Cryptocurrency industry responds to “Dr Doom’s” damning testimony
A balance of bemusement, concern and frustration are the order of the day.
"It is clear by now that Bitcoin and other cryptocurrencies represent the mother of all bubbles, which explains why literally every human being I met between Thanksgiving and Christmas of 2017 asked me first if they should buy them. Especially folks with zero financial literacy...
Scammers, swindlers, criminals, charlatans, insider whales and carnival barkers (all conflicted insiders) tapped into clueless retail investors' FOMO, and took them for a ride selling them and dumping on them scammy crappy assets at the peak that then went into a bust and crash – in a matter of months – like you have not seen in any history of financial bubbles."
So began economist Nouriel Roubini's Senate Committee testimony. Roubini – sometimes called "Dr. Doom" due to his prediction of the global financial crisis (which made no difference as long as there was still money to be made) and alleged desire to destroy Superman one of these days – is a dependable staple for anyone who's looking to tap into solid professional credentials and a bottomless well of zingers for on-demand cryptocurrency rants.
And yesterday the US Senate Committee decided to get an earful in the hope of learning something about blockchain and cryptocurrency.
...calling this useless vaporware garbage a "shitcoin" is a grave insult to manure that is a most useful, precious and productive good as a fertilizer in agriculture." - Roubini
Roubini's speech might be summarised as "the usual", although some of the inaccuracies make it worrying that his testimony is being presented as fact. Here are some of the highlights:
- "The new refuge of the crypto scoundrels is "blockchain", the technology underlying crypto that is now alleged to be the cure of all global problems, including poverty, famines and even diseases. But as discussed in detail below, blockchain is the most over-hyped – and least useful - technology in human history: in practice, it is nothing better than a glorified spreadsheet or database."
- "It took a century for Coca-Cola to create the new Coke and call the old one Coke Classic. But it took three years for Ethereum to dump the first ETH into Ethereum Classic and create and brand new spin-off, ETH."
- "Compare this real and ongoing fintech revolution (AI, big data, IoT) that has nothing to do with blockchain or cryptocurrencies with the record of blockchain, which has existed for almost a decade and still has only one failing and imploding application: cryptocurrencies." Note that banks themselves and institutions like the World Trade Organisation and International Monetary Fund disagree with this.
- "Given Buterin’s inconsistent trinity it will never be possible to create a consensus mechanism that is scalable while also being decentralized and secure."
- "A bunch of self-serving greedy white men – very few women or minorities are allowed in the blockchain space – have pretended to create billions of wealth out of nowhere while pretending to care about billions of poor and unbanked humans around the world. It is a total pretence as crypto-land is the most centralized scam in human history where greed for Lambos and ostentatious consumption is greater than any Gordon Gecko ever." While it's tough to measure perfectly, the blockchain space actually has more women as a percentage of the total than some other traditionally male-dominated spaces like the hedge fund industry.
- "There are hundreds of stories of greedy crypto-criminals raising billions of dollars with scammy white papers that are nothing but vaporware and then literally stealing these billions." More factually you can count the number of billion dollar ICOs on one hand, and even once you factor in all the various exit scams, exchange hacks and everything else, the total crypto scam losses are still well short of "dozens of billions".
- "The most shameful of such near-criminals is a crypto guru that was formerly investigated for pedophilia and who has put his home and operation – together with a group of crypto scammers - in Puerto Rico after a devastating hurricane that killed thousands and nearly destroyed the island. Under the high-flatulent [sic?] pretense of wanting to help... these literal blood-suckers live in super-luxury mega mansions in the island and use the island’s tax laws to enrich themselves and avoid paying their federal taxes. They are emblematic of a widespread crypto culture that shamelessly pretends to care about the billions of poor and unbanked just to enrich itself. At least the Wolf of New York had no pretense of wanting to save the world."
- "Miners are massively centralized, as the top four among them control three quarters of mining and behave like any oligopolist: jacking up transaction costs to increase their fat profit margins." Of course, miners don't control transaction fees beyond indirectly influencing it in miniscule ways such as empty block mining, so it's not clear what exactly Roubini is going on about here.
- "A recent study has shown that 'smart contracts on Ethereum are worse than even non-financial commercial code'. As of May 2016, Ethereum contracts averaged 100 obvious bugs (so obvious a machine could spot them) per 1,000 lines of code. For comparison, Microsoft code averages 15 bugs per 1,000 lines, NASA code around 0 per 500,000 lines." Naturally, this is a meaningless false equivalency. Anyone can write up an Ethereum contract whenever they want, and in many cases, it's never checked or intended to be used. It's good that NASA maintains higher standards.
- "In the Wild West of ICOs, most cryptocurrencies are issued in breach of these laws and regulations, under the pretense that they are not securities at all but rather 'security tokens'. Hence, most ICOs deny investors any legal rights whatsoever." Except security tokens are generally securities, as are ICO tokens, and the laws are being enforced accordingly. Maybe his speech was out of date.
And so on.
Roubini defends his opinions by pointing out that he can be trusted to be completely impartial because has has no stake in cryptocurrency's success or failure except for his "personal, intellectual and academic reputation". Of course, by doing so, Roubini inadvertently implies that his personal, intellectual and academic reputation isn't worth anything.
The general industry response, from many insiders, can be characterised as a mixture of bemusement and concern that people might not realise that Roubini isn't especially knowledgeable in the blockchain space. He certainly has plenty of legitimate criticisms, but these risk being drowned out by his lower-quality talking points.
Salman Habib, CEO and co-founder of Hellofriend, a blockchain social platform, says:
"We are in a battle between innovation and legislation. There are naysayers in the space who have vested interests in the existing financial systems and innovative new players that are challenging existing rules in productive ways. Blockchain technology is at the same critical point in adoption that television, film and internet once were. There is no escaping the fact that there are severe challenges that exist to mainstream adoption, but one cannot dismiss the revolutionary nature of this technology."
Ken Lang, a member of the ndau Collective, the world's first "buoyant" stablecoin, says:
"Roubini's testimony and prepared remarks offer an incorrect characterization of the cryptocurrency and blockchain space. Some of his critiques are legitimate – no one is disputing that volatility presents a barrier to cryptocurrencies becoming a true store of value. However, he ignores the potential for the industry to adapt and evolve over time. We can now create solutions by approaching economics and monetary supply in a way that traditional economists have not considered before, because they didn't have blockchain technology to solve their issues with."
Ken Nguyen, CEO of Republic, the AngelList and NEO Global Capital-backed crowdfunding platform for startups and blockchain projects, says:
"I generally disagree and find [Roubini's] damning statements mostly good for their entertainment value, but not particularly thoughtful. Bitcoin and ether are very much viable means of payment, and their "stored value" characteristics are not disputed by market participants or regulators. Any deficiency to date with respect to scalability or absolute decentralization can and will be improved over time."
Marshall Hayner, founder and CEO of Metal, a platform for consumer-grade, blockchain-based payments, investing and rewards appplications, says:
"Dr. Roubini’s presentation was disheartening to witness, and his statistics were majorly taken out of context... Dr. Roubini’s testimony today was irresponsible and rooted entirely in his own distrust of emerging technology rather than fact. Most of his criticisms, particularly about stability and scalability, are currently being remedied by many well-known companies. I applaud our federal legislators for making strides towards formally exploring what a blockchain ecosystem would look like in the United States, however it is critical that they seek input from actual industry experts, and not get distracted by doomsayers on the wrong side of history."
Mick Hagen, CEO of Mainframe, a blockchain-powered network enabling censorship-resistant data transfer, file store and transaction management, says:
"Dr. Roubini's comments today, specifically that there is no potential for institutional integration of blockchain technology, are completely unjustified. This year we've seen exploding interest from legacy financial institutions to find ways to work with, not against, adoption of blockchain’s immutable ledger. Roubini's recommendation that financial services rely on permissioned databases – technology from the 80s – reflects a school of thought that places strangleholds around innovation and competitive advantage in the global economy."
Kalin Stoyanchev, project lead and head of blockchain at RNDR, a blockchain-based graphics rendering platform, says:
“Blockchain technology is much more than just a 'glorified database'. It provides the ultimate luxury for users, companies and institutions – trust. Centralized infrastructures are easy to use and widespread today, however, they lack the element of indisputable and consensus-driven trust in the overall system. Blockchain is still in its early days – naturally, there will be some scams and bubbles here and there as there were in the early Internet days, or really any young industry. However, as a whole, blockchain represents the next revolution in the tech space, and can even help alleviate issues surrounding social change, resource allocation and countless other fields.
Zach Warsavage, North American strategist of Elastos, a decentralised smart-web operating system, says:
"Congress needs some serious education on this new technology, and fast, before other countries take the lead on an industry that will not only make the vast majority of our processes and industries more efficient, but will also create jobs, grow the economy and become a global mechanism of trust. It is time for the United States to lead on blockchain – not fear it."
Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VET, XLM, BTC, ADA