Paul Krugman predicts collapse of crypto currencies

Expressing his scepticism about the value of cryptocurrencies Nobel Prize winning economist Paul Krugman has said that  “total collapse is a real possibility”.

In his opinion on New York Times, Krugman, a vocal critic of the digital currency, has given a two-fold explanation outlining his scepticism and said that cryptocurrency, despite its cutting-edge technology, has “set the monetary system back by 300 years”.

Highlighting the transactional cost cryptocurrencies carry, he said, “Set against this history, the enthusiasm for cryptocurrencies seems very odd, because it goes exactly in the opposite of the long-run trend. Instead of near-frictionless transactions, we have high costs of doing business, because transferring a Bitcoin or other cryptocurrency unit requires providing a complete history of past transactions. Instead of money created by the click of a mouse, we have money that must be mined — created through resource-intensive computations.”

Krugman, who was awarded the Nobel Prize in Economic Sciences in 2008,  goes on to note that in the future, while there might be a “potential equilibrium” where only Bitcoin — out of all cryptocurrencies — survives simply for use in “black market transactions and tax evasion,” the reality is that “disappointment will probably collapse the whole thing.”

According to the economist, the value of cryptocurrency is merely a bubble which will burst once people lose faith in it.

“Cryptocurrencies (in comparison to fiat currency) have no backstop, no tether to reality. Their value depends entirely on self-fulfilling expectations — which means that total collapse is a real possibility. If speculators were to have a collective moment of doubt, suddenly fearing that Bitcoins were worthless, well, Bitcoins would become worthless.” argued Krugman.