It's official: Krugman says crypto "sca

Investment Analysis Clubs Macro Economic Trends and Risks
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The root of this at first is Ethereum’s NFT contracts that allow digital content creators to establish higher value “originals”, if you will.

I don’t think that is possible. The value of anything, literally anything, is what a willing buyer will pay to a willing seller. The only thing that can change “value” is willing buyers and willing sellers. The medium of exchange can’t do it. Oh, and this is independent from any expenses in the transaction - the willing buyer still knows the total price they are willing to pay including all expenses. Same for the willing seller - they know the net price they want to receive for what they are selling.

It’s possible - but again, the key is that the NFT isn’t the artwork.

It’s sort of like star registries. You know - the services where you can pay some money and have a star named after someone, often as a gift? They’re not actually selling you the star, of course - and they’re not actually selling you any official naming of the star. They’re just selling you the ‘name’ of the star that they maintain in their book of stars. The star itself has zero economic value and can’t be sold, but the listing in their copyrighted book of stars is an original thing that can be sold and has some economic value:

https://www.washingtonpost.com/news/capital-weather-gang/wp/…

That’s kind of what NFT’s are, in my understanding. The economic value of being the owner of a piece of digital art may be very low (because the digital art is not protectible or usable in any way) - but the economic value of being listed on the ‘official registry’ on the Ethereum block chain as the “owner” of that piece of digital art might have a different value. IOW, when you buy an NFT, you’re not buying ownership of the art, or even a copy of the art - you’re buying the right to be listed on that blockchain as the individual who owns the art. Just the entry on the blockchain. But the value of that entry on the blockchain might theoretically have a different value than the art piece itself.

Albaby

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42

albany writes:
Unless there’s something very weird about your personal situation, you’re still using USD currency. You’re not using actual physical paper bills or coins, but all of your transactions are denominated in USD, and that’s the medium of exchange your credit card card company and banks and merchants and everyone else is using. No, there is zero chance that they’re ‘turning it into Bitcoin’ somewhere on the processing end. It’s going to be dollars all the way down.

So your position is that the currency that the price is denominated in is somehow primary? Regardless of what is happening to make the transaction go through? Seems like a very shallow view to me. So when I buy something denominated in Euros or RMB with a credit card it’s different in an important way? Kind of nonsensical, I think.

Your point that “nobody cares so long as it’s functioning reliably” is exactly Krugman’s point, believe it or not. He’s pointing out that unlike the USD or Euro or other currencies, which are widely used in a whole host of transactions, there’s no legitimate use case for crypto that isn’t already completely being filled by something that’s already “functioning reliably” and much more efficiently.

Krugman is pretending that nothing new is useful because he doesn’t like the new thing. How did he feel about creation of the Euro? It did nothing that wasn’t already being done just as well by existing currencies. All that really differed was who controlled it. His argument is BS.

-IGU-

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43

IGU: While you make some reasonable points, you missed one big one: all of those other specie have some stable anchor attached. Usually it’s a country, but sometimes it’s a bank, and in the old days it could even be a hardware store or a barber shop. Sure those can, and sometimes did fail, but at least there was some anchoring mechanism to provide a measure of confidence behind the currency.

And cryptocurrency will, if it proves useful, find some way to become sufficiently stable. You make it sound like you believe cryptocurrency has nothing to anchor it. My position is that it has exactly the same thing anchoring it as fiat currencies: trust. When people lose trust, the currency loses value.

In the last 12 months over $1 billion has been lost to fraud via crypto, not including its use in illicit or illegal activities. Surely that’s a gigantic proportion, unmatched by traditional, or even untraditional (specie) currencies in all but the most extreme circumstances.

What? You are unaware that credit card fraud is in the many billions per year? Cryptocurrency is to credit cards like airplanes are to cars – big spectacular crashes, but much safer overall. Well, maybe not safer in many senses, but trying to use $1B in fraud as scary is kind of silly.

-IGU-

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44

The root of this at first is Ethereum’s NFT contracts that allow digital content creators to establish higher value “originals”, if you will.

The uses for all of this are very important to millions of content providers and hundreds of thousands if not millions of collectors of all sizes.

But why do you need blockchain? Let me put it another way: If digital original content providers–be it artists, musicians, journalists, etc–weren’t getting paid, then nobody would be creating digital content. Yet they are. Original works can be copyrighted, and copyrights can be sold or licensed.

Digital works of course can be pirated and the content used for free, but NFTs can be pirated too. For example:

https://thenftbay.org/top.html

As albaby informs us, the copyright doesn’t necessarily transfer with the NFT. This appears to be especially true for subsequent owners because transferring copyright requires a signature.

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How did he feel about creation of the Euro? It did nothing that wasn’t already being done just as well by existing currencies.

Actually that’s not true. The Euro replaced a dozen or more local currencies and eliminated the “skim” of currency exchange when traveling or trading within the “Eurozone”. That’s a big improvement in efficiency.

intercst

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46

So your position is that the currency that the price is denominated in is somehow primary? Regardless of what is happening to make the transaction go through? Seems like a very shallow view to me. So when I buy something denominated in Euros or RMB with a credit card it’s different in an important way? Kind of nonsensical, I think.

Yes, it is different in an important way. A credit card transaction is basically a contract, and the terms of the contract set forth the obligations of the credit card issuer to pay the merchant in a specific denominated currency (in this case, USD) and the cardholder to pay the card issuer in a specific denominated currency (likewise). The parties are all agreeing to conduct the transaction in a specific currency. They’re doing it using USD rather than DogeCoins because the USD is a more reliable currency than DogeCoins.

Krugman is pretending that nothing new is useful because he doesn’t like the new thing. How did he feel about creation of the Euro? It did nothing that wasn’t already being done just as well by existing currencies. All that really differed was who controlled it. His argument is BS.

He had some concerns about the Euro, but (like most Euro-skeptical economists) they were primarily centered around the thing that that you acknowledge really differed - who controlled it. Variations on the theme of how you could have a common currency without a common government, since some (many?) of the policy decisions that affect the common currency have a political dimension and will have different policy impacts in different nations.

http://web.mit.edu/krugman/www/euronote.html

It appears you disdain Krugman (perhaps he wrote/said something negative about Tesla or Musk in the past?), but that doesn’t mean his criticism about crypto is wrong simply by virtue of the fact that it came forth from his keyboard.

Albaby

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It appears you disdain Krugman (perhaps he wrote/said something negative about Tesla or Musk in the past?), but that doesn’t mean his criticism about crypto is wrong simply by virtue of the fact that it came forth from his keyboard.

I don’t particularly disdain Krugman, any more than any economist. I’m just disdaining his opinions on something he knows nothing about. His blather comes down to “I don’t understand you kids today” and “get off my lawn”. Or, if you prefer “You call that music? What I listen to is so much better.”. If he’s ever said anything about Tesla or Musk, I don’t know about it. Why would I care?

They’re doing it using USD rather than DogeCoins because the USD is a more reliable currency than DogeCoins.

Well, there you go. You admit that it’s completely arbitrary, with only the endpoints cared about by the people using the system. Now take the next step. Say that when I pay that merchant with my credit card she tells me that it will come to $20 USD and then runs the transaction on some device. I don’t have any idea, nor do I care, about her relationship with whatever credit card processor she deals with, nor what currency she might ultimately receive. All I care about is my end and my relationship with my credit card issuer, who promises to (sort of, sometimes) cover me if I’m scammed.

I’m truly not paying in USD, I’m paying using a currency (credit card) with more stability and better guarantees against fraud. It’s perfectly possible (especially if the merchant is in El Salvador or Ukraine) that they’re transacting in Bitcoin or other cryptocurrency. But why should I care? What they’re doing is no doubt what works best for their business.

The notion that fiat currency is somehow “special” or “different” is simply because it’s an older, more comfortable consensual fantasy. Lose faith in either and they go poof! It’s happened over and over.

-IGU-

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48

You’d be adding up numbers for decades. LOL

There are only 30 DOW companies at a time and they don’t change that often…just 57 times in the last 100+ years. Most of the companies go for many years without new stock offers, etc.
Someone so inclined could do this.

Mike

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Well, there you go. You admit that it’s completely arbitrary, with only the endpoints cared about by the people using the system. Now take the next step. Say that when I pay that merchant with my credit card she tells me that it will come to $20 USD and then runs the transaction on some device. I don’t have any idea, nor do I care, about her relationship with whatever credit card processor she deals with, nor what currency she might ultimately receive. All I care about is my end and my relationship with my credit card issuer, who promises to (sort of, sometimes) cover me if I’m scammed.

But it’s not completely arbitrary. That’s the point. The merchant isn’t being paid with Credit Card Coin, or some other currency - the merchant has requested payment in USD. The reason she has requested payment in USD is because that’s the currency she wants to have been given once the transaction is completed. Not Ether, not Osmo, not DogeCoin - USD. The customer (for the most part) wants their obligation to the transaction to also be denominated in USD, because (assuming a US customer) that’s the easiest currency for them to use. It’s a stable, entrenched incumbent currency - because it’s so unbelievably secure as a store of value and medium of exchange.

You don’t care about the mechanism by which US dollars are moved from you to the merchant. But that doesn’t mean that the denomination of the transaction in a specific currency is arbitrary. It’s a deliberate choice by the participants. That’s the point - the endpoints matter, and because the endpoints are denominated in a specific currency, the transaction ends up being denominated in that currency. And it’s denominated in that currency because the parties care about the currency they send and receive.

That’s one major reason (Krugman argues) crypto doesn’t really have a solid use case. We’ve already solved for electronic transactions using U.S. dollars, with a system that’s very dependable and sort-of sometimes protects you from being scammed. Why switch? What’s the benefit to moving away from dollars to crypto? What does crypto do that dollars can’t?

I’m not just asking that rhetorically - if you’ve got an answer, I’d love to hear it. I haven’t been able to figure out what the benefits are yet…

Albaby

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50

I’m truly not paying in USD, I’m paying using a currency (credit card) with more stability and better guarantees against fraud. It’s perfectly possible (especially if the merchant is in El Salvador or Ukraine) that they’re transacting in Bitcoin or other cryptocurrency. But why should I care? What they’re doing is no doubt what works best for their business.

That’s incorrect. The currency is USD. Your credit card company pays the merchant in USD and sends you a bill denominated in USD. And you pay the credit card bill by transferring USD out of your bank account. Every step of the transaction is USD. 100% guaranteed your credit card company never changes it into Bitcoin.

Even in El Salvador where Bitcoin is legal tender along with the USD, almost no transactions involve Bitcoin. The legal tender designation is very important because that means wages and taxes can be paid in Bitcoin. A central theory of money is that the government can require taxes to be paid in the government-issued currency, which validates the government-issued currency. Legal tender status validates Bitcoin as money. Or at least removes that barrier from adoption.

To promote Bitcoin use, El Salvador created an digital wallet called Chivo to facilitate Bitcoin transactions (hey, who cares that Bitcoin is supposed to be decentralized, we’ll just use a government app) and gave everyone $30 bonus in Bitcoin in the Chivo wallet to encourage adaptation. The bonus could only be spent as Bitcoin. Chivo supports storing and using either dollars or Bitcoin in the app. The government also provided things like discounts for gasoline and such for paying by Bitcoin in the Chivo wallet. Additionally, the government created Chivo ATMs to make Bitcoin transactions even easier.

A follow up study concluded that almost no one uses Bitcoin for anything. People don’t use it to pay taxes, send remittances, the vast majority of merchants don’t accept it, etc. in any meaningful way. Most people who downloaded the app spent their $30 and then stopped using it altogether.

https://bfi.uchicago.edu/wp-content/uploads/2022/04/BFI_WP_2…

The reasons for this familiar are simple. Bitcoin was designed by people who have no understanding of what money is or how it works. Because of Bitcoin’s critical design flaws, it can’t really ever act as money even with strong government support. It really is simple as that.

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51

It’s a deliberate choice by the participants. That’s the point - the endpoints matter, and because the endpoints are denominated in a specific currency, the transaction ends up being denominated in that currency.

Could be two currencies. I pay my rent in Portugal with a US credit card. The seller has two options, US$ or Euros. His price is set in Euros so that’s what he charges. My account with the CC is in US$ so the CC converts the Euros to US$ AND charges an extra “FOREIGN TRANSACTION FEE” of 3%.

Anything that people accept as money is money. If you can’t pay with crypto-currency, it’s not money. Why make it more complicated than that?

The Captain

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52

Every step of the transaction is USD.

Could be TWO legal tender currencies but no crypto…

https://discussion.fool.com/it39s-a-deliberate-choice-by-the-par…

The Captain

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My account with the CC is in US$ so the CC converts the Euros to US$ AND charges an extra “FOREIGN TRANSACTION FEE” of 3%.

You should should look into updating your CC. Nowadays, there are a number of cards with no annual fee and no foreign transaction fee. At least for US domiciled folk.

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If digital original content providers–be it artists, musicians, journalists, etc–weren’t getting paid, then nobody would be creating digital content.

Syke6,

Huge outlier but Vincent van Gogh never got paid.

There are very good artists making tiny amounts of yearly income.

Digital art is endless copies. The NFT contract creates an original. Just as the negative of a photo was where the copies originated. Digital photos have far less value as just copies.

Marketing in the art world depended on offering canvas and paints with the word “original” as a marketing description. In the 1960s marketing with the word “original” meant new ideas.

The difference is that an NFT can exist with that value term original for centuries. Wealthy collectors amass their collections as intergenerational wealth.

Yes speculators exist. In fact speculators add value and liquidity and the NFT market is very exciting.

We are in a down market. If you know a lot about this it is an exciting time to buy low and possibly lower.

55

There are only 30 DOW companies at a time and they don’t change that often…just 57 times in the last 100+ years. Most of the companies go for many years without new stock offers, etc.
Someone so inclined could do this.

Mike

Mike,

If you are looking at their market caps and the daily trading over decades…??? Money into them…it is reasonable to ask if anyone wants to add up all those trades somehow considering what I was responding to…

56

Anything that people accept as money is money. If you can’t pay with crypto-currency, it’s not money. Why make it more complicated than that?

The IRS sees it as a capital gain or capital loss unlike USD. It is an asset in that light.

As an asset it is going through exchange systems as a bartering of sorts. You can exchange it for USD.

57

But it’s not completely arbitrary. That’s the point. The merchant isn’t being paid with Credit Card Coin, or some other currency - the merchant has requested payment in USD

Yes, it is completely arbitrary. You have no idea how or what the merchant is being paid. Your assertion here about USD is entirely fabricated.

That’s the point - the endpoints matter

No. My endpoint matters to me. The merchant’s endpoint matters to the merchant. What happens in between matters to the service/network and not to either me or the merchant. The entire process is somewhat clunky by design in order to provide a variety of guarantees, and for historical reasons.

As it turns out, cryptocurrency can be used to cut out the middleman and make the whole process faster and cheaper. More like cash, but natively digital. Of course, various tracking and guarantees go away. It’s not something any of the currently players want to see, at least not until they’ve positioned themselves to benefit. This is why you see so much confusion and opposition. But truly, it’s not particularly different from fiat currency in that it’s all worthless in and of itself, and what gives it value is that it works and people trust it. As you’ve pointed out regarding the Terra UST stablecoin, if it ceases to work its value rapidly disappears.

Y’all have grown up with USD so you trust it and think of it as “real money”. But it’s really just a comfortable shared fantasy that you trust. Cryptocurrency is just as real, but it hasn’t settled down yet because it’s so new.

-IGU-

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Igu

All fiat currencies can tax their constituents.
No cryptocurrencies can tax their constituents.
Therein lies the faith behind the fantasy.

J k

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You should should look into updating your CC. Nowadays, there are a number of cards with no annual fee and no foreign transaction fee. At least for US domiciled folk.

When a service has been as reliable as my AA-Citi card for over 30 years and has solved problems that other cards were not even willing to consider, I don’t mess around for a few dollars.

When I bought my boat some 25 years ago I forgot to take my checkbook with me to Florida where she was being readied for the sail to Venezuela. The first leg to Key West and Puerto Rico proved to be a demolition derby, even the wheel fell off! We bought some parts in Puerto Rico and all three of my American cards bounced – maxed out. The fellow with me had a Venezuelan card and I told him to forget it. He tried and it was not accepted.

No cash, no checkbook, all cards maxed out.

I had three cards, one from a Japanese/American bank. I call them up, told them my problem and they said, “Make a deposit and you can keep on using the card.” I tried to explain why that was impossible. “Sorry, make a deposit.”

The second card was an AT&T card. Same story as above. I’m getting nervous…

The third card was the AA/Citi card. I tell my story and the lady at the other end of the line says, “Let me check what I can do for you. Please hold on.” I wait for what seems an eternity and the lady finally is back on the line. “Sir, your new credit limit is $2,000” Not quite understanding the meaning I ask a few questions. When reality sinks in, ‘I’ve got a thousand bucks to get me home,’ I blurt out, “I LOVE YOU!!!”

BTW, I now have a 5 figure credit limit to get me out of jams if ever again I have one.

It’s a mutual love affair!

The Captain

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60

Yes, it is completely arbitrary. You have no idea how or what the merchant is being paid. Your assertion here about USD is entirely fabricated.

Hey, it was your hypothetical. You’re the one who postulated that the merchant was quoting her prices in USD:

"Say that when I pay that merchant with my credit card she tells me that it will come to $20 USD and then runs the transaction on some device. "

You didn’t say 20 ETH or 20 SOL. There’s a likely reason you just defaulted to USD (more below), but if the merchant is quoting you a price in dollars, then payment in dollars is what has to happen to complete the contract on offer. You can always try to negotiate payment in another currency - but that’s not what is being offered to you.

Y’all have grown up with USD so you trust it and think of it as “real money”. But it’s really just a comfortable shared fantasy that you trust. Cryptocurrency is just as real, but it hasn’t settled down yet because it’s so new.

But that’s wrong as well, for two major reasons. The first, as pointed out upthread, is that you can pay federal taxes in USD. Which is hugely important - it creates a minimum of about $4 trillion in demand for the currency, which isn’t nothing in an economy of about $22 trillion. And the declaration of USD as legal tender is probably also binding on state governments as well (and likely on private parties). Which means that unlike Terra (or SOL or ETH or BTC) it is legally impossible for demand for the currency to fall to zero under our current system.

The second is that it matters that “we all” have grown up with USD and all trust it and it isn’t new. You have 150 years of past practice in people accepting USD as a currency. Literally the entire pricing infrastructure of the United States, every financial and economic system we have, is built around the USD. That’s a big reason why when tossing off a hypothetical transaction with a merchant (again, your hypothetical), you just defaulted to USD without thinking about it. That’s a massive amount of trust (or inertia or groupthink or whatever) that makes it exceedingly unlikely that prices for goods and services would ever stop being quoted in USD.

That’s an important part of what makes a currency “real.” It’s certainly true that if everyone just decided that Ethereum was as “real” as USD, and everyone started quoting prices in ETH as well as in USD, that ETH could complement (or even one day replace) USD - but that’s an “if” that is enormously contingent. Whereas with the USD, we know that everyone in the U.S. economy accepts USD as payment, we know that domestic taxes can be paid with USD, we know that the entire economy is currently structured around the USD.

Could you try to replicate that? It would take an enormous investment (which BTC and ETH and other crypto enthusiasts are trying to get people to make), but at best you just end up with a second currency. And that’s what crypto-skeptics are trying to tease out - there doesn’t seem to be any practical use case for having that second currency, other than facilitating criminal transactions, that isn’t already ‘solved’ by the existing currency.

Albaby

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