if looking across financial publications, social media and interviews with experts on TV and podcasts. Even amid crypto’s bleakest winter yet, crypto boosters still seem more connected to reality than these forecasters.

There’s been a modest uptick in bitcoin obits since the collapse of the FTX crypto exchange. Indian columnist Chetan Bhagat, for instance, wrote that “crypto is now dead” in the Times of India last week. How declarative! Nobel Prize-winning economist Paul Krugman, who has been calling the end of bitcoin since 2013, recently wrote that the crypto industry is “heading for oblivion.”

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The Economist took a smarter route, couching its prediction in a question: How will crypto unravel? “If everyone stopped using it,” the vaunted financial magazine wrote. Although its argument is simple (and credulous), it’s worth taking a closer look at because it gets to the heart of why crypto isn’t going to disappear: diminishing trust.

According to The Economist, decreasing trust in crypto companies will lead to decreasing use in blockchains thereby opening these decentralized platforms to attack. The bylineless article notes 51% attacks as a particular risk, arguing that blockchain security is a direct output of a cryptocurrency’s price.

“The value of on-chain activity and tokens is self-reinforcing … The more people shy away from crypto out of fear, the less secure it becomes,” they write. The more expensive an asset, the harder it is to accumulate the necessary share 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 may diminish trust in the underlying asset), it doesn’t spell the end for the network. Bitcoin Cash, the fork of Bitcoin, for instance experienced two chain attacks in 2021 – it’s still chugging along. (After acquired more than 51% of BTC’s hashpower in 2014, no single entity has had such a large share.)

However, the larger idea is more important: Will people ever simply get fed up with crypto and stop using or building on blockchains? The reason this might seem like a salient question to The Economist is the same reason it seems ridiculous to any understanding of crypto. Starting with Bitcoin, decentralized networks are attempts at creating alternative systems where the key distinction is whether you have to trust anyone else to use them.

Blockchains live up to the promise of trustlessness with varying degrees of success. It’s also true that the industry has in large part recreated the problem of centralized institutions by relying heavily on corporate exchanges and on-ramps. But when some like Paul Krugman says it’s “never been clear exactly why anyone other than criminals would want” to send payments peer-to-peer, it seems like an acute failure of imagination.

Crypto is forward-looking – its key innovations involve long-term societal changes (learning how to self-custody assets, reimagining what money is, creating new ways of collective action). And while today we’re confronted with all the ways crypto can fail, there are still many time lines where it can succeed.

Earlier this month, Harvard economist Matthew Ferranti published a research paper looking at the situations under which 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 its conclusions likely would never seem more ridiculous to his peers.

Will bitcoin survive at all, let alone partially replace so-called risk free assets like U.S. Treasurys or dollars? Ferranti’s wager isn’t ideological, but it does presume that even nation-states could have a use for a “sanction-proof” asset like BTC. This case doesn’t even need to play out for bitcoin to succeed – but it would validate the idea that money doesn’t have to have a centralized backer.

Crypto doesn’t have to replace finance, bitcoin doesn’t have to become the only money and decentralized protocols don’t need to eliminate companies – but they exist as alternatives.

To some extent, even if not a perfect accounting, 99 Bitcoins’ “Bitcoin Obituaries” is an attempt to put data behind a widely shared perception that the media is biased against crypto. At a time when trust in the media is at an all-time low, saying people will lose trust in crypto seems particularly off-the-mark – crypto was always about minimizing faith in people.

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Daniel Kuhn

Daniel Kuhn is a deputy managing editor for Consensus Magazine. He owns minor amounts of BTC and ETH.