'Dr Doom' Nouriel Roubini attacks cryptocurrencies as 'the mother and father of all scams and bubbles,' & labels blockchain 'the most overhyped technology ever'

Nouriel Roubini.

Nouriel Roubini, professor of economics at New York University and famous for foreseeing the 2008 financial crisis, has delivered a scathing attack on cryptocurrencies and blockchain.

"Crypto is the mother and father of all scams and bubbles, a bubble that has finally gone bust this year. Blockchain is the most overhyped technology ever and is no better than a glorified database," Roubini told a US Senate Banking, Housing & Urban Affairs Committee Hearing on Cryptocurrencies and Blockchains.

"This entire asset class is literally imploding now," Roubini, known as “Dr. Doom," continued.

"These assets are not currencies. Calling them cryptocurrencies [is] nonsense. They're not a unit of account, they're not a means of payment, they're not a stable store of value. Bitcoin can do only five transactions per second, Visa can do 25,000 per second."

"Crypto-mining is also an environmental disaster as the system wastes massive amounts of energy," he said.

"The crypto ideological utopia is a libertarian dream of full decentralisation of all human transactions. No governments, no central banks, no corporations, no banks, no trusted institutions, It's totally utter nonsense."

Also speaking before the Senate Committee was Peter Van Valkenburg, Coin Center’s research director, who has a very different view to Roubini.

"It [bitcoin] is working and working without trusted intermediaries, which is amazing," Van Valkenburg said.

"It's a computer science breakthrough and it will be as significant for freedom, prosperity and human flourishing as the birth of the internet. And bitcoin is just the beginning."

Roubini, however, said "Cryptoland" is now subject to the opposite of a libertarian utopia being "massive" centralisation.

"Mining is centralised and controlled by oligopolies in authoritarian countries like China and Russia. Trading is centralised, there's 99% of all transactions occur on non-secure centralised exchanges that are being hacked on a daily basis," said Roubini. 

"Development is centralised as the technological elite is police, prosecutor and judge. They arbitrarily change the code and fork coins into new ones when things go wrong. And wealth is massively concentrated in Cryptoland. The Gini coefficient of inequality for bitcoin is worse than North Korea. That's quite an achievement."

He went on to talk of massive price manipulation, widespread pump and dump schemes, insider trading, and "massive criminality."

"ICOs [initial coin offerings] associated with security tokens are non-compliant securities that break all securities laws. They are mostly scams and even the SEC [Securities and Exchange Commission] created a fake website to warn investors of such initial coin scams," Roubini said.

"Utility tokens and widespread tokenisation would mean a return to the Stone Age of barter. Even the Flintstones knew better than crypto as they used clamshells as their own currency."

"Corporate blockchains or so-called enterprise VLT, are glorified databases and they have nothing to do with blockchain. They are private rather than public, they are permissioned rather than permissionless, they are based on [the] trust of authorities verifying transactions rather than being trustless," said Roubini.

"They're not distributed on millions of computers but rather on a few selected controlled ledgers and databases."

"In summary they claim to be blockchain but they've nothing to do with blockchain, and 90% of all corporations experimenting with them have decided that they are no better than traditional databases. If they are more costly and less efficient than data bases they will not use them. Only 1% of CIOs [chief information officers] say that there will be any adoption of VLT in their organisation, and 80% of all CIOs have no interest in this technology," Roubini added. 

"It's no wonder as no organisation, government, corporation or bank would ever want to put on a public permissionless, distributed trustless ledger all of its transactions with customers and suppliers. It doesn't make sense and it's not going to happen."

Roubini starts speaking at about six minutes and 43 seconds on the video below, and is followed by Van Valkenburg.

Below is a tweet from Roubini.

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39 Comments

Paper money is backed by people's faith and people's faith is backed by technological advancement, military mighty, business agility and social stability.

Indeed. recalling the definition of 'language' as a dialect with an Army and a Navy (and these days, no doubt, an AirForce, a crypto-capability and a space presence...)

Fiat currency is backed by government taxation. You can use the NZ dollar the NZ government issues to pay your taxes. It is more than some ephemeral idea of trust. It is the legal force of the IRD to make your life a misery (throw you in jail) if you don't pay up that means you want NZ dollars rather than pipi shells.

Yes, the Bitcoin blockchain is a database, a decentralized database you can't bend to your greedy will.

"Crypto-mining is also an environmental disaster" - no, it's not, it's monetizing excess power. All the printing presses, cotten, inks, bank buildings, lights, armored cars, ATMs, etc have a worse effect on the environment.

"Development is centralised as the technological elite is police, prosecutor and judge. They arbitrarily change the code and fork coins into new ones when things go wrong.

People are free to use whatever crypto-currency they wish. It just so happens that the best cryptographers and technologist in the world are developing Bitcoin, unlike banks that regularly get hacked .. the Bitcoin network [not exchanges] has never been hacked. Also, nodes and miners all [majority rules] have to agree to running/updating/installing code changes.

What things have gone wrong with Bitcoin? I'm sorry you don't like software upgrades, guessing you're still running Windows 95? Not a currency? Strange that Bitcoin has currency pairs and hundreds or currency exchanges.

This guy sounds nuts.

Careful Zack, it’s sounds like your almost advocating freedom there. All jokes aside, I agree with what your saying. Especially about the bending to your will. Printing money is just that, politically convenient rent seeking behaviour.

I made returns in the order of 1:10^4 and would never extol Bitcoin or any block-chain's virtues. Only fools are caught up in the block-chain hype.

The world's best cryptographers do not develop crypto-currencies. Their hashing algorithms are atomic functions used inside of it, RIPEMD160 and SHA in the case of BTC.

BTC is also likely responsible for more GHG emissions than the PKI crypto systems used in hierarchical trust-modelling which secures most banking today. It is very inefficient to use miners to provide proofs of work in such a way, the trust modelling of block-chains is not appropriate for the banking sector.

It's a solution searching for a problem to solve. Although it is an interesting experiment.

"that the best cryptographers and technologist in the world are developing Bitcoin" This guy sounds nuts. He is completely tech illiterate if he believes any of what he states. The world's best security researchers are laughing at the crazy assumptions of those whose brought into the myth of Blockchain cryptocurrencies being secure. In fact evidence points to it being far more susceptible to technological failures & fraud. But go on, espouse the fact you totally brought into the 100% perfectly secure myth. It is great to have a good laugh at someone so poorly educated in tech security even retirees out of the industry are more on the ball when dealing with online exchanges & investments. Yeah you brought into a myth that many saw coming, you probably would have also been caught up in the dot com bubble as well while those in tech were laughing at the money dropped for literally no technological development or value. Go on check the tech comments on the stuff, we are having a field day with types like you. Like the goose that keeps of giving away their golden eggs.

Without acceptance as a currency by governments cryptos were always going to fail. And thats not going to happen as it is just a speculators bubble based on nothing useful in real terms.

IMO They will all eventually pop and revert to their true value - zero!!!!

Issues are arising

https://ambcrypto.com/bitfinex-pauses-usd-deposits-after-bitcoin-btc-dro...

Have they failed? Cryptos are used as a means of exchange on the dark web. Also, I would say that far more USD has been used in nefarious activity than crypto.

You’re right. Except one of them is morphing in to a protocol rather than a currency, that has potential to replace the current data transfer protocols that we rely on to provide us the internet, email and all things digital. The protocol also includes the concept of economic clustering, potentially allowing governmental entities to issue their own digital currency in to a given economic cluster. In the future money will just be another form of data. As a side note, go take a look at what Sweden is doing with eKrona.

The real value is not zero, but it is orders of magnitude lower than the market value in my view. Crypto currencies are hard currencies. There is a cost to produce and dead cats bounce.

To be fair dropping to zero is still not likely, well at least not the dead coins. Think of the scale of money laundering, drug purchasing use, pump and dump schemes, and people dragged into investment fashion hypes, they don't drop to zero. Beanie babies did not disappear or become free, neither did worthless tech companies from the dot com boom completely disappear. Neopets are still kicking the bucket and likewise so will cryptokitties. With the same approach of bringing out more versions in the same ethos as a heroin dealer. There are addictive personalities who do remain hooked (often displayed in other industries as well), so much so these people could even forgo basic living tasks to remain hooked (lose their homes, lose their jobs, lose their families). Given the target pool of new fish is larger than the standard investment market the pool of those likely to become addicted is much larger as well (especially given the lack of technical and financial education needed to engage). Hence for those playing them on a large scale the opportunity is still going to be there to make some money off them for a while yet. They just need more media prods to their echo chambers which is still easy even with the ad bans. In addition many lower level bots are easy to game. So while it may look like a solely human draining human process in many respects it is a bot draining bot approach with humans dangling off either end. On top of that those making money off the system don't store the bulk of value in their cryptocurrencies, instead moving bulk portions to less turbulent waters. So they could in essence seek to protect their income by holding the value up with their reserve cash to keep it dragging on to a degree. Why kill the golden goose when you can easily get it to keep laying golden eggs.

What does he think about directed acyclic graphs with no mining, minimal environmental impact and almost infinite scalability that well surpasses the cited visa rate as an alternative to blockchain? Do you think he’s even aware that exists? Do you think he imagines that’s just a database too? The day a decentralised technological institution replaces centralised institutions (banks, lawyers, accountants) that currently exist simply to reduce uncertainty for humans (and machines) to trade data and value, really will be a revelation.

If there is no mining who controls the issuance of this crypto currency?

directed acyclic graphs? The grade school concept used in teach yourself programming assignments with encryption thrown on top. Yeah not much of a grand scale idea, even compsci students would say you have been smoking too much meth to even think that was revolutionary. The structure & uses have been around longer than personal computers and databases. If you think it is a revelation to just be learning about them now then I think I could write you off as charity work. You are trying to sell copied code from Git as a shiny new idea, and I can tell you now, you can polish a turd but it will still stink.

Zero mention of Ripple and XRP, which is not decentralization, but is already being implmented for payments.

http://www.rttnews.com/2941292/sbi-ripple-asia-launches-blockchain-money...

I own XRP and agree with Roubini that it might be completely worthless. Regardless, I can see the benefits for the user and I can see how it can take the power back to some extent from the finance industry,

.

Well let rip with your opinion why dont you....LOL.

"The crypto ideological utopia is a libertarian dream of full decentralisation of all human transactions. No governments, no central banks, no corporations, no banks, no trusted institutions, It's totally utter nonsense."

I don’t know why he thinks it’s utter nonsense. This would give power back to individual citizens in such an important way. Imagine having something the government couldn’t touch or devalue. Everyone other than full blown socialists and communists should be all for it. Sounds great really.

That depends on whether a currency should be a means of exchanging goods and services or a means of maintaining value. It sounds like you don’t want the total money supply to be increased as the economy grows. Without that there will be serous deflation. And then the currency won’t be used much for purchases because the longer you wait the more you can buy.

BTC carries the deflation spiral risk because of the finite supply engineered into it. There are other crypto-currencies which relate the supply to participation level, market capitalisation and other interesting metrics.

Hi Jimbo, why does it have to be a means of exchange or a means of maintaining value? It should be both. I think your reasoning is due to your impression of deflation? In relation to that:

“Joseph T. Salerno (2003) argues economic growth has occurred in periods of deflation. The Austrian School’s broad understanding of deflation is underscored by the four definitions offered by Salerno (growth deflation, cash-building deflation, bank credit deflation, and confiscatory deflation). Keynesians, by contrast, define the phenomenon more narrowly, equating it with a negative Consumer Price Index (CPI) and economic contraction. The purpose of this note is to argue that economic expansions have occurred in periods of negative CPI, and to challenge Keynesians to improve upon their narrow definition of deflation.”

There have been examples of economic growth during deflationary periods as well as the opposite. Money that holds its value is probably of the most importance for me (and also throughout history). I would rather prices be determined by the supply and demand of goods and services, not by money creation. It would also stop a lot of rent seeking and negative inequality which are currently the biggest issues we are facing as a society.

I’m not convinced that money holding value is that important. There are plenty of other ways of achieving this such as buying assets / shares / gold / commodities / etc.
Money is primarily a method of trade. And for those of us in civilised countries, it’s been working pretty damned well for a long time. I think the only people that have problems with the current form of money is those that have something to hide.

Hi Jimbo, it’s only been a relatively short time since our money has been backed by nothing. Before that and throughout history it has by and large been backed (mostly by gold of coarse).
For what you said about money not needing to hold value, think about it. You are forced to buy things so value can be held, those transactions are taxed somewhere along the line. If you don’t buy, your money is devalued via a tax by inflation method. Money inflation is a control mechanism to direct what you do with the rewards from your labour. It is designed to keep you working and consuming to keep the economy “growing”.
I don’t have anything to hide and I have big problems with our current form of money as I’ve pointed out in the above. Please don’t be suckered into thinking that, it’s like the saying “Those who would give up essential Liberty, in pursuit of safety deserve neither Liberty nor Safety.” I don’t like that we’ve given up up liberty our liberty in exchange for someone else’s idea of financial stability/safety (which is not stable anyway).
Haha there’s a rant for Saturday :)

Money is backed by nothing you say? The why the US dollar over the Argentinian?

The backing of gold is a fallacy..what good is gold when you don't have the biggest gun?

Deflation sounds nice - prices getting lower, the value of your money going up, Pigou wealth effects.... until you realise that your debt burden has just got a whole lot larger in real terms as your income has shrunk in nominal terms. So you hoard more cash and growth stalls. Businesses don't invest because the future returns with falling prices mean the burden of debt they take on might well get bigger. Imagine if you'd borrowed in Bitcoin years ago when it was worth very little. And you had to pay it back today.
Money is a social technology based on credit - not a commodity.

Hi cs, That for me is more or less a view of the transition period that you’ve presented. There would need to be a form of deleveraging, winding back of credit to transition to sound money. funnily enough, a deleveraging is going to happen anyway sound money or not. My hope is that we don’t keep making the same mistake and using debt/credit to pump fake growth. After our next deleveraging I really hope we will consider switching to sound money to give us a stable base to grow from. One that reflects real consumer demand, not demand artificially created through low interest rates and easy credit.

Well the Marxist in me says go for it.
The crises it will cause will only hasten the bureaucratic socialist revolution that this late stage capitalism is fated to produce anyway....
Keynes called the gold standard a barbarous relic for a reason.
If you are a sound money person I'd read this https://seekingalpha.com/article/4165048-arithmetic-austrians

Hi cs. Giving power back to individuals is the exact opposite of anything Marxist or socialist.
Keynsean policy has expedited the revolution you talk about as people fundamentally don’t understand the issue. Printing money has made the rich richer and inequality greater for no added value. At least with capitalism you have to offer something that people want to get there money and it’s also voluntary.

Might just as well be seashells

Don't forget the tulips !

The libertarian wet dream: a future with no socialists, communists or governments.

Libertarians are for small gov not no gov? That’s anarchism your talking about. Also, it’s important to deliniate social services from socialism as they are not the same (common socialism argument).
Communism is just flat out bad however, that can be resigned to the dustbin of history.

I don’t see how any blockchain could work as a proper currency. If the whole world started using a block chain currency, the value would keep increasing exponentially as people buy in. If the value keeps increasing then you would be stupid to buy anything because that money would be worth so much more in the future. It would be one hell of a deflationary spiral.
A very important aspect of any mainstream currency is that the buying power of the currency remains relatively static. I can’t see how that can occur without a central bank managing it.

This is an identified problem which is being worked on, the asymptoting of liquidity resulting from deflation has operational issues too.

BTC counts on the assumption that transaction fees will be sufficient to keep miners in the game and proving block validity. Monero (XMR) attempts to resolve this by continuing to provide emission of value after the final block is mined. So far, Monero appears to have a more stoic value but still largely hangs on the coat-tails of BTC as most do.

The spreadsheet below shows Monero's projected inflation compared to BTC:
https://docs.google.com/spreadsheets/d/1qXi7zUSIh7F6UuSuhOryyFbHEy_LJuym...

The TL;DR is XMR doesn't appear to bottom out quite as much as BTC does during it's lifetime.

Thanks Stuart - I was starting to wonder if I was the only one to have noticed this obvious problem. Will be interesting to see if any currency can come up with an algorithm that can actually maintain the buying power. Or if anyone actually wants a currency that doesn’t increase in value.

Crypto is far too volatile, illiquid and unsecure to be a real currency - It is a fad. I was in a bar in New York last year and I was talking to someone who was rolling out one the of first crypto currency futures platforms - when I asked him if he would invest in crypto he said ‘only if I’m shorting it’. Sure enough he was correct. The real winners in the crypto phase were the video card hardware manufacturers (AMD etc.) they saw the demand and price for their goods rise substantially in the grab for ‘mining’ equipment.

Dr Doom is spot on.

""It [bitcoin] is working and working without trusted intermediaries, which is amazing," Van Valkenburg said.

It's not amazing at all considering the amount of energy required to establish trust via proof of work in a trust-less network.

And I wouldn't call 5 transactions per second 'working'.