UpdatesDec 05, 2022

Bitcoin, cryptocurrencies and blockchain face eternal winter, claims Nobel Prize winner Paul Krugman

An American economist criticizes digital currencies

Nobel Prize winner in economics Paul Krugman warned of the possibility of a long-term cryptocurrency winter. In his recent article published in the New York Times (NYT), a well-known economist criticizes blockchain technology and its applications, citing several examples that, in his opinion, herald further declines in the entire digital currency sector.

Paul Krugman compares the cryptocurrency winter to the mythical Fimbulwinter

Nobel laureate Paul Krugman warns of the coming eternal cryptocurrency winter for blockchain-based projects, including Bitcoin and other cryptocurrency networks. In a column published last week, the economist discusses the technology's real utility and potential signs of its eventual demise.

Krugman criticizes the true utility of blockchain technology, as there are other centralized alternatives that currently work quite well.

- What is the sense?" Why go to the trouble and incur the costs of maintaining the blockchain network, and basically carrying this ledger with you every time a transaction takes place? – asked the Nobel laureate.

Krugman believes that the cryptocurrency winter may bring a complete abandonment of blockchain and cryptocurrency technologies. The last spectacular collapse of the FTX cryptocurrency exchange is to speed up the whole process. He compared it to Fimbulwinter, the winter that precedes the end of the world according to Norse beliefs. Fimbulwinter is to last three years and precede Ragnarök, i.e. the end of the world to bring about the beginning of a new order.

Signs of the collapse of Bitcoin and the blockchain

According to Krugman, there have been several signs of an imminent abandonment of the cryptocurrency market by investors over the past few months. As part of his justification, the economist cites recent position closes by several companies, such as Maersk and the Australian Stock Exchange, for their blockchain-based projects.

In addition, Krugman openly criticizes the essence of Bitcoin, stating that "banks rarely steal their clients' assets, while cryptocurrency institutions are more likely to succumb to this temptation, and high inflation, which essentially destroys the value of money, usually only happens in the midst of political chaos."

Similarly, Krugman draws attention to proof-of-work (PoW) consensus. The economist estimated the damage the Bitcoin algorithm caused to the environment and said it should be counted in the tens of billions of dollars, with no visible benefits other than the production of "worthless tokens."

However, this opinion differs from the one expressed on May 20, 2021. At that time, the Nobel Prize winner stated that although he does not believe in the foundations behind Bitcoin, he is sure that this market is "a cult that can last indefinitely." In June, he compared cryptocurrencies to the housing bubble and the subprime mortgage crisis, saying that "this is a house built not on sand, but on nothing at all."