Blockchain Journal Responds to New York Times Columnist Paul Krugman’s Dismissive Column on Blockchain
Blockchain Journal’s editor-in-chief David Berlind spots some common anti-blockchain tropes in a New York Times column written by economist Paul Krugman who, ironically, teaches a master class on cryptocurrency and blockchain. Here’s his letter to the NYT editor.
By David Berlind
Published: January 4, 2023
7 min read
In this Article
- New York Times columnist, Nobel Prize winner and blockchain masterclass instructor Paul Krugman hypocritically relies on common anti-blockchain tropes in a derisive opinion that wholly dismisses distributed ledger technology
- Citing other widely-used but now ubiquitous technologies that struggled at first, Blockchain Journal editor-in-chief David Berlind pens a letter to the New York Times editor looking to set the record straight on Krugman’s rhetoric
On December 1, New York Times columnist Paul Krugman penned a column with the headline "Blockchains, What are they Good For?" Given the column's close timing to the recent and calamitous blockchain industry events involving Sam Bankman-Fried, FTX, and Alameda Research, I was hoping for a well-researched answer given how I often appreciate so many of Krugman's other opinions, especially on economic matters. By trade, Krugman is an economist. But, spoiler alert, by the time he finished grossly misinforming the readers of the New York Times, he ended with the following knockout punch:
No doubt I'll hear from many people still insisting that I don't get it. But it really looks as if there never was an it to get.
Throughout the article, he enumerates the evidence behind the conclusion that blockchain technology is a "waste on an epic scale." He points out examples of failed projects such as Tradelens, a joint enterprise involving IBM and shipping giant Maersk that was recently scuttled. But he sadly took no time to understand how wildly different a private, centrally governed blockchain is from a public one. It's like me – barely learned in the field of economics – saying that Keynesian economics are worthless because trickle-down economics don't work. Orange, meet apple.
He cites "the few institutions that seriously tried to make use of blockchains" as having given up. I don't expect him to have attended ETHDenver or Consensus in Austin where he would have learned about the many enterprises that, after their initial explorations into digital ledger technology, are doubling down. However, at the very least, from the comfort of his living room, he could have tried Googling something other than "failed blockchain projects."
He refers to the last few years of flirtation with blockchain as a high-tech "romance" gone bad. How about all those people who got screwed, and continue to get screwed by the clever social engineers who phish them for their sensitive account credentials over SMTP; the internet's decades-old interoperable standard for email? Or the way cell phones are used to detonate deadly bombs? Or what about the sex traffickers who use the Web to exploit children? All evil.
There's no question there's a dark side to blockchain technology. But like the many other technologies that great innovators have courted for years, blockchain will eventually be judged on the greater good it will serve rather than its rogue or incompetent elements.
Krugman's coup de grace though – a common and worn-out trope used by many of blockchain's detractors – is the comparison of Bitcoin's energy consumption to that of many countries. Not only are the most interesting blockchain projects using chains other than Bitcoin as their platform, a majority of those distributed ledgers barely use a fraction of the energy that Bitcoin uses. Had Mr. Krugman taken the time to understand why Bitcoin is largely irrelevant to most of those projects (and therefore, his argument), he would have discovered that Bitcoin, unlike most smart contract-enabled ledgers, has limited provisions for creating and hosting custom business logic.
It’s impossible to calculate the damage done by a column of this sort. Somewhere, there’s a CEO of a Fortune 500 company who was about to sign off on a promising blockchain project until he read Krugman’s piece. Meanwhile, at the same time he’s profiting from his click-bait headline in the New York Times, he’s billed as one of the expert instructors of a crypto and blockchain master class on MasterClass.com, a site where celebrity teachers get some of the proceeds from site subscribers.
I, for one, am an optimist, which is why I sent the following letter to the New York Times. Hopefully, it finds its way to Mr. Krugman and he'll be open to a conversation.
I am hoping that you might pass this note along to Paul Krugman. My name is David Berlind. I am the editor-in-chief of Blockchain Journal, an independent news and information source for enterprises looking at blockchain as an application platform for certain use cases (the ones to which the capabilities of blockchain technology are uniquely suited).
Mr. Krugman stated in his recent blockchain column that "In reality, however, banks rarely steal their customers' assets." In so doing, Mr. Krugman simultaneously misinformed the New York Times audience about the potential of blockchain (as though the only function of blockchain is to keep central entities like banks from stealing their customers' assets) as well as the extent to which such abuses actually take place between central entities like banks and their communities (their customers, employees, stockholders, and other stakeholders).
A bank guarding your financial assets in a way that you would expect it to is one of multiple use cases that fall under the larger umbrella of trust. We give our money to the bank and trust that the bank won't steal it. But we also open an account with a bank and trust that that same bank won't abuse the privilege of getting to do business with us as customers. We trust that, through purposeful malfeasance or incompetence, a bank or some other business in which we've placed our trust won't betray us.
However, since the beginning of time, history has proven that when we place our trust in the hands of a few people, some percentage of those people will betray that trust. One need only pay close attention to the headlines of the New York Times and other mainstream media to realize this pattern. Most recently, for example, the Washington Commanders, an NFL franchise to which certain customers entrusted their security deposits, is facing multiple lawsuits from those customers as well as the Washington, DC Attorney General for failing to return those security deposits as required. Until those deposits are returned, a central entity appears to have betrayed the trust of its customers and stolen money that was given to the organization for safekeeping.
Perhaps we should recall the Wells Fargo accounts fiasco whereby millions of customers entrusted their money and personal information to a bank, only to have that bank maliciously betray that trust – a business decision made and managed by a relative handful of greedy bank employees – in a way that ended up costing the bank more than $4B (yes that's billion with a "B") in fines levied by various enforcement agencies.
If this letter finds its way to you Mr. Krugman, in your article you say that "banks rarely steal their customer's assets." In response, I ask what your definition of "rarely" is and why society should accept an arbitrary threshold at which the degree to which this never-ending pattern of customer betrayals is deemed acceptable, especially if it can be prevented through reasonable technological means. I can assure you that the stockholders and employees of Wells Fargo were not at all pleased to wake up one morning to the headlines of their bank's malfeasance. Or how about the various stakeholders in one of the world's most powerful financial institutions (Barings Bank) which, thanks to the decision of a single 28-year-old trader in Singapore, went bankrupt in about a day?
When a single institution – a bank, an NFL team, a credit reporting bureau like Equifax, and so on – in which hundreds, thousands, or millions of stakeholders place their faith, makes a rotten decision because of a few bad or incompetent apples, the question isn't whether that's so much of a rarity as not to keep score. The right question has to do with the manifold effect; the harm to the hundreds, thousands, or millions of stakeholders who are left to pick up the pieces, or worse, their lives.
In fact, one needs to only visit the most recent of many regularly issued press releases from the US Securities and Exchange Commission to see the results of 760 enforcement actions that recovered over $6.4B in penalties in 2022 alone (the year is not over yet). Just the idea that the SEC exists suggests that we must accept the fact that some percentage of humans, regardless of title, stature, or the faith that we've placed in them, will succumb to their dark side and cheat us.
The idea of blockchain suggests that we don't have to accept that as fact; that maybe, just maybe, after this never-ending centuries-old pattern of greed and abuse, there could be a better way to protect all of the stakeholders in these different ecosystems. It suggests that rather than entrusting decisions and business processes to the whims of certain humans, we digitally transform these supposedly trustworthy analog workflows – the ones that are wide open to human interference – with transparent, fair, and decentralized machine-driven workflows that no single central party can control, abuse, or screw up.
I would welcome an opportunity to discuss how blockchain might solve these and other problems that have plagued mankind for as long as records have been kept. Or to broker a conversation with actual practitioners who have discovered the unique value proposition of distributed ledger technology.