This is a really helpful article, but fairly hard to read (and I don't think I'm dumber than most readers). But maybe I can offer an analogy that I find useful; no doubt crypto guys will tell me I still don't get it, but here goes 1/ nyti.ms/2FIP4RE
As I see it, cryptocurrencies like Bitcoin are in effect like digital gold coins, in the sense that they can't be counterfeited. A gold coin is worth its weight in gold, no more, no less; if you're suspicious, you can bite it to make sure 2/
Cryptocurrencies use cryptographic techniques plus distributed storage to create non-material entities that are nonetheless impossible to fake. You don't have to worry whether a Bitcoin is a *real* Bitcoin. 3/
It can, however, be stolen -- just like real gold coins. You can take precautions, but you can do that with gold coins too --or for that matter with money in your bank account, which is also nonmaterial fortune.com/2017/12/08/bit… 4/
The questions you should ask are (1) what problem does this clever solution solve? (2) what determines the fundamental value? As far as I can tell, there are no good answers to either question 5/
Cryptocurrency lets you make electronic transactions; but so do bank accounts, debit cards, Paypal, Venmo etc. All these other methods involve trusting a third party; but unless you're buying drugs, assassinations etc. that's not a big deal 6/
And the distributed database + costly mining makes cryptocurrencies clunky and much less useful for ordinary transactions that humdrum methods -- to the extent that even Bitcoin conferences won't accept Bitcoin payments 7/ slate.com/technology/201…
Meanwhile, what backstops a cryptocurrency's value? Paper money is ultimately backed by governments that will take it in payment of taxes (and central banks that will reduce the monetary base in case of inflation) 8/
Gold is actually useful for some things, like filling teeth and making pretty jewelry; that's not most of its value, but it does provide a tether to reality, along with a 5000-year history 9/
Cryptocurrencies have none of that. If people come to believe that Bitcoin is worthless, well, it's worthless. Its price rise has been driven purely by speculation -- by what Robert Shiller calls a natural Ponzi scheme, in which early entrants make money only bc others buy in 10/
The Bitcoin market is also, by the way, very vulnerable to manipulation by unknown players voxeu.org/article/price-… One of these players may have been the government of North Korea ftalphaville.ft.com/2018/01/18/219… 11/
So the blockchain in interesting, but not yet clear whether it's useful for anything. And investing in Bitcoin still looks a lot less reasonable than investing in cold fusion 12/
