“Beyond the Bitcoin Bubble” - Paul Krugman Commentary on New York Times Article

The January 16, 2018 article by Steven Johnson (https://www.nytimes.com/2018/01/16/magazine/beyond-the-bitcoin-bubble.html) has been summarized by Nobel Prizewinning economist Paul Krugman in a thread posted to Twitter on January 21. Since he has not published this as an article, here is his thread, with links he included.
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1. “This is a really helpful article, but fairly hard to read (and i don’t think I’m dumber than most readers). But maybe I can offer an analogy that I find useful; no doubt crypto guys will tell me I still don’t get it, but here goes.
2. “As I see it, cryptocurrencies like Bitcoin are in effect like digital gold coins, in the sense that they can't be counterfeited. A gold coin is worth its weight in gold, no more, no less; if you're suspicious, you can bite it to make sure
3. “Cryptocurrencies use cryptographic techniques plus distributed storage to create non-material entities that are nonetheless impossible to fake. You don't have to worry whether a Bitcoin is a *real* Bitcoin.
4. “It can, however, be stolen -- just like real gold coins. You can take precautions, but you can do that with gold coins too --or for that matter with money in your bank account, which is also nonmaterial http://fortune.com/2017/12/08/bitcoin-theft/
5. “The questions you should ask are (1) what problem does this clever solution solve? (2) what determines the fundamental value? As far as I can tell, there are no good answers to either question
6. “Cryptocurrency lets you make electronic transactions; but so do bank accounts, debit cards, Paypal, Venmo etc. All these other methods involve trusting a third party; but unless you're buying drugs, assassinations etc. that's not a big deal
7. “And the distributed database + costly mining makes cryptocurrencies clunky and much less useful for ordinary transactions that humdrum methods -- to the extent that even Bitcoin conferences won't accept Bitcoin payments https://slate.com/technology/2018/01/the-most-important-blockchain-conference-of-the-year-wont-take-bitcoin-for-last-minute-sales.html
8. “Meanwhile, what backstops a cryptocurrency's value? Paper money is ultimately backed by governments that will take it in payment of taxes (and central banks that will reduce the monetary base in case of inflation)
9. “Gold is actually useful for some things, like filling teeth and making pretty jewelry; that's not most of its value, but it does provide a tether to reality, along with a 5000-year history
10. “Cryptocurrencies have none of that. If people come to believe that Bitcoin is worthless, well, it's worthless. Its price rise has been driven purely by speculation -- by what Robert Shiller calls a natural Ponzi scheme, in which early entrants make money only bc others buy in
11. "The Bitcoin market is also, by the way, very vulnerable to manipulation by unknown players. One of these players may have been the government of North Korea. http://voxeu.org/article/price-manipulation-bitcoin-ecosystem  https://ftalphaville.ft.com/2018/01/18/2197837/a-theory-about-the-recent-crypto-price-plunge/
12. "So the blockchain in interesting, but not yet clear whether it's useful for anything. And investing in Bitcoin still looks a lot less reasonable than investing in cold fusion"

​Krugman’s original thread can be found here.
https://twitter.com/paulkrugman/status/955102684230705158

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