Roubini on Blockchain and History

26 01 2018

The economist Nouriel Roubini is quite skilled at using historical knowledge to make sense of the present. For many years, historical analogical reasoning has appeared quite frequently in his columns. (Roubini has co-authored with a PhD historian, Stephen Mihm, which shows that he takes history seriously). Roubini’s most recent column, which is about blockchain technology, also uses historical analogy to understand what’s going on in fintech. I’m just not totally convinced he is using the tool of historical analogy well in this particular case.

Roubini writes:

Boosters of blockchain technology compare its early days to the early days of the Internet. But whereas the Internet quickly gave rise to email, the World Wide Web, and millions of commercial ventures, blockchain’s only application – cryptocurrencies such as Bitcoin – does not even fulfill its stated purpose.

I’m left wondering whether Roubini is employing  historical analogy correctly here– it took some time for the Internet to be repurposed for uses that were not originally envisioned by its creators. I’m thinking of online car dealerships, Tinder, the Internet of Things, etc. Maybe we need to give blockchain more time. Moreover, I’m not convinced that Roubini’s claim that the only use of blockchain is cryptocurrencies– isn’t the UK NHS experimenting with using blockchain to track blood donations?

Roubini tells us

Since the invention of money thousands of years ago, there has never been a monetary system with hundreds of different currencies operating alongside one another. The entire point of money is that it allows parties to transact without having to barter. 

Really? I think that there were a number of Bitcoin-style “forks” in the history of other forms of money. That’s why many currencies have a sub-unit called “the penny” that is descended from the old silver penny of medieval times. These modern units can be exchanged with each other, albeit with some difficulty, just as we can exchange the  three forked Bitcoin standards we now have.

Roubini also writes that

Until now, Bitcoin’s only real use has been to facilitate illegal activities such as drug transactions, tax evasion, avoidance of capital controls, or money laundering

We might deplore these activities as much as we decry the misuse of the Internet, and the invention of fire, by bad people but that doesn’t prove that Bitcoin isn’t going to be socially transformative.

Don’t get me wrong– I tend to agree with Roubini’s view that Bitcoin is a bubble. His use of history is much better than that of the Bitcoiner promoters who use trash historical analogies on SeekingAlpha, where investors are told that “No asset in history has appreciated so rapidly. Therefore, Bitcoin is different, thus we can expect it to behave differently, and this does not necessarily mean that it’s a bubble.” Roubini is doubtless right when he says that As a currency, Bitcoin should be a serviceable unit of account, means of payments, and a stable store of value. It is none of those things. I’m just not convinced that all of the historical arguments he adduces here are accurate.