Nouriel Roubini, a left leaning economist who has replaced Paul Krugman as the bitcoin basher, and Vitalik Buterin, ethereum’s inventor, debated the merits of crypto at Deconomy currently on-going in South Korea.
Roubini opened with the usual arguments of cryptos being volatile, inefficient, non-scalable, with price manipulations, pump and dumps, fake volumes, constant hacks, and fraud in ICOs.
Antony Lewis, Research Director at R3, then asked Buterin what he thinks is the value of cryptos.
Buterin begun by stating censorship resistance is one aspect. He mentioned the rise of corporate censorship which at time is done in collaboration with the government as shown by Operation Chokepoint.
Another aspect is making payments to contractors all over the world. “For me, it’s been great,” he said in regards to making international payments with crypto.
Cryptos do have genuine conveniences which might be stronger for people that engage in unconventional activities, Buterin said, but also apply to everyone.
“I don’t think crypto payments for criminal activity is going be the future of it,” Roubini said, adding they’re not anonymous and even for cryptos that try to be anonymous like Monero, kleptocratic governments will make sure your wallet is registered.
Lewis highlighted their potential use for transferring value without fear of confiscation. He pointed out that Buterin is Russian Canadian while Roubini was born in Iran and lived in Turkey.
One can transfer value out of the country with crypto, using say zero knowledge proofs which are harder to detect, with Lewis highlighting that there is a cold war ongoing between cryptographers and law enforcement.
Buterin said there is a tech cold war: people trying to evade systems of control and ppl trying to create them.
After the internet launched, there were national restrictions on sites, people used VPN, then there’s the stories on file-sharing. Offline, surveillance cameras are popping up everywhere, resisting authority is going to become more difficult.
Allan Friedman for example says that privacy offline will become harder and harder, but online there are different battlefields, the rules of the game are different.
Roubini said there are good reasons for the government to know of you financial activities. We hear of these billions in off shore tax heaves. The government can’t tax capital, so they end up taxing labor.
Roubini then argued no government, whether western countries or in emerging markets, will allow anonymous cryptos. “US won’t allow crypto to become the next Swiss bank account,” he said.
Buterin said there were some misconception as even if we assume total privacy will become possible, in practice people get caught for tax evasion because they report a yearly income of $20,000, but have five mansions.
He gave further examples, including say a 10% sales tax on cookies. The shop keeper currently can keep records and if there is an audit he can show the 10% sales tax has been paid. With zero knowledge proofs, Buterin said, this can be done automatically and authorities can see such payments were made if they’re going through an audit, but no one else. Only counterparties know.
Roubini turned his head when Buterin gave that example, with the questioner moving to crypto centralizations.
Cryptos are not scalable, Roubini said. Scalability requires some degree of centralization. Can’t have thousands of computers recording all transactions.
Due to the economies of scale in mining, there is an oligopoly, he said, and that can allow them to charge heavy fees.
There is massive centralization of exchanges and no one is using decentralized exchanges (dexs), Roubini said, with significant inequality due to the centralization of wealth and development is centralized, he said.
In regards to wealth centralization, Buterin said one address can hold the funds of many people or one individual can have many addresses.
There are definitely some real concerns, Buterin said, but they’re an artifact of the tech as it exists in 2019, rather than inherent.
The trilemma didn’t come with mathematical proofs, Buterin said, not impossible to have scalability and decentralization and security, but it is very hard.
There is sharding, Buterin said, which increases decentralization and scalability, there’s Plasma, state channels, all actively being developed.
In regards to dexs, Airswap is one example where the game is changing, Buterin said, as Airswap is extremely convenient.
Proof of Work (PoW) is not scalable, continued Roubini. Proof of Stake (PoS) was suggested in 2013 and it’s still not out. Two years away. Plus, PoS is more centralized: more stake, more power, Roubini said.
Now there’s all this Casper, sharding, getting even more esoteric, Roubini said. You just can’t have a system that is scalable and decentralized because I can’t have on my computer all these transactions.
People say there are solutions, but I don’t believe it, the economist said.
Cosmos has a live running PoS since about a week ago, Buterin said. Eth2.0 has testnet, gone launch soon.
Regarding the trilemma and verifying all transactions personally, you can rely on different loopholes, Buterin said.
You can verify many transactions without running the computations. With zero knowledge proofs, one person checks validity and then all others can easily verify, Buterin said.
Roubini’s expression at this point seemed to be suggesting it was all going over his head. A bit like a literature student in a maths class.
The discussion returns to an area more comfortable for Roubini. Buterin said that issuing new cryptos doesn’t lead to hyperinflation of existing one as printing a crypto that people care about and assign value takes significant and a growing amount of effort.
The bar to have a crypto that maintains its value keeps increasing, Buterin said.
Roubini argued that the dollar has lost 95% of its value over the past 100 years, but cryptos lost 95% of their value in one year.
The problem is not too much inflation, Roubini said. Venezuela And Zimbabwe are an exception. The problem is there is low inflation, no one debasing anything, Roubini argued.
I don’t think avoiding inflation in USA is a reason people hold crypto, Buterin said. One part is political diversification. People talk of a fractured world, there is political risk.
Cryptos are early stage assets, over time we can expect volatility to decrease, but not too much – gold and stock markets are still volatile, Buterin said.
The discussion turned to IMF potentially adding bitcoin and other cryptos to a basket of currencies.
“No central bank is thinking of holding crypto as a reserve asset, they want to issue a digital currency,” Roubini said.
Not as pessimistic about central banks holding crypto, they do hold gold, Buterin said. Don’t underestimate the power of memes. Gold is a meme he argued, and memes elected Trump.