John M. Cunningham
Columnist
Cryptocurrencies are privately developed and maintained digital products for making and accepting financial payments and protecting wealth. They are intended to replace government currencies, such as the dollar-based currency provided by the U.S. Treasury. By far the most widely accepted and used cryptocurrency is Bitcoin, introduced in 2009. Millions of individuals and entities worldwide hold or have held investments in Bitcoin, and tens or hundreds of thousands of individuals and entities engage in Bitcoin “mining” (the process of creating new Bitcoin by solving computational puzzles). Bitcoin is an official currency of El Salvador; Texas Governor Abbot is proposing Bitcoin mining as the means to finance the much-needed winterizing of the Texas power grid; and Josh Mandel, a Trump disciple seeking the Republican Senate nomination in Ohio, says that he believes in God, family, and Bitcoin.
Because of Bitcoin’s potential value as an investment and for use in personal and business transactions, every New Hampshire businessperson should have at least a basic understanding of it, and, in particular, of its pros and cons. For example, how should New Hampshire business owners respond if their customers offer to pay them for their products and services in Bitcoin?
Among the best-known American critics of Bitcoin is Paul Krugman, the Nobel Prize-winning economist who writes twice-weekly op ed pieces for the New York Times. Dr. Krugman’s key thoughts about Bitcoin are briefly summarized below, and these thoughts generally apply to all of the hundreds of other types of cryptocurrencies currently promoted in the U.S. and globally. However, this column is non-partisan, and I take no position about the validity of Dr. Krugman’s thoughts about Bitcoin. In a future column, I will summarize as best I can the strongest arguments supporting Bitcoin.
Dr. Krugman’s key thoughts about Bitcoin:
Bitcoin is intended to function as a substitute for U.S. federal currency, but to date, there is virtually no evidence that it is actually doing so to any significant degree.
Bitcoin is intended to provide flexibility, protection against inflation and other financial advantages that U.S. federal currency and accepted technologies like PayPal cannot provide. However, no one has ever given any credible proof of these alleged advantages.
Like subprime housing investments in the early 2000’s, investments in Bitcoin are dangerous, especially for unsophisticated lower-income investors (who are apparently the major Bitcoin investors). In recent years, many Bitcoin investors have lost their shirts, and these losses are likely to continue in the future. And because Bitcoin currency is sometimes used by “bad actors”—e.g., drug dealers and Ponzi schemers—and because it is intended by them as a means to avoid federal and state taxation, the U.S. government and other national and state governments may eventually outlaw Bitcoin and other cryptocurrencies. Not a promising prospect for prudent investors.
In many respects, Bitcoin is like gold. Try buying a car with gold ingots—or with Bitcoin.
Bitcoin reflects a belief that personal independence, not shared responsibility with fellow citizens through federal and state governments, is the best way to meet important personal and social needs. But there is vast evidence to the contrary.
Bitcoin mining requires enormous electrical energy. It thus represents a serious attack on the environment.
Is Dr. Krugman right? You be the judge.
These articles are being shared with partners in The Granite State News Collaborative. For more information visit collaborativenh.org.