Cryptocurrencies a Failed Currency Experiment Warns Nobel-winning Economist
Craze around the thousands of existing cryptocurrencies, including bitcoin, continues strong despite warnings from investors such as Warren Buffett that they’re worthless. That mania and efforts to launch new units of money have existed in different forms since the 1800s, Shiller said.
Shiller, best known for cautioning about the housing and dot-com bubbles, stated that the early 19th century when merchants tried to substitute the gold standard with “time money.” The “Cincinnati Time Store” for example sold commodities in units of work and closed just three years after it was introduced.
Shiller wrote in a blog post-Monday:
“Each of these financial innovations has been coupled with a unique technological story. But, more fundamentally, all are connected with a deep desire for some revolution in society.”
Bitcoin and cryptocurrencies are no different, he also said. They were brought to fame by a community of entrepreneurs who, as Shiller put it, “hold themselves above national governments, which are viewed as the drivers of a long train of inequality and war.”
The mania around bitcoin today is also due in part to its mystery, the Yale University professor said.
“Practically no one, outside of computer science departments, can explain how cryptocurrencies work, and that mystery creates an aura of exclusivity, gives the new money glamour, and fills devotees with revolutionary zeal. None of this is new, and, as with past monetary innovations, a seemingly compelling story may not be enough.”
The height of the public’s attraction was also unquestionably tied to bitcoin’s sudden rise in price. The world’s first cryptocurrency rose to near $20,000 last year before dropping by roughly half of its value in the first quarter of 2018.