Turkish-American economist, professor and blockchain/crypto skeptic Nouriel Roubini spent the 25-minutes allotted him as an opening speaker at BlockShow Vegas this week systematically taking down the sacred cows notions of blockchain crypto.
Roubini also had choice words for so-called utility tokens, which he characterized as suited only, by design, for, “gouging consumers.”
Professor Roubini was dubbed “Dr Doom” when he predicted the global economic crisis of 2008.
He has a PhD in economics from Harvard and has consulted for the IMF and World Bank and advised in the U.S. Treasury Department.
Roubini began his BlockShow talk by thanking organizers for hosting him. Blockchain and crypto conferences typically feature mainly commercial presentations and few critics.
Roubini began by summarizing the gist of his arguments.
First, “Bitcoin and cryptocurrencies are the mother and father of all bubbles, a bubble that has already burst…”
Roubini was referring to Bitcoin’s precipitous 2017 price decline from $20 000 USD last December to $6000 USD in June -a 70% reduction, tracked closely by a 90% reduction in the price of alts like XRP and Litecoin in the same period.
Roubini also cited a recent study that found that 81% of ICOs (initial coin offerings) are “total scams,” with the remaining 19% “failing.”
“It’s a crypto-apocalypse,” he said.
Roubini’s second argument was: “blockchain is probably one of the most overhyped technologies ever… (with) the amount of hype vastly exceeding what are going to be the applications of it.”
Roubini acknowledged that “a finance revolution” is underway, but said, “It’s (a) Fintech, (a) Fintech revolution.”
“This revolution has nothing, nothing to do with Bitcoin and cryptocurrency.”
The finance revolution underway is instead a combined product of AI/Big Data and the Internet of Things converging, said Roubini, and while it, “is leading to a revolution in payment systems, in credit allocation, in insurance, in capital market activity, even in asset management … all these have nothing to do with blockchain and nothing to do with crypto.”
Roubini then began a volley of emphatic attacks on logic, design and practical problems in blockchain and crypto and misconceptions about central banking:
- ‘Cryptocurrency’ term a misnomer: “These are neither money, nor currencies,” said Roubini. At present, no cryptocurrency is being used consistently as a unit of account, meaning no things are priced in it; a viable unit of account must also be one common currency, “not thousands.”
- Cryptocurrencies are not viable means of payment: few transactions are being done in any cryptocurrency compared to fiat.
- Nor are they a reliable store of value: a currency must be a stable store of value with stable purchasing power over goods and services, said Roubini; today, any retailer is forced to immediately cash out into fiat, “or in a matter of a day you can lose 20%…”
- Scalability requires centralization: Bitcoin’s slow transaction speed of 5-7 transactions per second cannot be overcome, Roubini believes, without a “concentration-risk” that would produce centralization and insecurity.
- Central banks have done more to stabilize economies than wreck them:
“There is also a lot of misunderstanding of financial crises…(with) the conventional wisdom in this industry that…financial crises are caused by reckless central banks who are printing money. The reality is that asset and credit bubbles inflation/deflation were occurring even before central banks were even created, and they were actually more more violent, more virulent and more severe before central banks were created…(which) were created to stabilize crises and stabilize prices…(S)ince we have created fiat currencies…the extent of these financial crises are much less than before,” said Roubini. - Bitcoin’s written-in-stone economic policy of limited supply doled out like clockwork means it cannot function as money, which must have an adjustable supply: “Yes, bitcoin has a stable, long run supply so it cannot be ‘debased,’ but in any economy, a currency has to grow as much as nominal GDP otherwise in the long run you have deflation.”
- A viable currency must be sanctioned by society: “If you don’t have the support of the society for you currency…you have boom and bust and financial instability.”
- Bitcoin’s supply may be limited and deflationary, but there is a flood of other cryptocurrencies being printed that are undermining it: Cryptocurrency printing could rival quantitive easing initiated by central banks.
- Decentralization is a total myth: “Proof-of-work” is decentralized but not scalable. Vital Buterin has been promising “proof-of-stake,” but “It’s all talk, it’s all vapourware…(The) whole space is massively-centralized…at the level of miners…exchanges…developers…The top five miners in the world control 70% of the mining…I met the CEO of the largest mining operation in the world and he told me nonchalantly, ‘Well, we mine 25% of Ethereum and 40% of bitcoin…’ And who are those miners? Can you trust them? In places like China, in Belarus, in Russia?…and when we move from proof-of-work to proof of stake its going to become even more centralized, an oligopoly…”
- Decentralized exchanges have not materialized, and cryptos are dictatorships: “There’s been all this talk of decentralized exchanges- nobody’s using them….Vitalik Buterin is called ‘a benevolent dictator for life’…’Code is law’ in theory…but when something goes wrong, you do a fork. When the DAO collapses, ‘Sorry we’re gonna change the code’…It’s a system totally arbitrary.”
- Smart contracts are dumb: “People talk about smart contracts. These are not contracts and they’re not smart…” because contracts need to be interpreted by humans…”so the idea that code is gonna judge on it’s own is ridiculous, and it’s not smart because its full of bugs. 10% of those lines of code…are actually buggy- so they are not even smart.”
- The risks in crypto are great: Regular banking has insurance, bail outs, a secure system. “Crypto? Zero, zero insurance.” Dozens of 51% attacks have happened on small coins in the past year; no recourse if you lose your private keys.
- Slow materialization of promises is, “Not ‘Growing Pains’- it means crypto is failing: Truly disruptive payment systems scale, said Roubini, are secure, and get cheaper. Crypto’s slow development is not a matter of growing pains, “with things to work out before it takes off.” Crypto is failing, and, “transaction costs are rising, not falling.”
- ICOs are “non-compliant securities”…with none of the consumer protections granted to investors of registered securities. “Probably the only one that is not a security is Bitcoin.”
- Crypto is not “the new internet”: “When you have a technology that is truly disruptive, adoption is exponential.” An online world accessed by thousands of tokens, each with its own discreet online ‘ecosystem’ is an inconvenient world. “From an economic point of view…a world of having thousands of tokens makes zero, zero economic sense.”
- A token is the hallmark of a “cartel”: “No firm would ask you first to buy tokens to buy its goods and services rather than using fiat currency. The only reason you would ask someone to first buy a token (is) if you want to form a cartel to gouge the consumers and restrict the ability of others to compete,” said Roubini. “Either these are cartels to gouge consumers, in which case they are illegal -anti-trust would not allow it- or otherwise there is no economic logic to it.”
- The crypto space is rife with manipulation (pump and dump schemes, spoofing, wash-trading, front running and fraud) and most exchanges are in conflict of interest: Roubini notes, “massive amounts of self-interest and conflict of interest by exchanges who can front run their investors and own customers.” He also mentioned Bitfinex propping up the value of Bitcoin (by issuing tether ‘stable coins’). “No wonder the SEC says there is no way we are going to approve the ETFs, when there is massive (academic) evidence of manipulation,” he said.
“So after a decade of all this talk about cryptocurrencies, what do we get?” asked Roubini, as he concluded.
“75% of those dapps are things like CryptoKitties or pyramids and ponzi schemes or casino games. I’d rather go to Las Vegas…”
Roubini then doubled-down on his dismissal of enterprise blockchain, “the most overhyped technology ever,” claiming banks, at the behest of shareholders, have conducted thousands of failed experiments with blockchain, proving that the tech is “total nonsense.”
“And why is it total nonsense? It’s because there is no standard protocol like there was with the Internet. There’s no HTML, no HTTP. There’s a total chaos- total incompatible systems of one sort or another,” he said.
“Why would any firm anywhere in the world want to put…his spreadsheet on a public ledger…on hundreds of thousands of individual computers?”
“The reality is the only systems that are going to work are going to be private rather than public, permissioned rather than permissionless, and based on a trustee…approving these transactions.”
“But even if you have a private permissioned blockchain, what is it? It’s just a glorified spreadsheet.”
“Enterprise DLT is just doing a bigger spreadsheet, and at the end of the day…it’s like the old system.”
Nouriel Roubini calls #Blockchain the most over-hyped technology ever