Nouriel Roubini says the mystique of distributed-ledger technologies through 'decentralization' just a ruse to separate retail investors from their hard-earned real money

By Nouriel Roubini*

With the value of Bitcoin having fallen by around 70% since its peak late last year, the mother of all bubbles has now gone bust. More generally, cryptocurrencies have entered a not-so-cryptic apocalypse.

The value of leading coins such as Ether, EOS, Litecoin, and XRP have all fallen by over 80%, thousands of other digital currencies have plummeted by 90-99%, and the rest have been exposed as outright frauds. No one should be surprised by this: four out of five initial coin offerings (ICOs) were scams to begin with.

Faced with the public spectacle of a market bloodbath, boosters have fled to the last refuge of the crypto scoundrel: a defense of “blockchain,” the distributed-ledger software underpinning all cryptocurrencies. Blockchain has been heralded as a potential panacea for everything from poverty and famine to cancer. In fact, it is the most overhyped – and least useful – technology in human history.

In practice, blockchain is nothing more than a glorified spreadsheet. But it has also become the byword for a libertarian ideology that treats all governments, central banks, traditional financial institutions, and real-world currencies as evil concentrations of power that must be destroyed. Blockchain fundamentalists’ ideal world is one in which all economic activity and human interactions are subject to anarchist or libertarian decentralization. They would like the entirety of social and political life to end up on public ledgers that are supposedly “permissionless” (accessible to everyone) and “trustless” (not reliant on a credible intermediary such as a bank).

Yet far from ushering in a utopia, blockchain has given rise to a familiar form of economic hell. A few self-serving white men (there are hardly any women or minorities in the blockchain universe) pretending to be messiahs for the world’s impoverished, marginalized, and unbanked masses claim to have created billions of dollars of wealth out of nothing. But one need only consider the massive centralization of power among cryptocurrency “miners,” exchanges, developers, and wealth holders to see that blockchain is not about decentralisation and democracy; it is about greed.

For example, a small group of companies – mostly located in such bastions of democracy as Russia, Georgia, and China – control between two-thirds and three-quarters of all crypto-mining activity, and all routinely jack up transaction costs to increase their fat profit margins. Apparently, blockchain fanatics would have us put our faith in an anonymous cartel subject to no rule of law, rather than trust central banks and regulated financial intermediaries.

A similar pattern has emerged in cryptocurrency trading. Fully 99% of all transactions occur on centralized exchanges that are hacked on a regular basis. And, unlike with real money, once your crypto wealth is hacked, it is gone forever.

Moreover, the centralisation of crypto development – for example, fundamentalists have named Ethereum creator Vitalik Buterin a “benevolent dictator for life” – already has given lie to the claim that “code is law,” as if the software underpinning blockchain applications is immutable. The truth is that the developers have absolute power to act as judge and jury. When something goes wrong in one of their buggy “smart” pseudo-contracts and massive hacking occurs, they simply change the code and “fork” a failing coin into another one by arbitrary fiat, revealing the entire “trustless” enterprise to have been untrustworthy from the start.

Lastly, wealth in the crypto universe is even more concentrated than it is in North Korea. Whereas a Gini coefficient of 1.0 means that a single person controls 100% of a country’s income/wealth, North Korea scores 0.86, the rather unequal United States scores 0.41, and Bitcoin scores an astonishing 0.88.

As should be clear, the claim of “decentralisation” is a myth propagated by the pseudo-billionaires who control this pseudo-industry. Now that the retail investors who were suckered into the crypto market have all lost their shirts, the snake-oil salesmen who remain are sitting on piles of fake wealth that will immediately disappear if they try to liquidate their “assets.”

As for blockchain itself, there is no institution under the sun – bank, corporation, non-governmental organization, or government agency – that would put its balance sheet or register of transactions, trades, and interactions with clients and suppliers on public decentralised peer-to-peer permissionless ledgers. There is no good reason why such proprietary and highly valuable information should be recorded publicly.

Moreover, in cases where distributed-ledger technologies – so-called enterprise DLT – are actually being used, they have nothing to do with blockchain. They are private, centralized, and recorded on just a few controlled ledgers. They require permission for access, which is granted to qualified individuals. And, perhaps most important, they are based on trusted authorities that have established their credibility over time. All of which is to say, these are “blockchains” in name only.

It is telling that all “decentralised” blockchains end up being centralized, permissioned databases when they are actually put into use. As such, blockchain has not even improved upon the standard electronic spreadsheet, which was invented in 1979.

No serious institution would ever allow its transactions to be verified by an anonymous cartel operating from the shadows of the world’s authoritarian kleptocracies. So it is no surprise that whenever “blockchain” has been piloted in a traditional setting, it has either been thrown in the trash bin or turned into a private permissioned database that is nothing more than an Excel spreadsheet or a database with a misleading name.


Nouriel Roubini is CEO of Roubini Macro Associates and Professor of Economics at the Stern School of Business, New York University.. This content is © Project Syndicate, 2018, and is here with permission.

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52 Comments

Yes, best analysis of crypto curencies and blockchain I have seen published!

Thankyou guys.

Can't believe you guys posted this racist rant of an article: "A few self-serving white men (there are hardly any women or minorities in the blockchain universe)"

You kidding me? Aside from discriminating the author also completely ignores leading women in blockchain like Elizabeth Stark and Elizabeth White. Yes, Elizabeth White of the White Standard (Stablecoin).

Appalling, interest.co.nz, I'm stunned :|

Didn’t you know? It’s impossible to be racist against white people.

The granularity of optimisation in todays world is limited by:
• ⁠transaction fees
• ⁠little automation
• ⁠trust between unknown parties

DLT enable these to the smallest extremes. Under capitalism where infinite growth with finite resources sees economic stagnation, optimisation then is the only place to go to achieve growth. I think if you consider the development and merger of IoT, LORA, smart contracts, mist computing, automation, the m2m economy and digital twins for starters, then it’s obvious what’s coming and the architecture required to support it. Saying blockchain is a lie overlooks the fact that there has been several generations of DLT since blockchain, which are not blockchains. Write about that.

So blockchain is worthless as a technolology according to Roubini. At the end of last week, IBM's Food Trust went live. According to IBM, "Food Trust uses blockchain technology to create unprecedented visibility and accountability in the food supply chain. It is the only network of its kind, connecting growers, processors, distributors, and retailers through a permissioned, permanent and shared record of food system data."

https://www.ibm.com/blockchain/solutions/food-trust

So who's using Food Trust? Carrefour, Walmart, Nestle, Dole and Kroger are all involved to promote this "useless technology."

https://classic.qz.com/perfect-company-2/1146289/the-worlds-biggest-reta...

" permissioned, permanent and shared" are the keys here. It's a vertically integrated chain. A highly exclusive club - certainly not open to all comers.

So that's the essential difference. Cryptos, for their acceptance and wider usage, need anyone and everyone to climb on board. The Food Trust and similar chains will be invitation-only, and a heap of due diligence will have taken place before that invitation gets anywhere near being issued.

I think what they mean is a distributed ledger system (a technology dating back at least as the Roman Empire and ancient China) to guarantee food security. Calling it blockchain is just companies trying to get money for old rope. That said I see distributed ledgers as opening up all sorts of new and exciting opportunities for fraud. What a time to be alive!

OK, not sure I follow you there. You also don't really back up what you say with much. Let's try something else:

The Bill and Melinda Gates Foundation is now working with Ripple and XRP to serve the world's unbanked (probably something most Kiwis don't really understand but these people make a large proportion of the world's population.

"......the main objective of this drive is to develop “pro-poor, digital payment systems” that is reliable, accessible, valuable and affordable. The overall objective being the development of a platform where individuals or businesses can easily buy and sell. To open up these regions and promote interoperability, the foundation is opening up opportunities for companies outside the traditional banking setup allowing for flexibility and near free transactions."

Roubini is against this? Does he think ANZ is willing to service the world's unbanked? If his, I think he's a mean-spirited old pr*&k.

https://ripplecoinnews.com/coil-ripple-and-the-bill-and-melinda-gates-fo...

Cool story bro .. kind of like how people said computers and the internet would never catch on.

Good luck with your veiws Grandpa
#LivingInThePast

Roubini makes some relevant points. As someone interested in the promise of blockchain, I listen. Also, if you look at crypto as purely a speculative instrument, there are plenty of opportunities to short it if you really believe that it's a scam.

#IgnorantOfTechPromotesBlockchain Every time the stupid comment of blockchain being the new computer is mentioned a lolcat cries. It is hilarious you have no idea about the technology and limitations. Furthermore you confuse the use of a few data structures with success & value of cryptocurrency. Blockchain is closer to the dot com crash than a computer processor. Add Blockchain to your company and the VC cash can roll in without value added. After all we have distributed data, we have had it for decades. We have also known of the security, legal ownership, and scaling issues which make it unviable in many mainstream use cases. Along with the exchanges being the mass scavengers of people's wealth. I can process hundreds of secure transactions a second. Where were you? a few cells in your mum's ovaries. Educate yourself.

Even Milton Friedman saw Bitcoin coming: https://youtu.be/onn34J74dnU

"Blockchain fundamentalists’ ideal world is one in which all economic activity and human interactions are subject to anarchist or libertarian decentralization."
Realistically this is control vs freedom. The appeal of decentralisation is it gives individuals more power in contrast to ceeding control and direction to private instituitions (central banks) and governments.
Most people are happy with others taking charge of their money and life but you can't begrudge Libertarians for wanting to be free and in control of their money and lives.

I'm not sure how much more freedom and security one man has with a gun strapped to his side ( the ultimate Libertarian), to protect his family and assets, compared to a Government and a police force, but the irony for me is that cryptocurrencies etc all drive their 'value' from fiat currency. Bitcoin is valued in US$'s etc. So without the fiat system, what is crypto except but a mechanism for commodity barter, at best?

A lot of people confuse Anarchism with Libertarianism which is what you've done here - "The libertarian view of government stems directly from a more general principle, the principle of liberty. ... So we believe that government's only legitimate role is to protect individual rights to life, liberty and property, and not abrogate these rights."
Libs aren't Anarchists.
"But the irony for me is that cryptocurrencies etc all drive their 'value' from fiat currency." - They don't and nothing does, the value is driven by scarcity and decentralisation in this case. Just because you can value something in USD doesn't mean its value is derived from USD. Take oil for instance, $1.35 USD per gallon. The value is what oil can do not that it can be bought in USD or any fiat currency.

"Libs aren't Anarchists."

They mostly are (well the right wing libertarians are), except they want to be able to write contracts that exploit others and have a court system to turn to enforce these contracts, while having a police force to protect them from the uprising of the peasants that is inevitable once a few people obtain monopoly positions in key industries.

Left libertarian (https://en.wikipedia.org/wiki/Left-libertarianism) is an interesting idea that i need to read further into, maybe that actually makes sense, as opposed to right libertarianism (which is the the common one that most think of). To steal a line I saw on reddit the other day: Not all [bleep]s are libertarians, but all libertarians are [bleep]s.

"except they want to be able to write contracts that exploit others and have a court system to turn to enforce these contracts" - As opposed to using politics to exploit and take from the minoroty? Atleast you are not forced to sign a contract where as you are forced by government. Also, why are you taking the extreme examples? It's a bit of a strawman. Have a look at the countries which rank highest on indexes of freedom and liberty and then see where the lives of people are better (rich and poor) and where the worlds innovations come from.

One thing I don't get is it seems we have become comfortable in telling and forcing people how to live through "democracy." It's very presumptuous. I want you to decide for you (within reason before you strawman me) whats best for you, I won't force you in anyway. Why can't you extend me the same courtesy?

And for your [bleep]s comment, really? it's not even a quote about Libertarianism. you could cut and paste anything into it and it would make sense. It's more "you don't agree with me so I think your a [bleep]." You can do better Pragmatist.

Because my philosophy isn't: i'll be okay, and f%^k the rest of you.

So what is your philosophy then? Really what your saying is I don't trust/am scared of others so I want them controlled.
“They who can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety.” or even more appropriate in this case "Timid men prefer the calm of despotism to the tempestuous sea of liberty."

Yes, just look at the Liberty of the USA and its 2nd amendment. you are free to send your kids to school and wonder if they will get home tonight, you are free to be 5x more likely to die due to being shot. If that's "Liberty" I don't want it.

Perhaps you should go live in some of the African nations like Somalia where there is next to no govt, and tell me how "freedom" works out for you.

I'll take the freedom to walk down pretty much any street in NZ and not have to worry about being shot or knifed due to excessive "freedom"

Again I'll copy and paste the bit about Libertarianism fom earlier as you must have missed it: "The libertarian view of government stems directly from a more general principle, the principle of liberty. ... So we believe that government's only legitimate role is to protect individual rights to life, liberty and property, and not abrogate these rights."

Maybe you missed the "protect individual rights to life, liberty and property" part? If you didn't, you know you don't make your point by purposely misrepresenting something?

2nd ammendment is about the right to defend yourself from someone who would take your right to life or a tyrannical government (Hitler and the like). It goes with the resonsibility side. You can have all the police in the world but at the end of the day the buck stops with you for your protection (the police can't be everywhere as good as they are). Again that's a bit of a strawman. The US isn't the best example of safety but it sure as hell is a lot safer than many many other countries and it's more a cultural thing rather than a gun thing. We have plenty of guns in NZ for example.

I ignore your theoretical Libertarian paradise because its as valid as the theoretical communist state.. nothing but a dream that will never work because there are people involved.

You can repeat the same BS lines as much as you want, but anybody that lives in the real world can see that it will never work. Eventually you will end up with a huge imbalance, and the mob will rise up and cause a reset.

As you were misrepresenting libertarianism I took up the defense of it. I would definately err towards a more Libertarian view point but I'm not completely aganst social services at all. Notice how through our exchange I've responded to what you have said yet you have responded to what you think I am and what you think I think hence how you have misrepresented and strawmanned almost everything.

I'm not the one repeating BS lines, I'm offering a corrected and alternate view of what you have misrepresented (which has consituted most of my replies) as it appears you have cognitive dissonance. To leave you with another quote:
“He who knows only his own side of the case knows little of that."

I really can't be bothered trying to figure out exactly what weirdarse logical convolutions you have gone thru to create your own particular flavour of Libertarianism, so yes, I just assume its pretty much the same crap as what I've heard others that call themselves Libertarians root for. just the same as I don't bother getting down to the finer points of Lutheran churches vs Pentecostal or Methodist.. the finer details are irrelevant when build on a foundation that ignores human nature and human history.

Again I'll copy and paste the bit about Libertarianism fom earlier as you must have missed it: "The libertarian view of government stems directly from a more general principle, the principle of liberty. ... So we believe that government's only legitimate role is to protect individual rights to life, liberty and property, and not abrogate these rights." - There is a definition for you (for a second or third time now).

As I have said, I err that way more but am not against social services totally. I thought I've been very clear on those points. No idea how your getting confused?

As for human history, the key to our advancements were things like Magna Carta and the bill of rights etc.
In pursuing freedom and individual rights we have achieved so much. In fact it's looking through history and human nature that makes me err towards Libertarianism more.

Your right to drive a polluting diesel vehicle is in conflict with my right to breath clean air. Whose right wins?

As a base, no one wants to see the environment destroyed. My guess as to how that would pan out pragmatically is it would depend on to what degree something pollutes. Diesel for example powers trucks which are pretty important to the living standards both you and I enjoy.
How much do you value clean air (NZ air is pretty good for the most part) versus your cost of living?

This train of arguement has been made before and to hopefully head it off, yes there will be disagreements where the justice/disputes system comes in. The decisions and outcomes will be made looking through a libertarian lense. For example, most people use housing. My neighbour wants to build this but I don't want them to. Currently we have an illiberal dispute system when it comes to housing hence why we don't have much density/high rise especially in Auckland. If decisions were made with Libertarianism in mind there would be much more development.

And you somehow think this could work? Delusional.

Currently we have an illiberal dispute system when it comes to housing hence why we don't have much density/high rise especially in Auckland. If decisions were made with Libertarianism in mind there would be much more development.

No, what we have would get worse.. those with the resources would beggar the poor in endless court action and still nothing would change. Prime example being the Babich case in the news this weekend. If you can afford fancy lawyers you can get your class A drug importation convictions quashed.

# 315 Another Bitcoin obituary to add to the long list, https://99bitcoins.com/bitcoinobituaries/

He has some good points about alts and ico's being scams. Unfortunately he lacks the ability to see past his statist beliefs to see any value in Crypto.

Yes, most of the leading people at BTC, Ripple, and Ethereum also talk about alts and icos being scams.

Wake up and smell the tulips..

Well XRP is down close to 90%. Don't know how it resembles a bubble.

Its a post pop bubble, but some people still can't smell the tulips apparently.

OK, so it's still in a bubble. Got it. And blockchain is useless, but IBM, Bill Gates, Nestle, etc still haven't worked it out.

blockchain isn't necessarily useless, the example of the ASX using blockchain in future actually makes sense

"But unlike bitcoin, the application will not require transactions to be validated by a public network of power-hungry computers using a "consensus mechanism", which in bitcoin replaces the work of a central, trusted party. Instead, the ASX will remain a trusted entity and the system will be a private, "permissioned" network with known participants."

Crypto currency, based on decentralisation, proof of work, unregulated and not tied to any real currency is however a complete waste of time and a huge waste of precious electricity.

So Ripple is a consensus algo and is not based on decentralization. Does it not count? XRP is exchangeable for fiat currencies and has value relative to fiat currencies. Just look at the market.

A quick read suggest ripple is not intended to be a widely used public currency, so it may succeed at it's mission. How does XRP expand with growing commerce and population?

Ripple is a prime example of the alt coin scam that the hopeful cling on to as their winning ticket. Ripple was a premine coin that was given out for free, most of it is still held by the creators. Its perfect for the banks as it was designed as a token to enable transfer of wealth. So you could send currency a to currency b via XRP as a liquidity pool. No need to hold any XRP apart from a fraction to do the trade.It is also centralised so vulnerable to attack.

Yes, XRP is a coin that is used with the Ripple algo. You don't need a "fraction" of XRP; you need an "equivalent." I own XRP and understand that it may not be the de facto currency for Ripple in the future. Whether it was given away for free is largely irrelevant and of course its creators still hold it. It is probably the fastest medium of exchange on the planet right now so it has value as a functional medium of exchange.

Yes, XRP is a coin that is used with the Ripple algo. You don't need a "fraction" of XRP; you need an "equivalent." I own XRP and understand that it may not be the de facto currency for Ripple in the future. Whether it was given away for free is largely irrelevant and of course its creators still hold it. It is probably the fastest medium of exchange on the planet right now so it has value as a functional medium of exchange.

If I want to send 10 units of value to you I don't need 10 units worth or XRP, I just pay the transaction fee in XRP. No need to hold XRP.

so XRP is not a currency then?

Simple question: in 10 years time what are the chances I will be able to pull into a gas station and pay for gas (assuming gas stations still exist) with XRP? If none, then its not a currency.

If I want to send 10 units of value to you I don't need 10 units worth or XRP, I just pay the transaction fee in XRP. No need to hold XRP

Nonsense. 10 XRP is 10 XRP. If you want to send 10 XRP, you send 10 XRP and approx 0.05% will be deducted, depending on the exchange / wallet req'ments.

Simple question: in 10 years time what are the chances I will be able to pull into a gas station and pay for gas (assuming gas stations still exist) with XRP? If none, then its not a currency

Possibly. Any P2P transaction can be in XRP, just like BTC or BCC. The idea that it is not "currency" is garbage. You can argue that it is not "legal tender", but then neither is USD at your local gas station.

Buffett: " The value of any asset is the present value of the free cash flow it will deliver to it's owners over time. "

The only possible cash generation from a Bitcoin is to sell it at a higher price to a bigger fool. Pretty soon you run out of fools and then your left with the recent scenario of a steady return to reality and near zero value. Just like the tulips.

They are therefore worthless !!

Charlie Munger summed it up at Berkshire Hathaways's annual meeting - Like trading turds in a dementia ward.

I am not a bitcoin believer - but your approach to it as an "asset" if flawed.

The more rational bitcoin supporters consider it a currency , not a future cash flow producing asset .
Conventional currency does not always produce cash flow ; gold certainly does not - yet it has been around for a while ..

Like gold?

you cant make crypto into jewellery or use it in the manufacturing of electronic components or in the building industry.

Gold has real world value and a niche market

what can you do with a crypto? its nothing more than a glorified travelers cheque

Art, classic cars, stamps, antiques???

The problem is Libertarians loathe the state for its oppression of liberty but need the state to ensure the excessive liberty of others doesn't encroach on their liberty. Bitcoin etc were invented to free money from the oppressive power of the state, but it needs a state to regulate it and control it to make it viable. The eternal existential crisis of the Libertarian. Must be hard for them living with this constant contradiction. Mind you anarcho-socialists on Left have completely unworkable ideas about power structures and decision-making beyond a small scale community as well.

Blockchain and cryptocurrencies are related but completely separate matters, being the later just one of the many applications that the former has. In this article it seems that they both are predestined as a whole to fail, however it's much more complicated than that, many other blockchain based (in many of its flavours) solutions are just starting to show up and the technology is a breakthrough if you understand how it works. Of course banks never liked the idea of decentralization but hey, who are we to criticize them.

I know Roubini has some notoriety, but this article is still an embarrassment.

Take for example: blockchain has not even improved upon the standard electronic spreadsheet, which was invented in 1979.

Right. So for decades we have sought for a solution to the double spending problem, and then a completely innovative solution comes along, and it's just a spreadsheet?

Roubini: there is no institution under the sun – bank, corporation, non-governmental organization, or government agency – that would put its balance sheet or register of transactions, trades, and interactions with clients and suppliers on public decentralised peer-to-peer permissionless ledgers.

No they wouldn't. Did anyone say they would? I get so tired of these strawmen attacks. The whole point of the blockchain is that we don't need these intermediaries in many cases. It's just another middleman that the internet is making obsolete.

Roubini: With the value of Bitcoin having fallen by around 70%

Just looking back at the past 5 years, I could write stories that the NZD has fallen 40% against the USD. The NZD was all a scam!!! Same for all these other stories. The fact that there are currencies, Zimbabwe, Venezuela, the majority in fact, are pretty worthless, doesn't mean currencies have no value or are a scam in general.

Roubini: Yet far from ushering in a utopia, blockchain has given rise to a familiar form of economic hell.

Economic hell? How exactly? No backup is provided of this "economic hell" bitcoin holders or companies are in supposedly. Yes, there's greed! Yes, there's concentration of wealth! Pretty familiar features right.

Roubini: And, unlike with real money, once your crypto wealth is hacked, it is gone forever.

Anyone in NZ has ever tried to revert a credit card transaction? Good luck with that.

I hope interest.co.nz can publish higher quality critiques of bitcoin in the future.

So says a hard core libertarian such as yourself. I'll bet with Roubini he has a winning streak backed by logic.

Austrians? not so much, in fact close to utter failure.