1/12 More than a decade in, most economists still fundamentally misunderstand #Bitcoin, cryptocurrencies, #DeFi and #NFTs. In a piece for @ProSyn with @skominers and Ravi Jagadeesan, we write that:
2/12 "Societies create and maintain a consensus about money through a combination of technology and institutions. While technology can enable better forms of money, when and how such new forms are actually adopted depends critically...
3/12 ...on the presence or absence of complementary institutions. [...] Cryptocurrencies represent the latest iteration of this long historical process. [...] Beyond a clever new technology, what Nakamoto was (or were) really proposing was a new type of institutional arrangement.
4/12 With Bitcoin, reaching an agreement about the value of money does not require trusted third parties like central banks or financial intermediaries. [...] To the extent that we rely on institutions to ensure that the use of money adheres to our values and principles,...
5/12 ...Bitcoin’s design can become either a major strength or a serious weakness. In places where institutions are weak, undemocratic, or openly repressive, Bitcoin can provide its users with a more equal and robust store of value than anything they can access...
6/12 ...through the local financial system. [...] When people have come to enjoy sound monetary policy, a range of consumer protection laws, and government guarantees such as deposit insurance against bank failure,...
7/12 ...Bitcoin’s institution-light design may be less compelling, and its environmental costs seem all the more outrageous. Nonetheless, while some traditional institutions have been able to withstand fraught market and political conditions over the last few decades, Bitcoin...
8/12 ...and other cryptocurrencies remain an alternative for when those institutions turn out to be more fragile than expected. Similarly, cryptocurrencies can offer a way to restore competitive conditions when intermediaries have accumulated too much market power.
9/12 [...] Each cryptocurrency places different weights on key inputs such as technology, institutions, and the beliefs of its supporting tribe in the provision of money. [...]
10/12 While it may be tempting to think of cryptocurrencies as yet another instance in which “software is eating the world,” the journey from Bitcoin through DeFi to NFTs implies a much more nuanced interplay between code and institutions.
11/12 For any cryptocurrency experiment to last and be ultimately useful, society will need to develop complementary institutions supporting it.
12/12 Paradoxically, the types of constraints institutions may impose on crypto technology are precisely the ones that will allow the technology to channel our values and reach mainstream adoption." Full piece here: project-syndicate.org/onpoint/bitcoi…
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