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‘Dr. Doom’ Roubini Doubles Down On Bitcoin (BTC) Bubble Quip

Bitcoin Still The Father (and Mother) of Market Bubbles

The recent crypto market has only imbued long-time Bitcoin cynic, economist Nouriel Roubini, with more strength. In a recent interview, the Stern School at New York University professor, also known as Dr. Doom due to his relentless cynicism towards certain markets, explained this subject matter.

He explained that from his standpoint, the “while crypto space is one of [those] asset [classes] that are not really money.” Backing his call, he went on to bash cryptocurrencies as a whole, noting that they are neither a currency/viable medium of exchange or a proper store of value. Although some would beg to differ, especially with the supply cap of Bitcoin and the impending Lightning Network, Roubini added that as BTC fell from $20,000 and $2,000, he’s still sure the cryptocurrency is the “mother and father of all bubbles.” Dr. Doom added that the fact that many asking for his advice on Bitcoin “did not even appreciate the difference between stocks and bonds or types of markets, or the basics of credit and interest rates” was an evident red flag that something was amok.

Thus, the New York-based economist concluded that investing in cryptocurrencies and Bitcoin is much like gambling or overtrading a fad.

Roubini Also Waving Legacy Market Red Flags

In the same interview, Roubini also touched on the fact that by some measures, the legacy market could be entering a precarious territory. The economist noted that while it is unlikely that a global recession is inbound, current macroeconomy conditions could be considered “mediocre,” as the world may enter into a phase of ” synchronized slowdown.” He added that nations in the European Union may start to “sputter towards something weaker than their level of potential economic growth,” presumably touching on the tumult that the eurozone has gone through with Brexit, the Yellow Vest movement, and other societal imbroglios.

He added that “excessive debt” is present in the corporate world. Interestingly, he noted that as long as the economy continues to grow at a steady rate, the build-up in debt could be justified. Yet, he made it clear that if there is a further slowdown, the levels of corporate debt could enter a “danger zone,” along with household debt across the U.S. and abroad.

Funnily enough, some argue that this, or a downturn in traditional markets due to high levels of debt to be more specific, could be good for cryptocurrencies, namely Bitcoin. Travis Kling, the chief investment officer of Ikigai, has explained on multiple occasions that BTC is a perfect hedge against irresponsible monetary practices, arguably exemplified in the swelling levels of debt the world over. Per previous reports from Ethereum World News, Kling, a former portfolio manager at Steven Cohen’s Point72 Asset Management, noted that the monumental rise of employed quantitative easing (QE) strategies is “how you would write the script” for the adoption of cryptocurrencies, especially ones that tout a decentralized nature.

Photo by Dawid Zawiła on Unsplash

The post ‘Dr. Doom’ Roubini Doubles Down On Bitcoin (BTC) Bubble Quip appeared first on Ethereum World News.

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Better Than Corporations: Layoffs in Crypto Are On the Rise, Still Lower Than in Other Industries

Job cuts have become a reality in the crypto industry – but they pale in comparison to the biggest corporate layoffs in history.

Since Bitcoin hit its all-time high of $20,000, the dominant cryptocurrency has seen more than an 80 percent decline in value from that historic milestone over the past 12 months.

The popularity of Satoshi Nakamoto’s Bitcoin pioneered the way for other projects to explore the possibilities of blockchain technology. The brightest minds pushed the boundaries, which gave birth to Ethereum, Ripple and other projects that have provided new and unique use cases for distributed ledger technology (DLT).

Their success set the bar high, but that also led the way for a swathe of projects being launched which sought funding from initial coin offerings (ICO). Not unlike the dot-com bubble of the 1990s, hundreds of millions of dollars were raised by projects with half-baked ideas, and now it seems as though the hens have come home to roost.

According to a report published in July 2018, over 1,000 ICOs had been declared ‘dead’ while bigger projects began to slim down their operations to ensure they remain cost-effective and profitable.

Tightening the belt

Over the last two months, a couple of businesses have announced that they would be streamlining their operations.

At the beginning of December, a blockchain software startup and incubator ConsenSys headed up by Ethereum co-founder Joseph Lubin, announced plans to restructure its business.

Lubin revealed the plans in a letter to the staff of the company, calling the new chapter in the company ‘Consensys 2.0.’ It reportedly entails a more revenue-driven approach.

“We must retain, and in some cases regain, the lean and gritty startup mindset that made us who we are. We now find ourselves occupying a very competitive universe […] to ‘succeed wildly’ […] we must recognize that what got us here will probably not get us there, wherever ‘there’ is.”

Given that ConsenSys invests and helps startups building applications on the Ethereum blockchain, Lubin also made it clear that the company would become far more rigorous with projects under their care and wouldn’t hesitate to dissolve projects that may have looked promising at their inception.

As far as staff cuts go, ConsenSys has confirmed that it would reduce its workforce by 13 percent.

As a crypto industry investor Anthony Pompliano summed up in a recent newsletter, Lubin has taken a tough but necessary course action to take control of proceedings in trying times:

“Joe Lubin is a smart, ambitious guy. He has been at the forefront of many technology trends and built one of the most important companies in crypto. While unpleasant, it is encouraging to see him and his team making the hard decisions to put the business in a better position for future growth. Great leaders have to make the tough calls — I’m sure this one wasn’t easy.”

Like Bitcoin, Ethereum has endured a monumental correction from highs above $1,400 in 2017. It is currently trading at around $94.

Cointelegraph has reached out to Consensys for comment but has not received in by the press time.

Worst-case scenarios

While ConsenSys is adopting what Lubin has described as a “lean and gritty startup mindset,” other companies have had to take far more drastic measures to downscale their operations.

Social network Steemit announced at the end of November that it would be laying off over 70 percent of its staff as a direct result of the severe market conditions affecting cryptocurrencies across the board.

The decentralized platform, which runs on the Steem blockchain, has felt the pinch alongside the rest of the industry. Steemit CEO Ned Scott addressed the challenges in a video, citing a decrease in fiat currency returns from STEEM sales, the platform’s native cryptocurrency, as well as the running cost of Steem’s nodes.

In addition to the staff cuts, the company is looking at a number of technical changes in order to further reduce running costs.

The harsh market climate has taken its toll, considering that Steem once had a market capitalization of over $400 million in May 2017.

Blockchain, Bitcoin jobs on the rise

Even in this harsh slump, the outlook seems positive for the space in general. According to a LinkedIn study, blockchain developers are in high demand on the platform, becoming one of the fastest-growing emerging jobs in the United States.

Over the past three years, jobs relating to blockchain, Bitcoin and cryptocurrency have been on the rise on LinkedIn.

Facebook, for one, with its chequered attitude toward cryptocurrencies, listed five openings for blockchain-related jobs on its career portal earlier this month.

These jobs seem to be extremely lucrative, given the spike in interest in the space over the past two years. Blockchain engineers are said to be earning more than $150,000 a year.

Hired’s “State of Salaries” report also noted a 400 percent increase in demand for blockchain engineers by prospective employers since 2017, all despite the bear market that has dominated in 2018.

Crypto layoffs pale in comparison

According to data from Challenger, Gray & Christmas, an outplacement company, November saw an uptick in the amount of looming job cuts in different industries in the U.S.

As a sign of the times, Challenger cited General Motors move to cut 15 percent of its workforce — which equates to around 14,000 jobs — in October, a move that would reportedly save about $6 billion.

The company’s vice president, Andrew Challenger, believes that data collected by Challenger shows that the current economic climate is not helping matters:

“Monthly job cut announcements averaged under 35,000 in all of 2017 and just under 44,000 in 2016. In 2018, cuts are averaging nearly 45,000 per month, with the last four months averaging over 55,000. This upward trend is indicative of a potential economic shift and could spell a downturn.”

In comparison to more significant job cuts around the world, the current slump in the cryptocurrency markets and ensuring job cuts in associated companies seems relatively benign.

In 2015, The Washington Post published an article that took a look at the biggest job cuts in history by some of the biggest corporates around the world, according to data from Challenger.

IBM’s layoffs in 1993 are still ranked as the highest in history, with 60,000 jobs cut. Citigroup, Sears, Roebuck & Co, and the U.S. Army each cut over 50,000 jobs at different stages, but these job cuts put most others in perspective.

An objective view

As previously mentioned, one can draw similar parallels between the rise of internet companies in the 1990s and the rise of cryptocurrency- and blockchain-focused companies from 2010 onward.

Mainstream media headlines have often proclaimed the death of Bitcoin and cryptocurrencies over the past few years.

As an article from the Guardian back in December 2000 summed up, the year the dot-com bubble burst saw around 130 internet companies close their doors, leading to around 8,000 job cuts from internet companies. However, those that survived ended up laying the foundation for the cryptocurrency and blockchain industry we have today.

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Russian Economic Minister Says BTC Is ‘Soap Bubble’ But Lauds Crypto’s Influence on Tech

Russia’s economic minister has compared BTC with a “soap bubble,” while seeing its influence on increasing tech investments as positive.

The Minister of Economic Development of Russia referred to Bitcoin (BTC) as a “soap bubble” that has has led to investors’ losses, Russian informational agency RBK reported Nov. 28.

Minister Maksim Oreshkin, speaking in an interview with RBK, noted how the the cost of Bitcoin (BTC) has decreased dramatically, referencing the coin’s rise to $20,000 in December 2017:

“When Bitcoin’s price jumped up to $20,000, and now it is lower than $4,000, we said very simple things: Bitcoin itself is a soap bubble, it deflated, that’s what happened”

However, Oreshkin also said that despite a fair number of losses among investors, cryptocurrencies “gave a positive impetus” to tech innovation. The Minister noted that many investment projects have been created within the industry of new technologies, such as blockchain, which is good for business.

Earlier this month, the chairman of the Russian State Duma Committee on Financial Market said that the country was considering issuing a state-backed stablecoin that would be a complete equivalent to the Russian fiat ruble “in a digital space,” as Cointelegraph reported Nov. 8.

Back this summer, Paul Krugman, a Nobel Prize winning economist, expressed some “scepticism” about cryptocurrencies, adding that “total collapse is a real possibility,” Cointelegraph wrote Jul. 31.

Cryptocurrency legislation in Russia still remains unclear, as the government’s main bill, “On Digital Financial Assets,” has been postponed several times since January 2018.

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Hodler’s Digest, August 13-19: Joseph Lubin Embraces Crypto Bubbles, While Playboy Gets Impatient for Blockchain

Coming every Sunday, the Hodler’s Digest will help you to track every single important news story that happened this week. The best (and worst) quotes, adoption and regulation highlights, leading coins, predictions, and much more — a week on Cointelegraph in one link.

Top Stories This Week

Top Stories This Week

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Ethereum Co-Founder Joseph Lubin Doesn’t Believe Market Collapse Prevents Growth

Joseph Lubin, the co-founder of Ethereum and ConsenSys, said in an interview this week that he doesn’t believe that crypto market slumps prevent further growth. He added that each bubble brings in a significant burst of activity, as more developers join the community. Lubin noted that the crypto market volatility can be attributed to “trader types,” i.e. speculative investors, saying that it is not necessarily an indicator of underlying infrastructure enhancement.

Playboy Sues Canadian Blockchain Firm Over Alleged Fraud, Breach Of Contact

Playboy Enterprises is suing Canadian firm Global Blockchain Technologies (GBT), alleging that it failed to integrate blockchain technology into Playboy’s online media channels. Playboy had announced in March its plans to develop an online wallet that would enable customers to use crypto and support the Vice Industry Token, with GBT announcing its participation in May. In the lawsuit, Playboy said that the firm not only failed to fulfill the requirements of their agreement to implement blockchain tech, but also omitted a promised payment of $4 million.

Turkish Lira’s Fall Highlights Rising Crypto Interest In Turkey

In an article this week, Bloomberg writes about the currency crisis in Turkey caused by geopolitical factors, juxtaposing Bitcoin’s comparatively low volatility in the country. According to data from Google Trends, interest in Bitcoin increased markedly within Turkey in August, while local exchanges have seen volumes rise by over 150 percent this week alone.

Investor Sues AT&T Over Alleged Loss Of $24 Million In Crypto Due To Phone Hacks

An U.S. investor has filed a $224 million lawsuit against telecoms giant AT&T over alleged negligence that he claims caused him to lose $24 million in crypto. The plaintiff, Michael Terpin, claims in the lawsuit that the money was stolen via a “digital identity theft” of his cell phone account. Claiming to be a victim of two hacks within seven months, Terpin points to AT&T as letting a hacker acquire his phone number without the proper identification, which later let the imposter gain access to Terpin’s crypto holdings.

US Federal Court Denies Motion To Remand Against Ripple

The U.S. District Court, Northern District of California has ruled to deny a motion to remand against Ripple, its subsidiary XRP II, and Ripple CEO Brad Garlinghouse, in a class action lawsuit alleging that Ripple sold XRP tokens in violation of both the U.S. the Securities Act and the California Corporations Code. According to court documents, the plaintiff failed to show whether the presence of a Securities Act issue was sufficient to bar the defendant from removing an action under the Class Action Fairness Act.

Most Memorable Quotations

Most Memorable Quotations

Joseph Lubin

“We’ve seen six big bubbles, each more epic than the previous one, and each bubble is astonishing when they’re happening but when you look back they look like pimples on a chart,” — Joseph Lubin, co-founder of Ethereum, ConsenSys

Michael Terpin

“What AT&T did was like a hotel giving a thief with a fake ID a room key and a key to the room safe to steal jewelry in the safe from the rightful owner,” — lawsuit against AT&T by investor Michael Terpin, who claims the telecom giant allowed hackers into his phone

Laws And Taxes

Laws And Taxes

European Parliament Works On Crowdfunding Regulations Covering ICOs

The European Parliament’s Committee on Economic and Monetary Affairs is developing new crowdfunding regulations that could extend to some initial coin offerings (ICOs), possibly bringing some ICOs within the remit of the new draft regulatory framework for crowdfunding. According to a report, the draft crowdfunding rules might not be an answer for ICO regulation, but are at the least a “much-needed step.”



Swedish Crypto ETF “Alternative” Now Aimed At US Investors

A Bitcoin (BTC)-based exchange traded note (ETN) listed on the Nasdaq Stockholm exchange is now being targeted towards U.S. investors as of this week. This “soft” ETF alternative, which has been traded on the Swedish exchange since 2015, is now being quoted in dollars under the ticker CXBTF as of Wednesday. The addition of a dollar quotation for Bitcoin Tracker One, which is still technically listed and traded in Sweden, is considered by many to be a gateway for U.S. investors.

US Square Cash App Expands Crypto Trading To All 50 States

Mobile payment company Square’s Cash App has expanded its Bitcoin (BTC) trading to all 50 U.S. states. Square had first launched Bitcoin trading in November 2017 for a fraction of its users, with the app launching for almost all users in January with the exception of those in New York, Georgia, Hawaii, and Wyoming.

Japanese Social Messaging App LINE Created $10 Million Blockchain Fund

Japanese messaging giant LINE has announced the creation of a $10 million blockchain venture fund as part of its expansion into the cryptocurrency market. The fund, which is launched via Hong Kong-based subsidiary unblock corp., contains funds from fellow LINE sister outfit LVC Corporation. The company commented in a press release that the unblock ventures’ token fund will expand in the future with the growth of the market.

US National Insurance Advisory Introduces Blockchain-Based Database

The privately held insurance advisory American Association of Insurance Services (AAIS) has introduced its blockchain-based insurance database and reporting tool based on IBM’s enterprise blockchain solution, using Hyperledger Fabric. The platform, dubbed Insurance Data Link (openIDL), intends to reduce “burdensome” statistical reporting processes, as well as cut costs and data processing time for insurance carriers.

Mergers, Acquisitions, And Partnerships

Mergers, Acquisitions, And Partnerships

Bank Of China Partners With China UnionPay For Blockchain Payment Systems

The state-backed Bank of China (BOC) and financial services corporation China UnionPay (CUP) have announced a partnership to look into the application of blockchain for payment system development. According to the announcement, the impetus to explore blockchain came as a response to market demand. The two firms plan on jointly investigating big data and distributed ledger technology deployment in order to improve mobile banking products.

Ripple Adds Three Crypto Exchanges To Cross-Border Payments Settlement Product

Ripple has partnered with U.S.-based Bittrex, Mexican Bitso, and Philippine Coins.Ph cryptocurrency trading platforms within its initiative to build a “healthy” ecosystem of digital asset exchange. The partnership will allow Ripple’s xRapid payments solution, a liquidity solution for Ripple’s blockchain-based real-time gross settlement system, to move between XRP and U.S. dollars, Mexican pesos, and Philippine pesos.

Fintech Startup Signs MOU With Central Bank of Curaçao, Sint Maarten

Barbados-based fintech startup Bitt Inc. has signed a Memorandum of Understanding (MOU) with the Central Bank of Curaçao and Sint Maarten (CBCS) in order to develop a central bank digital currency to facilitate financial payments. According to the announcement, the bank is looking to “reduce the level of cash usage within the monetary union” and facilitate more AML and KYC-compliant transactions between the islands.

Jamaican Stock Exchange Partners With Canadian Fintech Firm To Add Crypto, Tokens

The Jamaica Stock Exchange (JSE) will work with Canadian fintech company Blockstation to facilitate the implementation of digital currency and token trading on the exchange. Before the deal with brokered, Blockstation completed beta testing in Jamaica with the participating institution and five broker members participated in a live workshop with representatives from local regulators.

Funding Rounds

Funding Rounds

Crypto Startup Raises Almost $23 Million With Participation From Airbnb Co-Founder

Cryptocurrency trading platform SFOX has announced the closure of a $22.7 million Series A funding round with participation from Airbnb co-founder Nathan Blecharczyk, along with Y Combinator, Khosla Ventures, Digital Currency Group, and Blockchain Capital. The Series A funding round, led by co-founder and partner at Tribe Capital and Social Capital, Arjun Sethi, has the goal of adding cryptocurrency pairs, improving trading liquidity, and expanding into “new geographical regions.”

Blockchain Startup Axoxii Raises $32 Million With Goldman Sachs, VC Investors

Enterprise-focused blockchain startup Axoni has raised $32 million in a Series B funding round led by Goldman Sachs and Nyca Partners, with numerous other investors including Wells Fargo, JPMorgan, Citigroup, and Andreessen Horowitz. The fresh investment brings Axoni’s total financing to $55 million to date.

Winners And Losers

Winners And Losers

Winners And Losers

Total market cap is at around $213 billion after a week of ups and downs, with Bitcoin trading around $6,385 and Ethereum around $296.

The top three altcoin gainers of the week are WINCOIN, PetroDollar, TaTaTu. The top three altcoin losers of the week are InflationCoin, RabbitCoin, Niobium Coin.

For more info on crypto prices, make sure to read Cointelegraph’s market analysis.

FUD Of The Week

FUD Of The Week

US Regulator Increases Scrutiny Into Crypto Mining Firm Blockchain Riot

The U.S. Securities and Exchange Commission (SEC) has intensified its probe into crypto mining firm Blockchain Riot, a former biotech firm that changed its name to contain the word “blockchain” last year. This week’s quarterly earnings report reveals that the firm received a letter from the SEC indicating that the agency had begun to focus on Riot Blockchain’s registration statements, with the possibility of issuing a stop order preventing shares of the company from being traded until the agency considers that deficiencies have been addressed.

GPU Manufacturere Nvidia Sees Stock Price Fall Due To Decrease In Crypto Mining

U.S.-based graphics processing unit (GPU) manufacturer Nvidia stocks fell after announcing its third-quarter estimates, as the firm’s revenue was affected by a decrease in crypto mining as crypto markets have been falling. Nvidia shares declined more than five percent in the extended session. The company had reported that crypto mining sales were significantly lower than expected in Q2, adding that it does not expect to make significant blockchain-related sales for the rest of the year.

Report Shows More Than $2.3 Million Stolen In Crypto Scams In Q2 2018

A recent report from Russia-based antivirus and cybersecurity firm Kaspersky Labs states that in the second quarter of 2018, cybercriminals stole over $2.3 million dollars via various crypto scams. The report lists “crypto giveaways” as one example of the scams involved, as well as those with cybercriminals posing as being part of new ICO projects to collect money from potential investors.

“Unhackable” Crypto Wallet Sponsored By John McAfee Reportedly Hacked

A group of researchers have reportedly hacked the Bitfi crypto wallet, which Bitfi’s executive chairman, cybersecurity pioneer John McAfee, has called “the world’s first unhackable device,” a claim backed up with a $100,000 bounty for breaching the device. This week, several researchers have written online that they could successfully send signed transactions with the wallet, claiming they met the conditions of the bounty program by modifying the device, connecting to the wallet’s server, and transmitting sensitive data with it.

Best Features

Best Features

Artists Ai Weiwei and Kevin Abosch Are Using the Blockchain to Make Us Question What’s ‘PRICELESS’

Two artists address the current human rights issues around the world using the Ethereum blockchain to illustrate their examples. According to Weiwei, blockchain “is not about the technology, but an opportunity to set up a new system that could dismantle the old system, or at least offer a new possibility for communication.”

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Ethereum Co-Founder Joseph Lubin: Crypto Price Collapse Will Not Constrain Further Growth

Ethereum co-founder and ConsenSys Inc. CEO Joseph Lubin said in an interview with Bloomberg Aug. 14, that he does not see the recent cryptocurrency price collapse as a constraint to further growth.

In а recent discussion on the state of the cryptocurrency market with Bloomberg, Lubin said that the value surges of the past year were just another bubble like the previous “six big bubbles, each more epic than the previous one, and each bubble is astonishing when they’re happening.”

He added that on close scrutiny those peaks look like “pimples on a chart.” Lubin said that each bubble, such as the current one, has brought a significant burst of activity. He stated:

“…we build more fundamental infrastructure, we see a correction, and the potential gets even more impressive… I absolutely expect that there is a strong correlation between the rise in price and the growth of fundamental infrastructure in the ecosystem and the growth of development in the ecosystem. We are probably two orders of magnitude bigger as a developer community than we were eight or 10 months ago.”  

Lubin attributed volatility to “trader types,” i.e. speculative investors, saying that it is not necessarily an indicator of underlying infrastructure enhancement. When asked about how the price volatility affects him, Lubin answered:

“So we can look at the price and make growth plans and projections, and we’re still on track, basically. So this is not unexpected.”

Yesterday, Ethereum (ETH) dropped to a 9-month price low, and was trading at $288. The last time the altcoin fell below the $300 price point was in early November, 2017. This morning losses expanded to 16 percent on the day and almost 35 percent over the last week.

Currently, ETH is trading around $263, down 7 percent on the day, with a market capitalization over $26 billion.

Ethereum’s 24-hour price chart. Source: Cointelegraph Ethereum Price Index

Ethereum’s 24-hour price chart. Source: Cointelegraph Ethereum Price Index

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Nobel Prize Winning Economist Paul Krugman Expresses Skepticism About Crypto, Predicts Collapse

Nobel Prize winning economist Paul Krugman has expressed his skepticism about the value of cryptocurrencies in a New York Times Opinion piece published July 31.

Krugman, who was awarded the Nobel Prize in Economic Sciences in 2008, explains his position as a “crypto skeptic” by noting the high transaction costs and an “absence of tethering” associated with cryptocurrencies.

Krugman describes how the history of money has been slowly moving away from gold and silver coins, to banknotes, and now to credit cards and other “digital methods,” all of which served the purpose of making purchases less costly.

According to Krugman, those that celebrate cryptocurrency — which he notes has a relatively high cost of doing business — are thus “effectively celebrating the use of cutting-edge technology to set the monetary system back 300 years.” Krugman further poses the query:

“Why would you want to do that? What problem does it solve? I have yet to see a clear answer to that question.”

In regards to crypto’s lack of “tethering,” Krugman notes 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.”

The economist 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.”

Krugman concludes by noting that he could be wrong, adding a call to all crypto enthusiasts to prove his crypto skepticism false:

“But if you want to argue that I’m wrong, please answer the question, what problem does cryptocurrency solve? Don’t just try to shout down the skeptics with a mixture of technobabble and libertarian derp.”

Other well-known traditional financial figures and economists have shown similar pessimistic views about the nature of cryptocurrencies and blockchain tech. Berkshire Hathaway vice chairman Charlie Munger referred to Bitcoin this spring as “freshly harvested baby brains,” and Apple co-founder Steve Wozniak said in June that blockchain is a “bubble.”

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​​Market Mania Is Unavoidable, But Crypto Must Get Past It

Michael J. Casey is the chairman of CoinDesk’s advisory board and a senior advisor for blockchain research at MIT’s Digital Currency Initiative.

The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday exclusively to our subscribers.

The financial bubbles of 17th and 18th century Europe are favorite references for those, among both believers and detractors, who warn of the excesses in crypto-asset markets.

The events of those times long past capture the same problems of information asymmetry and irrational speculation that leave many seasoned observers concerned about this moment. The South Sea Bubble, the Mississippi Bubble, and Tulip Mania were all examples of how, during money-crazed manias, unscrupulous entrepreneurs and early investors exploit their privileged access to information to do great harm to an ill-informed investing public. This, at its essence, describes the risk inherent in initial coin offerings (ICOs).

But the historical context behind those centuries-ago events is also important: they were a direct, almost unavoidable side effect of the invention at that same time of limited liability companies, stock markets and derivatives, some of the most game-changing financial innovations of all time.

On the one hand, these inventions – spearheaded by the Dutch – created vast new opportunities for a growing middle class to engage in wild, ill-conceived speculation. But on the other, they unlocked a giant, previously unavailable pool of collective capital, offering a much more efficient way for entrepreneurs to fund their ventures.

Vast worldwide enterprises were launched on the back of these new money-raising tools. They gave us the global capitalist economy we now take for granted.

This context is important because everything that looks like investor mania in cryptoland today – the 2017 bubble in token prices, the scam coins, the vaporware, the 10-figure ICO raises without a line of code written – might similarly be viewed as the unpleasant but unavoidable side effect of a major technological transformation.

If crypto-assets, smart contracts and blockchain technology fulfill their potential to decentralize the economy, the change they promise could be just as profound, if not more, as that sparked by those inventions during the Dutch renaissance. This technology represents a radical re-imagining of record-keeping, fundraising, organizational design and of money itself.

At times like this, you just can’t stop the unsavory, get-rich-quick types.

Tech lures speculation

As I’ve noted elsewhere, if you examine moments through history when a new, general-purpose technology upended the economic order, they were almost always accompanied by periods of intensified financial speculation.

It was the case with railroads, with electricity and, of course, with the rise of the internet in the late nineties. The Venezuelan economist Carlota Perez has even argued that the social phenomena of bubbles and speculation are necessary elements in how societies fund and build the infrastructure upon which transformative technologies become entrenched in the economy.

But the opposite causal relationship does not necessarily hold true.

Tracing every moment of hype and speculation that has been associated with a new technology will not at all find that it’s always associated with the successful deployment of a powerful new technology. History is rife with supposedly “revolutionary” ideas that captured people’s imaginations but weren’t ultimately deployed in a widespread, society-altering way.

The past 50 years are full of them: the Segway, Google Glass, Betamax, the Concorde, to name a few. Note: all of these were impressive technologies and some have gone on to be important components of subsequent inventions. But for various reasons – the cost of production, marketing, fashion, etc. – they never took off in a way that matched the hype.

Gambling as a service

I was thinking about all this as I read about Augur’s impressive launch of its prediction market. In one day, its ethereum-based decentralized application processed $400,000 in bets on everything from U.S. elections to the World Cup.

The question to me is whether the initial enthusiasm for decentralized prediction markets – in which contracts can be written for payouts between parties on the outcome of any particular event – will go beyond human beings’ natural proclivity to gamble and ultimately deliver on Augur’s real promise to society: a crowd-sourced, market-based forecasting system and an incentive, reputation token model for rewarding honesty.

In this case, the market Augur is developing literally requires speculation to function. Gambling is not just a byproduct; it is integral to its success. But just because people want to bet in this way does not mean that the price discovery around their predictions will be widely used by society at large to process and value information about occurrences that matter. Only time will tell on that one.

You could ask similar questions about other sectors of the crypto industry that attract significant speculation but also represent potentially powerful, cutting-edge ideas. While I’m convinced that the underlying concepts of incentivized consensus, cryptographically secured distributed ledgers, digital assets, and decentralized exchange will succeed in some form, I see no guarantees yet that any of the various manifestations of those ideas – including bitcoin – will necessarily survive and make an impact on the world.

So, let’s ask these questions:

  • Are ICOs just enabling scammers and founders of doomed-to-failure projects to get rich on the greater fool theory of bubble-nomics? Or is this truly the killer app of blockchain technology, the one that emancipates capital from Silicon Valley gatekeepers and creates a global market for ideas?
  • Was the recent enthusiasm for Cryptokitties a fad, a crypto Beanie Babies moment, or will it go down as the vital use case that proves the value of digital scarcity and fosters markets in which producers of unique creative works can monetize them
  • Will bitcoin be forever viewed as a fanatic passion of “To the Moon” HODLers or can it truly be the foundation of a new global reserve asset and payments platform?

These and others like them are vital questions to answer if we are to ensure that blockchain technology’s vast potential plays out to the benefit of matters to society at large.

Value to society

Answering these questions comes down to how the technology itself is integrated into the wider economy.

That notion itself can refer as much to a new type of market as any other kind of technology. (The early Dutch stock markets offer a good analogy here for Augur’s prediction markets – organizational technologies in their own right.) Regardless, there still has to be broad-based value to society if the technology (and the market it supports) is to survive and prosper.

Here the history of Europe’s early capital markets is again valuable. The fallout from the disastrous South Sea Bubble didn’t kill the idea of public capital markets for funding new ventures, but it did bring order and societal interest into play. These came in the form of new rules from governments on who could issue public stock and how. From that evolved the entrenched, regulated stock exchanges and related asset markets that we use today.

This is not at all to say that government regulation must be the answer to crypto’s aspirations to go mainstream – the very concept of a censorship-resistant system tends to run counter to it. But it does mean that those of us involved in developing this technology should encourage protocols, best practices, standards and norms of behavior that have at their core the interests of society at large.

History suggests that naysayers like Nouriel Roubini who scoff at the hype and speculation in crypto communities could be blind to the major transformational moment that underpins it. But it equally offers a warning to crypto enthusiasts: don’t get lost in the hype; create something that lasts; build something that matters to everyone.

South Sea Bubble image via Wikimedia Commons.

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Bank of Finland Releases Scathing Crypto Report, Calls Digital Currency a “Fallacy”

The Bank of Finland released a paper on June 21 titled “The Great Illusion of Cryptocurrencies,” explaining why they think the concept of a digital currency is a “fallacy.”

The paper, written by Aleksi Grym, Adviser on Digitalization and Head of the Digital Central Bank process in the Financial Stability and Statistics Department. It aims to explain how cryptocurrencies’ fundamental nature “shows how poorly understood the concept of money itself still is today” and how the Internet and social media have “muddled our sense of fact and fiction.”

In Grym’s words, cryptocurrencies are not real currencies but instead “accounting systems for non-existent assets.” He makes the argument that digital ledger technologies, like blockchain, are actually the same as other record keeping systems, but that their implementation for crypto is “unrelated to the fundamental characteristics of money:”

“For all intents and purposes, that ledger is a centralised ledger. The fact that there are multiple synchronised copies of it, distributed across a network, is irrelevant, as each one has the same data.”

The article cites several studies on Bitcoin (BTC) and cryptocurrencies with relatively negative views on crypto as either a speculative instrument or a bubble whose “fundamental value is zero.” Grym also discredits the idea of a central bank issued digital currency, noting that it would “practically mean bank accounts at the central bank.”

Grym then asks the question, “again, what is money?” noting that the definition has changed over time, but that money is normally described as functioning as a unit of exchange and having a store of value and a unit of account. The article notes that money, presumingly referring to crypto, is not created “out of thin air,” but comes from liquidity transformation.

According to the article, the main impetus for buying cryptocurrencies are either for criminal activities, creating a sense of community, security against “real or imagined” state oppression, and the thrill of trading. Grym then compares buying Bitcoin to the “intangible value” for some customers that buy “toys, fashion, art, club memberships, or firearms.”

Last week, Cointelegraph published an overview of all of the “FUD” (Fear, Uncertainty, Doubt) in the crypto sphere since Bitcoin’s inception, detailing the many comparisons to the Dutch “tulip mania” as well as the multiple Bitcoin “deaths” reported in the media.

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Apple’s Steve Wozniak Calls Blockchain a ‘Bubble,’ Thinks Bitcoin Is Still ‘Just Amazing’

Apple co-founder Steve Wozniak believes that blockchain is a bubble similar to that of the dotcom era, but that it could have potential in the future, CNBC reported yesterday, June 26.

During the NEX technology conference in New York, Wozniak said that the dotcom era created a similar kind of hype around companies that did not end up delivering on their promises:

“It was a bubble, and I feel that way about blockchain.”

However, Wozniak did add that blockchain is “decentralized and totally trustworthy,” noting that it just may “take a while” for its potential to fully come to fruition:

“It doesn’t change in a day, a lot of the blockchain ideas that are really good by coming out early they can burn themselves out by not being prepared to be stable in the long run.”

Wozniak had expressed similar sentiments about the future potential for both blockchain and cryptocurrencies last month.

CNBC notes that Wozniak singled out Ethereum (ETH) as one cryptocurrency that could last in the long term, due to its versatility in allowing developers to build on its blockchain. In mid-May at a conference in Vienna, Wozniak had also compared Ethereum’s platform to Apple’s platform, stating that it could become just as influential as Apple in the future.

According to CNBC, Wozniak yesterday mentioned the possibility of using blockchain for a social network competitor to Facebook, which he said was currently working as a monopoly in the sector.

Wozniak, who had referred to Bitcoin (BTC) as “pure digital gold” earlier this month, noted that Bitcoin is still “just amazing” to CNBC.

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Co-founder of World’s Most Centralized Tech Company Calls Blockchain a Bubble

The co-founder of a company that makes billions of dollars by essentially centralizing technology has called decentralized blockchain a hyped bubble.

Apple co-founder Steve Wozniak took to the stage yesterday at the NEX technology conference in New York to talk about blockchain and Bitcoin. According to CNBC he said that the hype around the industry is similar to the dot com bubble; “It was a bubble, and I feel that way about blockchain,”

He then referred to the number of companies jumping onto the internet bandwagon in the early nineties with good intentions that went bust. This can be likened to the high percentage of failed ICO projects over the past year. Wozniak elaborated on his hyped bubble theory;

“If you look now you say all that internet stuff happened, we got it, it just took a while. It doesn’t change in a day, a lot of the blockchain ideas that are really good by coming out early they can burn themselves out by not being prepared to be stable in the long run.”

Wozniak, however, is self-admitted Bitcoin bull who sold out last year; “All of the sudden it was way down, then way up in the sky,” he said. “I got scared, and sold everything but one bitcoin.” He went on to state that Ethereum had a better ability to outlive the hype as it allows programmers to develop their own decentralized applications (dApps) to run on it.

The entire concept of a dApp goes against Apple’s core philosophy which is all about control. By locking consumers into its own ecosystem, which is governed by its own non-standard standards, the billion dollar firm can retain a tight grip of control over both its products, and those that buy them.

This is the quintessence of centralization, keeping users in a never ending loop of needless upgrades necessitated by timely and expensive product releases ensures they come back for more. Just recently the firm faced multiple lawsuits for forcing software updates that intentionally slowed down perfectly operational devices in a ploy to force users into buying the newest model. If this isn’t centralization of technology, what is?

Many have compared the current nascent blockchain and cryptocurrency industry to the dot com bubble which lasted around five years. Bubble or not, we are still in year one at the moment and there is a lot further to go, especially if consumers have the desire to move away from centralized monopolies like Apple, Google, Facebook et al.